News

 

London close: Footsie suffers another sell-off on euro concerns

- Bank run speculation across Europe grips markets

- Barroso wants Greece to stay in Eurozone

- Moody’s could downgrade Spanish banks

Concerns over a potential bank run in Greece and uncertainty surrounding its possible exit from the Eurozone fuelled another sell-off on Thursday. Since the start of the week, the FTSE 100 has lost 4.3 per cent of its value after four consecutive days of declines.

News that Greek politicians have failed to form a coalition (sending the country back to the polls) has been weighing on equity markets over the last few days, as growing support for left-wing Syriza leader Alexis Tsipras threatens to push the country out of the Eurozone – Tsipras has maintained its hardline stance against the austerity measures agreed as part of the bailout from the European Union (EU) and International Monetary Fund (IMF).

“Confidence in the markets is unlikely to improve over the next month while Greece’s fate continues to hang on the second round of elections, dubbed the referendum on whether to stay in the euro,” said Alpari analyst Craig Erlam. “With a Greek exit more and more expected, we’re likely to see equities fall further before improving, meaning once the Greece situation is resolved in one way or another, there’ll be a lot of underpriced stocks out there,” he said.

Buying picked up slightly in afternoon trade after European Commission President José Manual Barroso told the UN General Assembly: “As far as Greece is concerned, I would like to reaffirm very clearly that we want Greece to stay in the euro area. And the EU will do all it takes to ensure it.” He added that the EU will “honour our commitments toward Greece and we expect the Greek government – current and future – to fulfill jointly agreed conditions for financial assistance,” echoing comments made earlier today by IMF Managing Director Christine Lagarde.

Last night, the Federal Reserve released the minutes of its latest policy-setting meeting, showing that members were concerned over the threats from the heightened tension in European debt markets. These concerns have been exacerbated on rumours of customers across both Greece and Spain frantically withdrawing funds from banks.

Sentiment surrounding Spain was also dampened today as its Treasury sold short-term debt at much higher borrowing costs than the last auction. Meanwhile, there were rumours that Moody’s could be downgrading the credit rating of Spanish banks later on today, a few days after it cut the ratings of 26 of their Italian counterparts.

FTSE 100: IAG down on Spanish concerns; financials sold off

British Airways and Iberia owner IAG was the heaviest faller of the day on the back of concerns over the Spanish economy. Furthermore, major shareholder Bankia (the troubled Spanish lender which owns a 12.05% interest in the airline) was taking a battering on Madrid’s IBEX today. Although denied by the bank, there were rumours that customers have withdrawn more than €1bn from deposits since it was part-nationalised last week. The speculation earlier in the week was that the lender may need to sell its entire IAG stake in order to combat current problems.

Financials continued to bear the brunt of the ‘risk-off’ attitude seen in markets as of late with banking groups Barclays, RBS, Lloyds and Standard Chartered suffering heavy losses by the close. Insurance group Aviva fell sharply after saying that operating profit for the first quarter of the year was marginally lower year-on-year.

Heading the other way was precious metal mining groups Randgold Resources and Fresnillo as gold prices rebounded after hitting a 10-month low yesterday. Antofagasta also finished higher after seeing group turnover and EBITDA jump 38.9% and 35.4%, respectively, in the first quarter.

Interdealer broker ICAP was also performing well after UBS upgraded its rating on the stock from sell to neutral and raised its target price from 310p to 330p. ?

Energy supplier National Grid rose after increasing profits and the dividend in the 2011/12 fiscal year. However, revenues eased and capex guidance for the 2012/13 fiscal year was revised higher. ??

FTSE 250: TalkTalk surges, Kesa drops

The final results from telecoms group TalkTalk pleased the market this morning as shares jumped by 15% after the firm hit its 20% EBITDA margin target significantly ahead of schedule. Revenues slipped 4% during the year to the end of March but earnings surged. ??

Kesa Electricals suffering heavy losses after saying that trading conditions in the final quarter of its fiscal year were “weak” and “volatile”. The electrical retailer said that continuing group revenue in the period between January 9th and April 30th fell by 5.9% on a like-for-like basis, mainly due to a 30% decline in its Vision division (TVs, DVD players, etc.) following the digital switchover last year.

 

 

CO2 Would Help EU Debt Crisis, Former Ministers Say

“Carbon and energy taxes can produce better economic results than conventional taxes, as well as helping to cut emissions.”

Revenue from carbon and energy taxes could cut Spain’s budget deficit by 15 percent a year by the end of the decade, according to the report.

 

 

China, India Airlines Fail to Comply With Europe’s Carbon Rules

China and India’s airlines failed to submit carbon-dioxide emissions data for 2011, rebuffing European rules that seek to expand the region’s emissions trading system to include aviation.

There has been “systematic non-reporting” of emissions to and from Europe from 10 airlines based in India and China, according to a statement on the European Commission’s website today. While airlines, brought into Europe’s carbon program in January, need to submit last year’s emissions data, there’s no obligation to hand in permits for that year.

The inclusion of flights in Europe’s ETS as of January triggered opposition from countries including the U.S., China and Russia, which said Europe should let the United Nations’ International Civil Aviation Organization decide on greenhouse- gas limits for the industry.

The Chinese and Indian airlines represent less than 3 percent of the sector’s emissions, Climate Commissioner Connie Hedegaard said. Eight airlines in China and two in India have until mid-June to submit the data, she told journalists in Brussels today. The remaining airlines reported last year’s emissions on time to meet the March 31 deadline, the Commission said in the statement. More than 1,200 emissions reports have been submitted from airlines, it said.

The EU, home of the world’s biggest carbon trading system by traded volume, decided in 2008 that aviation would from this year become a part of its cap-and-trade plan. Airline carbon- dioxide discharges in the region doubled over two decades and international organizations failed to enact pollution curbs.
Stricter Next Year

The airlines that failed to obey the rules probably won’t be penalized and instead the European Union may become more strict next year when airlines need to hand in allowances to cover emissions, according to Deutsche Bank AG. (DBK)

“The EU will be very, very flexible,” Isabelle Curien, an analyst in Paris for the bank, said today by phone. “Member States may be unwilling to instigate an operating ban” for airlines that failed to comply. An operating ban would restrict entry of airlines into Europe.

The EU may wait until airlines need to hand in carbon allowances and credits for the first time on April 30 next year, Curien said.

International carriers will be given for free emission permits making up 85 percent of the industry cap in 2012 and will have to buy the remaining 15 percent at auctions. They can also trade between each other.

 

 

EU airline carbon cash should help fill climate fund

(Reuters) – EU nations should pledge that funds from paying for airline emissions will help poor countries deal with global warming, the bloc’s climate chief said on Tuesday, after finance ministers stopped short of a firm commitment.

Crisis in Greece and the euro-zone topped the agenda at the ministers’ talks in Brussels, but they also agreed to text on climate funding, which only promised hard cash until the end of the year.

A solution for the longer term would be to “give this modest revenue back into climate financing,” Climate Commissioner Connie Hedegaard told Reuters’ Global Energy and Environment Summit, referring to cash from the airlines’ contribution to the Emissions Trading Scheme (ETS).

It could also deflect vehement international criticism of the EU’s law, which requires all airlines using EU airports to buy allowances under the ETS.

“Some thought we were just taking this money and saying it was a tax,” Hedegaard said.

“Financial ministers have started this discussion by saying it could go into this (climate funding), but through national budgets.”

The European Union re-committed to providing 7.2 billion euros ($9.4 billion) for a pot of climate money referred to as “fast-track financing”, covering the period 2010-12.

After that, a Green Climate Fund will be seeking to channel funds of up to $100 billion per year by 2020. The fund’s design was agreed at U.N. talks in Durban, South Africa, last year, but environmental campaigners say it is an empty shell.

EU economic and finance ministers on Tuesday could only agree to “work in a constructive manner towards the identification of a path for scaling up climate finance from 2013 to 2020″.

Further debate on where the funds might come from is expected at U.N. climate talks in Germany this week and next.

NATIONAL PREROGATIVE

The EU finance ministers’ text mentioned a variety of sources, both public and private, as well auctions of aviation allowances in the EU ETS.

It added it was up to each member state to determine “the use of public revenues in accordance with national budgetary rules”.

Within the EU, so far only Germany has come up with legislation to earmark ETS cash – which derives from utilities and heavy industry, as well as airlines – for environmental purposes.

The funds associated with the law requiring all flights in and out of EU airports to participate in the EU ETS are so far relatively modest as carbon allowances have sunk to record lows and initially, many are being handed out for free.

The fiercest opponents of the EU law – India and China, whose airlines missed a March 31 deadline to submit emissions data – are fighting over principle, not just cost.

India has argued the carbon charge sets a dangerous precedent and analysts have said the emerging powers are opposed to being treated on a level with developed nations, which have polluted for decades.

To resolve the row over the airline emissions law, the EU is looking to the U.N.’s International Civil Aviation Organization to come up with a global scheme for curbing the rise in emissions from aircraft, which would give the EU reason to modify its law.

The EU only came up with its carbon law because years of talks at ICAO had failed to deliver a solution for aviation emissions. Still Hedegaard said she stood by the ICAO as the way out of the current dispute.

“In politics, you should never have a B plan,” she said. “You would never get your A plan through.”

 

 

UK unemployment falls

The number of Britons out of work fell at the fastest pace in nearly a year in the three months to March, official data showed, pointing to some underlying resilience in the economy.

Britain slipped back into recession at the beginning of 2012, stoking fears that more people will become unemployed at a time when the government is relying on private firms to make up for the estimated 700,000 jobs it is shedding in the public sector as part of its austerity plan.

The Office for National Statistics said the number of people without a job on the ILO measure fell by 45,000 in the three months to March to 2.625 million.

The jobless rate inched down to 8.2 per cent, compared with forecasts for an unchanged reading of 8.3 per cent.

The number of people claiming jobless benefit unexpectedly fell last month by 13,700 – the largest drop since July 2010. Analysts had forecast an increase of 5,000 on the month.

In addition, the March figure was revised to show a drop of 5,400 in claimants from an initially reported rise of 3,600.

The figures support a relatively upbeat assessment of the economy by Bank of England Governor Mervyn King.

Average weekly earnings growth including bonuses slowed to 0.6 percent – the smallest rise since October-December 2009 – versus forecasts for a rise of one per cent.

However, excluding bonuses, pay grew by 1.6 per cent, slightly above expectations for a 1.4 percent increase.

The politically sensitive number of young people without a job dipped to 1.020 million in the three months to March, taking the unemployment rate for 16- to 24-year-olds to 21.9 per cent.

Chiming with the better data, a senior executive at John Lewis, Britain’s biggest department store, told Reuters a slow, steady recovery of the British economy was on course, a nd the group was optimistic about its own business.

Moreover, British employers plan to increase staffing for the first time in a year, a survey for the Chartered Institute of Personnel and Development showed earlier this week.

However, the CIPD warned that a zigzagging economic backdrop” could make it hard to sustain any short-term recovery in the labour market.

 

 

John Lewis raises sales forecast

John Lewis, Britain’s biggest department store group, has raised its sales guidance after outperforming a flat retail market in its first quarter and believes the economy is on course for a slow recovery, despite a recent dip back into recession.

“My gut feel is a long, slow, steady recovery that at certain points will look like a non-recovery and at other points might feel, like it has for us in the last few months, OK,” Andrew Murphy, retail director at the employee-owned chain said.

“But I suspect in five years time we’ll look back and we’ll see a very gentle gradient upwards.”

Many British retailers are struggling as shoppers grapple with higher prices, muted wage growth and government austerity measures, and preliminary data last month showed the economy tipping back into recession.

A survey last week also showed British retail sales posted their biggest fall in more than a year in April, while cards and gifts chain Clinton Cards entered administration, a form of protection from creditors.

John Lewis which trades from 29 department stores across the UK, eight smaller ‘at home’ stores, and an online business, has long outperformed the wider market as its generally more affluent customers have been less impacted by the downturn.

In its first quarter to 28 April, the group posted sales growth of 12.2 per cent, which Murphy said equated to like-for-like growth of about seven per cent and strongly outperformed a flattish overall market.

“We have revised our expectation upwards but candidly we haven’t revised our expectation of the market,” he said.

 

 

BG and Ophir in new gas find in East Africa

British gas firm BG Group and explorer Ophir Energy said they had found more gas off the coast of Tanzania, raising hopes that the East African country will become a major new gas province.

The discovery at the Mzia well will provide a substantial boost to their total estimate of how much gas they have found in Tanzania, helping prove there is volume enough to build a liquefied natural gas (LNG) export plant, they said.

“The success at Mzia-1 is a major step towards a Tanzanian LNG hub development in Block 1,” Ophir’s chief executive Nick Cooper said in a statement.

Industry interest in East Africa has intensified in recent years and the previously little-explored area is tipped to become a major natural gas producing region, exporting LNG to fast-growing energy-hungry countries in Asia.

US explorer Anadarko said it discovered a major new gas field off the coast of nearby Mozambique.

The Mozambican fields have drawn oil major Shell to the area – it is in the process of trying to buy Britain’s Cove Energy, Anadarko’s partner in the country.

BG and Ophir said they discovered the gas in a deeper geological zone than the previous finds that they’ve made in Tanzania, which added to their confidence that they’d make additional finds in the same zone on neighbouring exploration blocks.

 

 

Korea Gas, Shell Start Discussions on Canada LNG Project

Royal Dutch Shell Plc (RDSA) and three Asian partners will jointly develop a liquefied natural gas export project in Canada’s British Columbia province and are in talks with local communities to win their support.

Consultation with First Nations and local residents of Kitimat began after Shell, Korea Gas Corp. (036460), China National Petroleum Corp. and Mitsubishi Corp. (8058) completed a feasibility study for building a 12-million-metric-ton LNG terminal, Korea Gas and Mitsubishi said in separate statements today. Local communities and the Canadian government would need to approve the project, due to start production by 2020, Mitsubishi said.

Asian companies including Korea Gas and GAIL India Ltd. (GAIL) are investing in North American LNG projects as gas prices in the U.S. slumped to a decade-low after a surge in shale output. Imports from North America will cost about a 10th of what LNG producers in Indonesia, Yemen, Qatar and Australia charge customers in Japan and South Korea.

Shell has a 40 percent stake in the LNG Canada project, while the other partners have 20 percent each, Korea Gas said. A final decision to move the planned terminal into development will be taken “around the middle of the decade,” according to the project’s website.

The Kitimat project includes the construction of LNG production and storage units and harbor facilities, Korea Gas said. The terminal will initially have two LNG units, each with a 6 million ton annual capacity, and use gas from fields in western Canada, including Horn River and Montney, Mitsubishi and Korea Gas said, without providing a planned investment amount.
Export Licenses

Korea Gas, the world’s biggest buyer of LNG, fell 0.9 percent to 42,400 won in Seoul, declining for the fourth straight day. Mitsubishi dropped 0.5 percent to 1,621 yen, the lowest since Jan. 17.

The terminal may cost 1 trillion yen ($12 billion), the Nikkei newspaper reported April 12, without saying where it got the information.

Canada has granted licenses for two LNG export projects in the Kitimat area. BC LNG Export Co-operative LLC, jointly owned by Haisla Nation and Houston-based LNG Partners LLC, was given a 20-year license, according to a statement on April 11. In October, the National Energy Board approved an LNG terminal planned by Encana Corp. (ECA), Apache Corp. (APA) and EOG Resources Inc. (EOG)

The Horn River basin may hold 165 trillion cubic feet of shale resources, while Montney is estimated to have 49 trillion cubic feet, according to an April 2011 report by the U.S. Energy Information Administration.
Australia Supplies

Australia, the world’s fourth-largest LNG supplier, is poised to lose the most from Canada’s new terminals, Andy Flower, an independent LNG analyst in the U.K., said in October. Australia may be capable of producing about 80 million tons of LNG annually by 2017, surpassing Qatar as the world’s largest exporter of the fuel, Total SA Chief Executive Officer Christophe de Margerie said May 14.

The west coast of Australia is 4,400 nautical miles from Japan, according to Eurasia Group, a New York-based consultant. The journey to Tokyo from Kitimat is 4,200 miles.

Australia and Qatar sell the commodity to Asia at prices linked to oil. Gas from the U.S. is tied to Henry Hub futures, which tumbled 32 percent last year amid record output driven by extraction from shale.

South Korea, which relies on overseas gas for all of its needs of the fuel, imported 36.7 million metric tons in 2011, according to Korea Customs Service’s website. Japan imported 99 billion cubic meters, or 3.5 trillion cubic feet, in 2010, according to the International Energy Agency.

 

 

Francois Hollande: we want to work together for the good of Europe

German Chancellor Angela Merkel and newly inaugurated French President Francois Hollande agree to work closely on increasing growth in Europe during their first official meeting in Berlin. Germany and France understand their joint responsibility for Europe and must offer joint ideas at an EU summit next month on reviving economic growth, Chancellor Angela Merkel said after talks with France’s new president. “We know the responsibility we have as Germany and France for a good development of Europe and I think in the nature of this spirit, we will find the solutions for the individual problems,” Mrs Merkel told a joint news conference with Francois Hollande, hours after he took the oath of office. “It will of course be very important that Germany and France collectively present their ideas at the Council in June and we have discussed the close preparations for this,” she said. Mrs Merkel also said the two leaders wanted Greece to remain in the euro zone and said they were ready to help the crisis-stricken country to return to economic growth.

Speaking at the conference Mr Hollande said that Europe should consider all possible measures that could spur economic activity and growth. Mr Hollande, who wants to temper Berlin-led austerity policies with pro-growth measures, told a news conference with the Chancellor that he and his German counterpart both wanted Greece to remain in the euro currency zone and hoped voters there would show they did too in a June 17 election. 

“I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity so that there is a return to growth in Greece,” Hollande said. “Everything must be put on the table, everything which could contribute to growth,” he said referring to upcoming EU meetings

 

 

Gold hits 4-1/2 month low on Greece turmoil

SINGAPORE, May 16 (Reuters) – Gold extended losses on Wednesday to slip to its weakest level since late December after efforts to form a new government in Greece collapsed, prompting investors to cut their exposure to the precious metal.

 

 

 

Fears of a Greek exit from the Euro creating panic in the markets

Precious Metals on key support levels as they try to consolidate NEWS Greek president set to appoint caretaker government (BBC) – Greek President Karolos Papoulias is due to meet party leaders to set up a caretaker government ahead of fresh elections expected next month.

A final round of talks to secure a coalition failed on Tuesday raising new concerns over Greece’s eurozone future.

There has been deadlock since the 6 May election over whether to continue with the austerity measures required by an international bailout agreement. The uncertainty pushed the euro to a new four-month low against the dollar.

EU officials fear the country will elect an anti-bailout government, which Brussels says could hasten Greece’s exit from the euro. That possibility is now discussed openly among Europe’s leaders, and could threaten the very survival of the single currency, the BBC’s Mark Lowen in Athens says. Euro exit?

President Papoulias will meet all political leaders at 13:00 (10:00 GMT) on Wednesday and is expected to select a senior judge to take over the running of the country. New elections are expected to take place on 10 or 17 June. On Wednesday the eurozone crisis pushed Asian stocks lower and knocked oil prices.

Tokyo’s Nikkei index dropped 1%, while Hong Kong’s Hang Seng and South Korea’s Kospi lost about 3%. The euro fell more than half a cent to $1.27. The uncertainty over the euro has also sparked concern over a run on the banks in Greece. Greek newspapers report that around 700m euros have been withdrawn from high street banks over the past few days, the BBC’s Richard Galpin in Athens says. People are concerned that an exit from the eurozone and a reversion to the drachma would wipe out much of people’s savings, he says. European leaders say they will cut off funding for Greece if it rejects the bailout agreed in March. This would mean effective bankruptcy for Greece and its all but certain exit from the European single currency, analysts say. German Finance Minister Wolfgang Schaeuble stressed again on Wednesday that there would be no new discussions on Greece’s bailout.

“This is an aid programme that was prepared down to the last detail, we cannot renegotiate it,” he said. The head of the International Monetary Fund Christine Lagarde has raised the possibility of orchestrating an “orderly exit” for Greece from the eurozone. “It is something that would be extremely expensive and would pose great risks but it is part of options that we must technically consider,” she said on Tuesday.

After talks in Berlin with German Chancellor Angela Merkel following his inauguration as French president, Francois Hollande said he wanted Greece to remain in the euro. “I’m in favour of us saying to Greece that Europe is ready to support growth so that Greece, which is in recession, can go back to growth”, he said at a joint press conference. ‘Timely payment’ Opinion polls suggest Greece’s leftist Syriza bloc, which came second in the 6 May vote and rejects all further cutbacks, could become the largest party after a new election.

Syriza wants to renegotiate the bailout package but also wants to keep Greece in the euro. Pasok and New Democracy, which signed up to the bailouts and had previously dominated Greek politics for decades, saw their combined share of the vote drop from about 77% to about 33% on 6 May. On Tuesday, Greece said it would make a “timely payment” on 435m euros’ worth of debt due on 15 May.

 

 

Eurozone avoids recession after strong German growth

The eurozone has narrowly avoided returning to recession after recording zero growth in the first three months of the year, figures have shown.

The stronger-than-expected performance was in large part due to growth of 0.5% in the German economy.

In the final quarter of 2011, the eurozone shrank by 0.3%, and many analysts expected further contraction.

The French economy recorded zero growth in the first quarter of 2012, while the Italian economy contracted by 0.8%.

The Italian economy shrank by 0.7% between October and December last year, and it has now contracted for three consecutive quarters. The country is struggling as the government cuts back on spending, raises taxes and reforms pensions in an attempt to cut debt levels.

The figures from Eurostat also showed that Spain’s economy shrank by 0.3% in the first quarter.

Separately, the Greek national statistics office said the nation’s economy had contracted by 6.2% in the three-month period. Greece is implementing drastic austerity measures to cut its deficit and comply with the terms of a massive bailout from the European Union and the International Monetary Fund.
‘Weak consumption’

The German statistics agency, Destatis, said the country’s economic growth was due to a rise in exports and higher domestic consumption.

The return to growth means Germany has avoided a so-called double-dip recession, confounding the predictions of a number of commentators.

“This is a very strong comeback. The decline in the fourth quarter was not the start of a recession but just an economic dip,” said Joerg Kraemer at Commerzbank.

“Germany is faring better than the rest of the eurozone. But I do not believe that it will continue at this speed.”

In contrast, the French growth figures failed to outperform analysts’ expectations, and the growth figure for the final quarter of last year was revised down to 0.1% from 0.2%.

“There was no good surprise,” said Philippe Waechter at Natixis Asset Management. “There was weak consumption [and] no investment.”

Some analysts believe that the first quarter may prove something of a temporary respite as many eurozone economies continue to struggle amid weak demand, high unemployment and dramatic cutbacks in government spending.

“Looking ahead, the situation will only get worse as the periphery remains mired in recession and German exports falter,” said Capital Economics.

“Indeed, eurozone business surveys like the composite Purchasing Managers Index (PMI) already point to a contraction of about 0.3% in the second quarter.”

The closely-watched PMI survey published earlier this month showed one of the steepest monthly contractions in the eurozone’s private sector for almost three years.

A survey of German investors published on Tuesday also suggested confidence was weakening, with the Zew poll of economic sentiment dropping to 10.8 in May from 23.4 in April.
Case for growth

The French GDP figures come on the day of the inauguration of the new French President Francois Hollande, who has vowed to boost economic growth.

In the run up to the presidential election, in which he ousted Nicolas Sarkozy, he campaigned hard for measures focusing on stimulating the economy alongside the austerity measures that have been adopted across the eurozone.

He will visit German Chancellor Angela Merkel later on Tuesday to make the case for growth.

Mr Hollande believes that growth rather than austerity is the best way for governments to reduce their debts, a view that is being discussed more widely as the eurozone economy continues to struggle and increasing numbers of Europeans voice their anger at austerity.

 

 

Rubber, Copper, Gold Decline on Europe: Commodities at Close

The Standard & Poor’s GSCI gauge of 24 commodities climbed 0.07 percent to 636.21 at 4:19 p.m. Singapore time. The UBS Bloomberg CMCI index of 26 raw materials dropped 0.3 percent to 1,496.371.
CRUDE OIL

Oil traded near the lowest in five months in New York before reports forecast to show U.S. crude stockpiles rose to the highest level in 21 years and Europe’s economy shrank.

Crude for June delivery was at $94.67 a barrel, down 11 cents in electronic trading on the New York Mercantile Exchange at 3:07 p.m. Singapore time. Prices dropped 1.4 percent to $94.78 yesterday, the lowest close since Dec. 19, and are down 4.1 percent this year.
NATURAL GAS

Natural gas futures fell for a second day in New York on forecasts that mild weather will limit demand from electricity generators.

Gas declined as much as 1.8 percent today, extending yesterday’s 3.1 percent drop, after Commodity Weather Group LLC in Bethesda, Maryland, said weather in the western U.S. over the next two weeks may be “fairly benign with below-normal demand,” while variable warmth is expected in the South and the East. A supply surplus ended March at a six-year high after the fourth-warmest winter on record crimped fuel demand.
OIL PRODUCTS

Naphtha swaps for June fell $4.25, or 0.5 percent, to $905.75 a metric ton at 10:15 a.m. Singapore time, according to data from PVM Oil Associates Ltd., a broker. Prices slumped for the 14th day, the longest declining streak since Bloomberg began tracking the data in January 2011.

Japan naphtha’s premium to London-traded Brent crude futures dropped to $67.59 a ton from $69.43 yesterday, according to data compiled by Bloomberg. The spread is at its narrowest since Dec. 2.

The premium of gasoil to Dubai crude fell 11 cents, or 0.7 percent, to $16.02 a barrel, PVM data showed. The spread is at the narrowest since April 16. Singapore gasoil swaps for June rose 5 cents to $123.10 a barrel.
PRECIOUS METALS

Gold dropped to the lowest price this year as the euro weakened to a four-month low on concern Greece will exit the shared currency, boosting the dollar. Silver was set for the worst run in more than three years.

Immediate-delivery gold declined as much as 0.2 percent to $1,552.97 an ounce, the lowest level since Dec. 30, and traded little changed at $1,554.72 at 12:54 p.m. in Singapore. June- delivery bullion fell as much as 0.5 percent to $1,552.60 in New York, also the cheapest since Dec. 30, and was at $1,554.40.

Spot silver fell as much as 0.4 percent to $28.045 an ounce, the lowest price since Jan. 3. That’s the seventh daily decline and the longest losing streak since March 3, 2009. The metal last traded little changed at $28.1225.
BASE METALS

Copper declined to a four-month low on concerns that the political impasse in Greece and credit-rating downgrades of Italian banks by Moody’s Investors Service signal further contraction in Europe.

The metal for delivery in three months fell as much as 1 percent to $7,763.50 a metric ton on the London Metal Exchange, the lowest since Jan. 12, before trading at $7,804 by 12:40 p.m. Shanghai time. The July contract on the Comex dropped 0.6 percent to $3.5335 per pound.
GRAINS, SOFT COMMODITIES

Soybeans rebounded from a six-week low as export sales from the U.S. and Brazil climbed, draining supply in the world’s two largest growers.

The July-delivery contract rose as much as 0.3 percent to $13.9075 a bushel on the Chicago Board of Trade and was at $13.8825 by 2:08 p.m. Singapore time. Futures dropped as much as 2.1 percent to $13.76 yesterday, the lowest price since March 30.

Corn for July delivery was little changed at $5.835 a bushel, while wheat for delivery in the same month rose 0.5 percent to $6.01 a bushel.

Rubber plunged to a four-month low as the political impasse in Greece raised speculation the nation may leave the euro, deepening an economic slump in the region and weakening demand for the commodity used in tires.

October-delivery rubber slumped as much as 5.1 percent to 265 yen a kilogram ($3,317 a metric ton), the lowest level for a most-active contract since Jan. 6, before trading at 270.1 yen on the Tokyo Commodity Exchange at 3:39 p.m. local time. Prices have trimmed this year’s advance to 2.5 percent.

 

 

Commodities Set for Worst Run Since ‘98 on Europe, China Concern

Commodities declined for a tenth day, set for the longest losing streak since 1998, on concern that Europe’s debt crisis will worsen as Greece remains without a government while economic growth in China may slow further.

The Standard & Poor’s GSCI Spot Index of raw materials fell as much as 0.5 percent to 632.7, and traded at 634.35 by 7:12 a.m. in London. Oil futures traded near a five-month low in New York and copper dropped to the lowest price since January on the London Metal Exchange. Spot gold and silver declined.

The euro extended losses after Moody’s Investors Service’s downgraded Italian banks yesterday and speculation persisted that Greece may be forced to abandon the single currency. Data today may show that the region’s economy contracted for a second quarter. China may grow at the weakest pace in 13 years in 2012, according to a forecast from Pacific Investment Management Co.

“I don’t know where the bottom is,” said Koun-Ken Lee, a Singapore-based strategist at Standard Chartered Plc. “Prices may depend on what transpires in Europe. Commodity fundamentals remain tight and we are bullish for the second half.”

Europe shrank 0.2 percent in the three months to March, according to the median estimate of 25 economists surveyed by Bloomberg before a report today that may show the region is in recession. More than a week after inconclusive elections, Greek President Karolos Papoulias is seeking support for a government of non-politicians. A Greek euro exit would spark speculation other countries may follow, according to Jefferies International.
Slowing Growth

Inbound investment in China, the largest user of metals, slid 0.7 percent in April from a year earlier, the Ministry of Commerce said today. China’s economic growth this year may be in “mid 7-percent range,” according to Ramin Toloui, Pimco’s global co-head of emerging markets portfolio management.

The S&P GSCI has dropped 7.5 percent this month following declines in March and April. That exceeded the 5.7 percent loss in the MSCI All-Country World Index (MXWD) of stocks. Investors pulled $260 million out of commodity index exchange-traded funds last week, the most this year, according to Standard Chartered.

Crude for June delivery fell as much as 0.9 percent to $93.91 a barrel on the New York Mercantile Exchange, near yesterday’s intraday low of $93.65, which was the cheapest since Dec. 19. Three-month copper retreated as much as 1 percent to $7,763.50 a metric ton, the lowest level since Jan. 12, and last traded at $7,814.75

Spot gold dropped as much as 0.6 percent to $1,547.75 an ounce, a level last seen in December. Silver dropped for a seventh day, trading 0.2 percent lower at $28.1025 an ounce.

 

 

Eurozone narrowly avoids recession

The Eurozone just avoided recession in early 2012 but the region’s debt crisis sapped the life out of the French and Italian economies and widened a split with paymaster Germany.

Euro zone gross domestic product stagnated in the first quarter, the EU’s statistics office Eurostat said.

That was a touch better than forecast by economists, who had expected a 0.2 per cent slump, and dodging a technical recession following a 0.3 per cent contraction in the last three months of 2011.

A surprisingly strong 0.5 per cent expansion by Germany, Europe’s biggest economy, appeared to save the bloc from recession, even as the French economy stalled and Italy reported weaker-than-expected output that epitomised southern Europe’s anaemic economies.

“Germany is leading the bloc, but this doesn’t mean we will have a strong rebound, austerity is not going away and southern European economies are really struggling,” said Mads Koefoed, a senior economist at Saxo Bank. “We are looking at stagnation to very mild growth in the year to come,” he said.

Barely out of the 2009 financial crisis, businesses and households in much of Europe are hampered anew as governments cut back on spending to curtail budget deficits and companies freeze plans to invest.

Despite two summits this year and another planned for next week, EU leaders have been unable to find a way back to growth, while many southern Europeans are turning against austerity measures, holding huge street protests in Madrid and backing radical political parties in Greece’s recent elections.

Optimism in January that the Eurozone would recover quickly in 2012 has been crushed by unexpected contractions in manufacturing, consumer confidence and business morale, while one in 10 euro zone workers is out of a job.

“The euro zone economy… is not likely to recover any time soon,” said Jurgen Michels, an economist at Citigroup in London.

 

 

Queen of Wall Street quits as JP Morgan clears the decks

JP MORGAN cleared out the entire senior team in its chief investment office (CIO) last night after Ina Drew, one of Wall Street’s most powerful women, quit the bank over $2bn (£1.24bn) in hedging losses.

According to an internal memo seen by City A.M., Achilles Macris, who led the trading desk that placed the bank’s disastrous hedges, will “transition his CIO responsibilities” – meaning he will be effectively removed from day-to-day responsibilities, although it is not clear if he will immediately quit the bank.

And three new executives will join the CIO, including Rob O’Rahilly as head of CIO in Europe, the Middle East and Africa.

The news came after Ina Drew, who was chief investment officer, quit over the losses and was replaced by Matt Zames, known as the bank’s “Mr Fix-It” after taking on JP Morgan’s US mortgages portfolio post-2008.

Zames sent the memo last night, in which he also tried to rally staff: “I am proud of the firm’s efforts over the past several days to address our mistakes and pleased to join the dedicated employees in our CIO today,” he wrote, promising “a sharp, renewed focus on our hedging strategies, risk management and execution”.

He added: “JPMorgan Chase will come out of this experience as a stronger firm.”

 

 

Rush to safety as worried investors flee periphery

BORROWING costs jumped again yesterday in peripheral Eurozone as fears grew that Greece is on its way out of the currency union.

Investors piled cash into “safe haven” countries, driving down borrowing costs in the UK and Germany and fleeing riskier assets.

German backing for bailouts and austerity took a beating as Angela Merkel’s CDU party lost a major regional election over the weekend, while Greek politicians again failed to agree on a new government, hitting confidence across the continent.

Italy’s 10-year borrowing costs rose 18.8 basis points (bp) to 5.697 per cent yesterday, while Spain’s jumped 22bp to 6.227 per cent and Greece’s increased by 283.2bp to 27.584 per cent.

Meanwhile the UK saw 10-year gilt yields drop to a record low of 1.861 per cent, before rising to 1.877 per cent by the end of the day.

German yields fell 5.9bp over the day to 1.457 per cent, and 10-year US Treasury yields dropped 5.3bp to 1.78 per cent.

Stocks also fell hard over the day as investors sought safer locations for their cash.

“Event risk and political uncertainty in Eurozone appear too high to be ignored,” said JP Morgan.

“Buying the dips might be tempting, but in the event of a country leaving Eurozone, markets would care about only one question: who is next?”

Even traditional safe haven gold fell another 1.58 per cent to $1563.5. Analysts blamed the increasingly strong US dollar, as the market is priced in the currency, hitting demand from other countries.

The continued pressure on governments’ debts means leaders are showing few signs of backing down over austerity measures.

Spanish leader Mariano Rajoy yesterday restated his belief that spending cuts and tax rises are needed to reduce the country’s debts, which his economic reforms will help restore growth in the medium term.

However, new French president Francois Hollande takes office today and will meet German chancellor Merkel. The two are expected to seek common ground after Hollande’s previous rejection of Merkel’s plans for fiscal discipline for the Eurozone.

 

 

Coty withdraws bid for Avon

Fragrance company Coty has withdrawn its $10.7bn (£6.6bn) takeover bid for Avon Products saying the world’s largest cosmetics direct seller had missed a deadline to start discussing a deal that Coty first proposed in March.

The move leaves Avon shareholders relying on new chief executive Sheri McCoy to come up with a plan to turn around a company that has been suffering from plummeting profits on falling sales at home and in some international markets, as well as a stock price that had been hammered prior to Coty’s bid.

Coty last week raised its bid, which had the financial backing of Warren Buffett’s Berkshire Hathaway and others, to $24.75 per share from an earlier $23.25 per share offer, but gave Avon a Monday deadline to respond.

Avon, which had rejected outright all of Coty’s earlier bids without entering into discussions, said on Sunday in a two-sentence statement that it would look at Coty’s latest offer but would respond in a week.

Coty, known for fragrances for celebrities like Madonna and Beyoncé, said that after no one on Avon’s board or senior management, including McCoy, returned its request for an explanation of why Avon needed more time to agree, it was pulling the offer.

“Your total lack of engagement with us leads us to believe that you remain reluctant to explore a friendly, negotiated combination on a reasonable timetable,” Coty Chairman Bart Becht said in a letter to Avon dated Monday and made public. “Two months is enough.”

“It is time for Coty Inc to move on and pursue other opportunities.”

Avon did not immediately respond to a request for comment.

Coty, which made its desire to buy Avon known to the public for the first time in April, had said from the start it had no intention of ever making a hostile bid for Avon.

Avon had rejected the offers saying the company’s value could rise more under a new CEO rather than as part of Coty.

 

 

Co-Operative Bank to Lend $482 Million for U.K. Renewables

Co-Operative Bank Plc will provide about 300 million pounds ($482 million) in loans for U.K. renewable energy projects this year and may increase its overall lending target, its head of renewables said.

The British mutual bank plans to commit the same amount of loans as last year for about 30 projects in 2012, James Sutcliffe, senior manager for renewable energy, said in an interview. In addition, it will “probably” extend its 1 billion-pound lending target to the end of 2013 by 250 million pounds, driven by demand from wind developers, he said.

The bank, which usually limits loans to 25 million pounds per project, has committed about 750 million pounds to more than 100 U.K. renewable energy plants since 2007. It has financed nine wind projects this year and may fund about 20 more compared with 33 wind deals last year, Sutcliffe said.

“We are absolutely bombarded with projects now, never been busier,” he said by phone. “Everyone is trying to get projects done before the ROC — renewables obligation certificates — banding changes in April next year.”

The U.K. is reviewing its green certificates program for renewable energy projects and plans to reduce the subsidies from next April. Wind developers need to complete their projects before then to secure the current support of one obligation certificate per megawatt-hour generated.

“Projects need to be generating by then so everyone is trying to close projects right now,” Sutcliffe said. The usual pricing for U.K. onshore wind loans is about 350 basis points, the executive said.

Last week, the Co-Operative Bank agreed to provide a 21.9 million-pound loan to Banks Renewables Ltd. for the 20.4- megawatt Penny Hill wind farm, its fourth project financing for the developer.

The bank, which focuses on the U.K., has financed wind farms, energy-from-waste projects, biomass plants and small hydropower facilities around the country. It may also finance its first solar power projects this year, using ROCs instead of feed-in tariffs, the manager said.

 

 

Saudi Arabia Plans $109 Billion Boost for Solar Power

Saudi Arabia is seeking investors for a $109 billion plan to create a solar industry that generates a third of the nation’s electricity by 2032, according to officials at the agency developing the plan.

The world’s largest crude oil exporter aims to have 41,000 megawatts of solar capacity within two decades, said Maher al- Odan, a consultant at the King Abdullah City for Atomic and Renewable Energy. Khalid al-Suliman, vice president for the organization known as Ka-care, said on May 8 in Riyadh that nuclear, wind and geothermal would contribute 21,000 megawatts.

“We are not only looking for building solar plants,” al- Odan said in an interview in Riyadh yesterday. “We want to run a sustainable solar energy sector that will become a driver for the domestic energy for years to come.”

The comments highlight the scale of Saudi Arabia’s ambitions to boost renewable energy use as a way to pare back on oil consumption used for domestic desalinization and power plants, potentially saving 523,000 barrels of oil equivalent a day over the next 20 years.

For the solar panel manufacturers such as First Solar Inc. (FSLR) and SunPower Corp. (SPWR), the Saudi Arabian market would open a huge new market as European countries reduce subsidies to keep a lid on installations. Panel sales may dip this year for the first time in more than a decade from 27,700 megawatts installed last year, according to a survey of analysts by Bloomberg on March 9.

‘Less Profitable’

“These markets are likely to be a lot less profitable than existing markets,” Vishal Shah, an analyst at Deutsche Bank AG in New York, wrote in a note to clients yesterday, noting the Saudis may require bid winners to supply from factories built in the nation. “It looks like both First Solar and SunPower would need to set up local manufacturing.”

First Solar dropped 4.9 percent yesterday, taking its slide this year to 55 percent. SunPower slid 0.7 percent, for a 16 percent decline this year.

Ka-care is the government agency set up in April 2010 to oversee the nation’s renewable energy strategy. Its plans are likely to be approved later this year, al-Suliman said, according to a copy of the presentation he gave on May 8.

The government is targeting 25,000 megawatts from solar thermal plants, which use mirrors to focus the sun’s rays on heating fluids that turns a power turbine. Another 16,000 megawatts would come from photovoltaic panels, according to the Deutsche Bank note.
Bidding Round

Citing government officials, Deutsche Bank said the capacity would be added in competitive bidding starting with 1,100 megawatts of PV and 900 megawatts of solar thermal in the first quarter of 2013. A second round of bidding is due in the second half of 2014.

That tendering process would differ from the European system, where developers are granted above market rates for solar power they produce. Germany, Spain, Italy and the U.K. have slashed rates under those feed-in tariffs to control a surge in installations.

Saudi Arabia currently has about 3 megawatts of solar installations, trailing Egypt, Morocco, Tunisia, Algeria and the United Arab Emirates, according to Bloomberg New Energy Finance.

“The Saudi Arabian government has a powerful incentive to diversify its energy mix to reduce dependence on oil,” said Logan Goldie-Scot, an analyst at New Energy Finance in London. “The state could generate an internal rate of return of approximately 12 percent if it built a PV plant and sold the displaced oil on the international markets.”

The analyst is assuming initial capital costs for the solar projects of about $2.17 per watt of capacity installed.
Wind and Nuclear

Persian Gulf oil producers are seeking to reduce their reliance on fossil fuels for power generation to maximize exports of valuable crude and allocate natural gas to petrochemicals production. Ka-care estimates Saudi Arabia’s peak electricity demand will reach 121,000 megawatts in the next 20 years, with half of that power generated using hydrocarbon fuel.

Other forms of renewable energy such as nuclear, wind, geothermal, will only generate 21,000 megawatts of the peak-load required by 2032, al-Suliman said in his presentation.

Saudi Arabia is considering different options to generate electricity from nuclear energy, according to al-Suliman. Under the so-called “Balanced Scenarios”, Saudi Arabia would build 16 nuclear reactors by 2030 with a capacity of 14,000 megawatts of electricity.
Nuclear Cooperation

The country signed a nuclear cooperation agreement with China in January, following three accords signed last year with France, South Korea, and Argentina. The cost of developing the reactors may reach $100 billion, according to officials from Ka- Care.

Saudi Arabian Oil Co. sees “technical” potential to produce 25,000 megawatts of electricity from wind in Saudi Arabia, Faisal Habiballah, head of solar at the company known as Saudi Aramco, said Feb 20. There is also geothermal energy in the western parts of the Kingdom, he said.

The capital cost of installing the 41,000 megawatts should be around $82 billion, al-Odan said. The rest of the $109- billion investment will go to train the Saudis to run the solar plants as well as for maintenance and operation, he said.

Once the strategy, which includes new regulations and financial incentives for private investors, is approved “we will start implementation directly,” al-Odan said.

Saudi Arabia may burn 850 million barrels of oil a year, or 30 percent of its crude output, to generate electricity by 2030 if doesn’t become efficient in energy consumption, Electricity & Co-Generation Regulatory Authority Governor Abdullah Al-Shehri said in a presentation in Riyadh May 8.

 

 

The American housing market is near the bottom

But what about the US? Is it time for us to start looking at real estate there?

I think the bear market in US housing is at or near a low. In some places it has probably already bottomed, or is bottoming. In others, there might be further declines. But the big falls have already happened.

For that reason, the risk involved in buying now is comparatively low, if your time frame is over several years. However, in some parts of the US, housing was actually cheaper to the UK investor back in early 2008. This is simply because of currency strength. Back then the pound was worth two US dollars. Now it’s more like $1.60.

So where’s it headed next? Below is a chart I’ve used here a few times before. For those with longer-term horizons, the pound versus the dollar is a pretty simple trade. You sell the pound at $2 – or just above ideally – in the red zone. And you buy at $1.40 or just below – in the green.

I’ve painted that central zone in the dubious choice of colour common in so many houses, magnolia. That zone has proved support during periods of pound strength, such as in the late ‘80s or early ‘00s. It has proved resistance during periods of pound weakness, such as in the ‘90s and post-2008.

After the 1992 crash, it was ten years – 2003 – before it got through the magnolia zone. Based on this, it wouldn’t surprise me if we don’t get through $1.70 for another five years.

After the 1984 collapse in the pound, however – when it went almost to parity with the US dollar – it only took about two years to get back above $1.70. So maybe we won’t have to wait so long.

But I wouldn’t bank on it. As I’ve argued before, I think the bear market in the US dollar ended in 2008. It looks like another deflationary wave is well and truly upon us in which case, the dollar should do well.

In the short term the pound has turned down against the dollar having run into resistance in that magnolia zone. In fact, just about every equity market and commodity is in a downtrend now.

The pound tends to fall with equities, while the dollar tends to rise against them. So I see the pound continuing its fall. First stop $1.55. Longer term I expect some kind of range trade between the pound and the dollar, with $1.66-1.70 the cap and $1.40-1.45 the floor.

 

 

How a stronger pound could hit London house prices

That said, there is so much short interest at the euro, it really wouldn’t surprise me to see some kind of snap back rally as shorts cover. Perhaps a Greek default would do it.

This would cause it to rise against both the dollar and the pound – which we consider next. Amazingly, given the amount of quantitative easing that has gone on here, the pound looks very strong. It seems to be enjoying some kind of safe haven role, which makes me snigger.

Here’s the euro against the pound since 1999. There is a similar channel in place, as defined by the blue lines. The euro seems to be quickly giving back all the gains it made between 2008 and 2010.

Given the clarity of that channel, it wouldn’t surprise me to see the euro below 70p – back in the range where it traded between 2003 and 2008 – by sometime in late 2013.

One of the odd side-effects of a stronger pound will be that central London property will no longer be so enticing to foreign buyers. Meanwhile, property in southern Europe, particularly Spain, will start looking very attractive to British buyers in want of a holiday home.

 

 

The euro could still surprise everyone

Let’s look first at the euro against the US dollar.

Given that the world will end if Greece leaves the eurozone (or at least, that’s what some would have us believe), you would have expected the euro to be in some horrible dark place. It should be following the path of the Italian lira or the Greek drachma in the 1970s.

However, it’s not been quite the outright disaster you might have expected. The euro is in a downtrend, yes. It’s in a bear market, yes. But for all that, it’s still in better shape than it was when it first launched in the distant days of 1999.

That’s not to say it can’t go lower. I’m sure it will. Look at the chart of the euro versus the US dollar below. The rate is in a clear downward channel, as defined by the blue lines.

There seems to be support in $1.20 and $1.25 areas, where I have drawn the two horizontal red lines. But the $1.05 – $1.10 area beckons.

The view from my humble corner of cyberspace is that the only solution for Greece, short of prodigious money printing by the European Central Bank, is for it to leave the euro. (The same goes for Spain, Portugal and, probably, Italy.)

The sooner they do so, the sooner this euro bear market is likely to end. But while the political path of these nations is unresolved, the euro’s downward march will continue.

 

 

Shares fall in Europe on Greek political uncertainty

European shares have fallen as the continuing political uncertainty in Greece undermines investor confidence.

Greek President Karolos Papoulias failed to form a coalition government through talks on Sunday and will continue discussions with political leaders on Monday evening.

Bank shares are worst hit, particularly in Spain and France, with Madrid’s Ibex index down 2.3% and the Cac down 2%.

London’s 100 share index is down 1.3% and Germany’s Dax down 1.6%.

French banks were among the biggest fallers as investors worried about their exposure to other troubled eurozone countries.

BNP Paribas was 3.4% lower, Societe Generale lost 3.3% and Credit Agricole fell 3.4%.

Spanish banks Banco Santander and Bankia were down 3.4% and 4.4% respectively, as they said they would set aside an extra 2.7bn euros (£2.16bn) and 2.1bn euros to meet new government requirements aimed at cleaning up the country’s ailing property market.
Anti-austerity sentiment

The undermining factor is again the future of the eurozone.

Greece’s lack of a government puts in doubt its ability to stick to austerity measures imposed as part of its financial bailout. Without holding to agreed cuts it will not get the rest of the support funds it needs to function.

Adding to the lack of clarity is the fact that anti-bailout parties did well in the elections.

Anti-austerity feeling may be growing in Germany too after Chancellor Angela Merkel’s party suffered a defeat on Sunday in an election in North Rhine-Westphalia, the country’s most populous state.

On top of that, new French President Francois Hollande won his place after promising to focus more on growth rather than austerity, raising concerns as to whether he will be able to work as closely with Mrs Merkel as his predecessor Nicolas Sarkozy did.

The two were the driving force behind the eurozone’s fiscal compact.

Later on Monday, eurozone finance ministers will meet in Brussels to discuss the situation in Greece and Spain.

 

 

JPMorgan senior executives ‘to resign’

Top executives at JPMorgan Chase are expected to resign this week following $2bn (£1.2bn) of losses at the bank’s London trading desk, reports suggest.

They include chief investment officer Ina Drew, the New York Times said. Two other high-ranking executives are also set to leave, according to US media.

On Sunday, JPMorgan boss Jamie Dimon said he was “dead wrong” to dismiss concerns about trading at the bank.

Mr Dimon had previously rejected Ms Drew’s resignation, the reports said.

Ms Drew, one of the bank’s longest-standing and best-paid executives, had offered to resign a number of times since the extent of the losses became known, they added.

They were revealed in a statement on Thursday night. JPMorgan shares fell by almost 10% on Friday, wiping $14bn off the company’s value.
Further resignations

Speaking on NBC’s Meet the Press on Sunday, Mr Dimon said: “We made a terrible, egregious mistake. There’s almost no excuse for it.”

He said he did not know the full extent of the problem in April, when he described the concerns as a “tempest in a teapot”.

The losses were made at a small trading unit in London. Reports suggest that Achilles Macris, head of the unit, and Javier Martin-Artajo, a member of the desk, could both resign along with Ms Drew.

They also suggest the position of trader Bruno Michel Iksil, nicknamed the London Whale, will come under scrutiny.

The trading loss was revealed in a regulatory filing, and will dent the company’s profits, although it still expects to make about $4bn this quarter.

 

 

LONDON REPORT

Market awaits more revolts from investors

THIS week will see a string of stormy annual meetings, which will be closely watched for signs that the “shareholder spring” is taking hold. The market is also due to digest some key earnings reports on Thursday and Facebook’s long-awaited US float on Friday.

However, today looks set to be relatively quiet on the corporate front, with an interim management statement from Travis Perkins, interim results from miner Lonmin and a trading update from Serco.

Tomorrow, F&C Asset Management is expected to reveal the results of its strategic review, including plans for its retail business following an attempt to refocus on institutional clients.

G4S will release first quarter results, while Babcock is set to reveal full year figures. The Bank of England, meanwhile, will release its trade deficit figures for March.

Economic releases will be at the forefront on Wednesday, as the Bank of England releases its quarterly inflation report and official unemployment statistics for the three months to the end of April are out.

And gaming group 888 is on course for a tempestuous AGM, after two investor bodies issued warnings to shareholders over executive pay plans.

There are also a string of results in the financial sector: ICAP is due to report its full year results, Close Brothers releases an interim management statement and Thomson Reuters holds its annual meeting.

Xchanging will also update its shareholders on its turnaround plans.

SSE is expected to reveal how much delaying price rises hit its bottom line, while Greggs will face its shareholders over the cost of the coalitions’ pasty tax plans. Oil explorer BG Group and financier Arbuthnot also have shareholder meetings scheduled.

Thursday is jam-packed with earnings reports, from oil firms Vedanta, Premier and Cairn, telecoms group TalkTalk and pub chain Marston’s.

Struggling media group Johnston Press could give more details of its cost-cutting plans in an interim statement, while National Grid, Aviva and Invensys will also update the market.

Cookson is on course for fireworks at its AGM over its executive pay, and Lloyds is also holdings its meeting.

Facebook is set to price its shares ahead of a float on the Nasdaq on Friday. The week is capped off by results from Mitchells & Butlers and the London Stock Exchange.

 

 

Travis Perkins sales rise as market share edges up

Builders’ merchant and do-it-yourself retailer, Travis Perkins, said it was on track to meet profit expectations for the year after posting a rise in sales and market share gains in the first four months of the year.

The group, which also trades as City Plumbing, Keyline, Tile Giant, Wickes and BSS, said group revenue rose 4.4 per cent in the four months to 30 April, with gross margins in line with last year.

“Overall at a group level the outlook for the year remains unchanged and we remain confident of meeting consensus expectations,” said the firm.

Travis Perkins said it continued to gain like-for-like market share in all of its four divisions – general merchanting, specialist merchanting, plumbing and heating, and consumer.

Like-for-like sales were up 2.6 per cent in general merchanting but down 5.2 percent in the consumer division.

“After a good first quarter, record levels of rainfall contributed to a weaker performance in April and the early part of May where activity levels at sites continue to be impacted by the very wet weather,” added the firm.

Net debt was reduced by £50m in the period to £583m and the firm said it was on track to meet its £450m year-end net debt target.

 

 

Genel Energy in Kurdistan expansion

Oil company Genel Energy is to buy a 23 per cent stake in the Bina Bawi exploration licence in Kurdistan for $175m to expans its presence in the region.

The Bina Bawi licence lies alongside Genel’s already producing Taq Taq oilfield, whose current potential output is about 80,000 barrels a day, and is projected to rise to about 200,000 barrels a day.

“What we are acquiring is very high-quality acreage in an area immediately adjacent to Taq Taq, one of our major established fields which we plan in due course to link by a pipe line to the region’s main export pipeline from Kirkuk to Ceyhan,” said Tony Hayward, chief executive of Kurdistan-focused Genel and former boss of the British oil and gas group BP.

The acquisition of the licence stake would be made through the purchase of A&T Petroleum Company Ltd, current holders of the stake.

“Our estimate is that the Bina Bawi discovery has contingent resources of some 500m to one billion barrels of oil and oil equivalent, with some additional prospective upside,” Hayward said

 

 

Rogue trader loses £1billion

A ROGUE trader dubbed ‘Voldemort’ by his London rivals has cost one of the world’s biggest banks more than £1BILLION.

JP MORGAN today confirmed Bruno Iksil had caused a huge loss in the past six weeks — and that it could yet get even bigger.

The French-born trader — who claimed he could “walk on water” — had taken huge trades designed to PROTECT the bank’s overall risk.

Sources claim he was betting as much as $100billion in the credit-derivative swaps market.

Just last month JP Morgan boss Jamie Dimon dismissed rumours over the trader as a “tempest in a teapot”.

But last night he said: “It puts egg on our face and we deserve any criticism we get.” Iksil, in his thirties, commutes into London from Paris every day.
Pals insist he is not a flashy trader — but more of a “fatherly” figure.
The huge gaffe by JP Morgan will put yet more pressure on “casino” banks to clean up their act.

 

 

JPMorgan admits $2bn loss from failed hedge

JPMORGAN CHASE, America’s largest bank, admitted late last night that it had taken an unexpected $2bn (£1.2bn) loss after a hedging strategy failed.

In a hastily arranged conference call chief executive Jamie Dimon told analysts that the mistakes were “egregious” and that it was a “bad strategy, badly executed and poorly monitored”.

“It could get worse – this could go on for a little bit,” Dimon added, while pointing out gains elsewhere meant the total cost to the company could be around $1bn.

In a regulatory filing the bank said that since the end of March its chief investment office (CIO), which manages risk for the firm, “has had significant mark-to-market losses in its synthetic credit portfolio”.

Last month press reports suggested a UK-based trader in the CIO – dubbed the “London Whale” by critics – had run up dangerously large bets on credit derivatives.

Dimon said the losses were “somewhat related” to these reports.

Shares in the bank dropped seven per cent in after-hours trading.

 

 

US and UK plan to end too big to fail this year

THE UK and US now expect large banks to have resolution plans or “living wills” in place by the end of this year – despite a delay caused by the EU – which they hope will prevent taxpayers from having to bail out a failing bank ever again.

The FSA said yesterday that its publication of final rules for how a “too big to fail” bank should construct a living will had been delayed by Brussels’ decision to push back its equivalent framework, because the UK does not want to create confusion by having two parallel systems.

The City watchdog has now outlined roughly how the system will work and said that banks will have to have plans in place by autumn, despite the EU being likely to take until well into 2013 to craft its rules. The US has said very large banks will also have to have their plans in place by July.

A key part of the FSA’s living will system involves forcing investors who own banks’ debt to absorb losses by “bailing in” their bonds – turning them into equity or wiping them out.

The acting chairman of US regulator the FDIC Martin Gruenberg said yesterday that the US system will work similarly. In order to recapitalise the bad parts of a failed bank, he said: “The FDIC expects that it will have to look to subordinated debt or even senior unsecured debt claims as the immediate source of capital.” Senior bondholders, whose claim as a creditor of a bank was formerly seen as sacrosanct, will now get wiped out if the bank has huge losses.

Gruenberg said that the change “is designed to ensure that there is market accountability”, so that bondholders will now have more of an incentive to curb excessive risk-taking.

EU officials have been wary of unveiling rules on “bail-in” bonds because they worry it will create panic in debt markets, worsening the euro crisis.

But one senior debt capital markets banker told City A.M. that bond markets have moved on significantly from last year and are now trying to price in this extra risk. He said greater clarity from the EU will help, not hinder.

In addition to bail-in bonds, the FSA said that a key part of the process will be making sure banks have information on hand showing how different parts of the bank are exposed to one another and to other banks.

The problem of banks that are “too big to fail” means that if a large lender becomes insolvent, the instability caused by its collapse is deemed to be too severe to risk. Instead, such banks are bailed out using public money, a problem that regulators and banks are now trying to fix.

 

 

John Lewis sales rise

Department store chain John Lewis posted another double-digit rise in sales last week as the nation’s wet weather proved favourable for its key household goods business.

The employee-owned retailer said on Friday its sales increased 18.3 percent year-on-year to £64.3m in the week to May 5.

April was Britain’s wettest since records began and the poor weather has continued into May.

“The weather continues to play a key role in what’s selling and what’s not, but overall another strong week at John Lewis,” said the firm.

“It seems that the wet launch into spring has played out in our favour with all three directorates trading ahead of budget and last year.”

John Lewis said homewares sales increased 14.1 per cent, while sales in the electricals and home technology division were up 47.2 per cent, boosted by demand for notebooks and Apple’s new iPad. Fashion sales growth was more subdued at 4.6 per cent.

 

 

Firms offered £1bn for new carbon projects

THE GOVERNMENT has pledged £1bn of public funding towards its latest attempts to kick-start the fledgling carbon capture and storage (CCS) industry.

Energy secretary Ed Davey yesterday invited companies to pitch designs for safely storing emissions from fossil fuel power stations, with an initial £1bn capital funding and £125m in research cash up for grabs.

He said the technology could be worth £6.5bn to the UK economy in the next decade.

The government abandoned its first plans for a CCS competition in October after Scottish Power pulled out in a disagreement over spiraling costs.

“One of the criticisms of the previous competition was that we weren’t flexible enough, and so what this one is really about is listening to the industry more, being a bit more flexible and looking at what’s actually going to work,” said a DECC spokesman.
Companies have until 3 July to submit applications for the latest scheme, which if successful will allow the UK to continue using fossil fuels to generate electricity while keeping up with international emissions targets.

The stations are not expected to be up and running until at least 2016.

Firms will also be eligible for further support through a minimum electricity price to be awarded to projects through contracts for difference.

The Institute of Directors welcomed the new competition, but added: “[W]e still don’t know if CCS is commercially viable. The government is right to be pressing ahead, but businesses need to see a fallback plan if CCS eventually proves unworkable.”

 

 

Petrofac in carbon capture plan

The National Grid and Petrofac plan to build a carbon capture and storage (CCS) project in Britain with US partner Summit Power, the companies said yesterday. The consortium will apply for funding from the British government, which is due to relaunch a £1bn tender for CCS projects after a first round of funding failed on cost overruns. The new coal-fired power plant, named Caledonia Clean Energy Project, would be based near Edinburgh.

 

 

Airlines lose appeal over EU carbon tax

US airlines have lost a legal fight to block the EU’s plans for carbon permits, which are due to come into force on 1 January.

Industry group Airlines for America said it was considering an appeal after the European Court of Justice said the scheme to charge airlines for carbon emissions on flights to and from Europe was legal.

The initial cost is expected to be minimal but would rise to a whopping €9bn by the end of 2020.

Much of this cost is expected to trickle down to consumers, adding to the pile of charges and duties already linked to the average European flight.

American Airlines, United Continental and the Air Transport Association of America, who brought the case, said they would comply reluctantly until they decide whether to appeal.

But the US could stand in the way of widespread compliance. Draft law in the US Congress, if passed, would make it illegal to comply with the EU legislation.

US secretary of state Hillary Clinton urged the EU last week “to reconsider this current course” and re-engage with the rest of the world on a possible global carbon tax scheme.

Airline industry body IATA said the decision came as “a disappointment but not a surprise”, adding that the success of the new scheme “will depend on how non-European states view its legal and political acceptability. In this respect, there is growing global opposition.”

• The UK government was less fortunate in its own green legal battles yesterday, when the high court ruled plans to cut subsidies for solar panels on homes were legally flawed. Energy secretary Chris Huhne was “proposing to make an unlawful decision”, the court said.

 

 

Commodities may deliver the goods

The market dynamics that have been driving the commodity markets for the last 18 months remain in place

LAST year, the commodity markets were dominated by the seemingly irrepressible rise of gold – with $5,000 an ounce figures being bandied around as potential targets for the yellow metal. That was before margin calls and a shift in risk sentiment checked its price. But it was not just gold that had a good year. Commodities across the board had a robust showing in a turbulent financial climate. Despite markets being buffeted by the Arab Spring, the Eurozone sovereign debt crisis, Japanese and New Zealand earthquakes and the US debt ceiling standoff, prices for physicals weathered the storms. As well as gold prices rocketing and silver prices reaching heights not seen since the Hunt Brothers tried to corner world markets, copper also recorded record highs.

So what does the commodities sector look like as a whole going forward? Broadly speaking, the market dynamics that have been driving the commodity markets for the last 18 months remain in place. The European sovereign debt crisis is not going to disappear at any time soon. Although this has driven haven assets ever higher, the fallout of the crisis has been fears of a slowdown in European demand for infrastructure commodities, dragging on prices. At the same time, the threat of a Chinese hard landing remains on the cards. Look to the effects of any adverse Chinese industrial production figures on proxy commodities and currencies for an indication of the jitteriness of the markets and the fear that a hard landing from the superpower will kick the legs out from under global commodity demand.

GET ON THE HARD STUFF
But while physical commodities have held up reasonably robustly in the tumultuous financial climate, commodity-related equities have taken more of a buffeting – exposed to the same levels of volatility that have shaken the equities markets as a whole. In 2011, mining was the worst-performing cyclical sector. Take a look at the chart (top right) for the disconnect between spot gold prices and equities since 2007. The chart represents a telling snapshot of the physical commodities versus mining equities dynamic. As volatility shook the markets, investors agnostically sold off equities – irrelevant of creed – and flooded into Treasuries and commodities – particularly gold. Gold miners and other gold-related equities are in a market limbo – the gold bull market is providing them with huge margins, but the risk-off environment that has driven the spikes in gold prices is unfavourable to equities. In a world of financial uncertainty, the muddy waters of corporate cash flows and earnings predications seemingly offer less reassurance than spot prices of a physical, tangible commodity.

IN GOOD COMPANY
So why should investors look to commodity-linked equities at all? “Although in the short term, shares in commodity producers look less than appealing, the long-run fundamentals look favourable,” says Evy Hambro, manager of the Blackrock gold fund, arguing that supply and demand dynamics should drive the sector as the urbanisation of China accelerates – while demand has ramped up, the structural changes required for the commodities sector to match this demand can take 30 years or more, with miners struggling to keep up with the demand, driving up prices for the physical commodities. Hambro points out that as a result of these increased prices, miners’ balance sheets have been flush with cash, and such companies are choosing to return this cash to investors in the form of dividends and share buybacks.

As such, for those willing and able to weather market volatility, commodity equities present a good buy opportunity should the sector find steam again.

 

 

Icap trading buoyed by commodities

ICAP, the world’s largest interdealer broker, said it was trading in line with market expectations, with a strong performance at its commodities and energy arm helping offset tougher conditions on its credit markets side.

“ICAP is on track for a robust performance for the year despite the demanding economic environment,” chief executive Michael Spencer said in a statement.

“We continue to focus on our operational efficiency. In the last three months we have seen an improvement in risk appetite in some markets. We expect to see a slow move towards more normalised markets as the year progresses,” he added.

ICAP had said in February it expected profits for the year through March 2012 to be towards the upper end of an analyst forecast range of between £336m and £358m.

 

 

Six things to consider when trading soft commodities

Exposure to the dollar can matter just as much as the sun
Craig Drake

1 COMMODITY CATEGORIES
Though most spread betters of commodities tend to focus on the energy sector and on hard commodities such as gold and silver, you can also take a position on softs. Typically listed are: cocoa, coffee, corn, lean hogs, live cattle, oats, soy, wheat and sugar. Commodities are then often split into various grades, for example arabica and robusta coffee.

2 SUBSIDISING YOUR PROFITS
Political factors can greatly influence soft commodity prices. Grain subsidies in US states – as a way to sweeten a huge voting bloc ahead of an election in an agricultural state – can drive one price down at the expense of a less politically favoured commodity, as the policy creates an excess of supply and deflates the price.

3 PREPARE FOR THE UNEXPECTED
When it comes to commodities, it can be very difficult to trade using a system. Fibonacci retracement and bearish engulfing candlesticks don’t put up much of a fight when a harvest is wiped out by a drought. Non-quantifiable natural occurrences can side swipe grain prices – unfortunately, consuming pestilence and deadly plague cannot be expressed by a Greek letter in a pricing formula.

4 DOLLAR EXPOSURE
With the exception of London cocoa and UK soya, soft commodities are priced in dollars (bear in mind that there is also a dollar denominated US soybean). When you take a position on soft commodity prices, you are actually making two bets – one on the fortunes of that commodity and another on the US dollar. No matter if you have Duke and Duke-type insider knowledge of the US Department of Agriculture report on the Californian orange harvest, if the US dollar jumps one way or another it could turn a gain into a loss.

5 CONSUMPTION PUSH
With the world population increasing, growing soft commodity demand is a one-way bet. And with increases in demand outstripping advances in farming technology, prices in the long term are going to continue to rise – though this doesn’t mean that they won’t fall and rise in the short term. And as countries become more affluent, their consumption of red meat and cereals tends to rise. China, with an exploding population, has increased its meat consumption from 20 kilos per person per year in 1985 to more than 50 kg per person per year today. With 8 kilos of grain needed to produce one kilo of beef, the spike in grain demand is going to drive prices ever higher.

6 EQUITY ALTERNATIVES
For those who want to take a position on soft commodities without the direct exposure to the sometimes wild fluctuations in price, you can instead take a position on soft commodity-linked equities such as sugar refiner Tate and Lyle, and Sygenta, the world’s largest producer of commercial seeds. Another option is to gain exposure via the food manufacturing giants. If London cocoa prices go through the roof, then you can take a bet that Nestlé will feel the squeeze.

US 6-10 DAY OUTLOOK: TEMPERATURE AND PRECIPITATION

 

 

Banks rocked by Euro fears

Italy and Spain send Europe’s banking index plunging to 2008 levels

Spain takes €4.5bn stake in Bankia as fears over its banks grow

Greece fails to form a government for the third day running

SPAIN last night part-nationalised its fourth-largest bank, Bankia, in a dramatic move to try and contain the escalating financial crisis as fears grow over the sector’s exposure to property assets.

Spain’s central bank said the lender had asked for a €4.5bn bailout loan to be converted into shares, granting the Spanish government 45 per cent of the bank in return.

The conversion, which still needs state authority approval, was “the most advisable option for strengthening the financial soundness of the business,” Bankia’s parent BFA said last night. Over half of Bankia’s €37bn of property exposure is deemed problematic by regulators.

The turmoil at Bankia contributed to huge stock market falls across Europe yesterday, with banking stocks plunging to levels not seen since the depths of the financial crisis.

The falls were worst in Spain, where the government, which yesterday reiterated it would “guarantee the stability of the overall banking system”, is expected tomorrow to demand that lenders put aside up to another €35bn to cover real estate losses. The Spanish stock exchange dropped by 2.8 per cent to its lowest level in nine years on fears the government’s plan could force it to seek Eurozone help if it cannot afford to fund its guarantee.

In Italy, where euro worries were compounded by a police raid on Monte dei Paschi – one of the country’s biggest banks – over an alleged insider trading case, the main index FTSE MIB dropped 2.4 per cent.

Markets were also troubled by the ongoing political turmoil in Greece, where the runner-up in its recent elections, the radical left Syriza party, failed to form a coalition for the third day running.

It will be forced to hand over the mandate for government to the Socialists today, who have said they want to form a coalition of parties that want to stay in the Eurozone – a proposition that looks doomed because pro-bailout parties lack the seats needed.

The Eurozone’s bailout fund was forced to withhold €1bn of bailout money scheduled to be given to Greece today after its backers – EU governments headed by Germany – had a dispute over whether to disperse any of the €5.2bn due today at all.

Saxo Bank economist Nick Beecroft said: “Make no mistake, the Greek vote yet again raises true existential issues for the euro, coming as it does just as a wave of democratic revolt against Teutonic austerity sweeps across the continent.”

Investors rushed into “safe haven” assets like German and British government bonds, pushing their yields to historic lows, and bet against the euro and the price of oil, with the latter falling for the sixth day running.

In the UK, the FTSE 100 fell 0.4 per cent to 5,530.05 extending Tuesday’s 1.8 per cent drop – and leaving it at its lowest level this year.

 

 

Barratt reports best spring home sales in five years

One of the UK’s biggest homebuilders, Barratt, says its spring selling season has been the strongest in five years.

Barratt says that 25% more potential homebuyers reserved properties in the 18 weeks to 6 May compared with the same period last year.

The average selling price rose 5% to £202,000.

Barratt has concentrated its building in London and the south-east of England where house prices have remained relatively robust.

In its interim statement, Barratt said: “Whilst the economic outlook remains uncertain and the availability of mortgage finance continues to be a constraint, we expect the benefits of the various government initiatives to continue to provide support to the industry.”

Barratt is working on 397 sites, which is up from 374 in the same period last year.

The company expects to buy 10 thousand plots in the current financial year.

Barratt says there has been strong interest in the government’s NewBuy scheme to help potential homebuyers.

About 70 customers have used the scheme to reserve homes since its launch on 12 March.

The NewBuy scheme allows participants to buy a home with as little as a 5% deposit.

 

 

Spanish lender Bankia is partly nationalised

Troubled Spanish lender Bankia is to be partly nationalised, the central bank has confirmed.

Bankia, which holds 32bn euros (£25.7bn) in distressed property assets and whose boss has resigned, will have a 4.47bn-euro loan by the Spanish bailout fund converted into shares.

The state fund will emerge with a stake in the bank of 45%.

Earlier, Spanish stocks fell by 3% and government bond yields rose above 6%, a level seen as unsustainable.

“The new management of Bankia will have to submit, as soon as possible, a fortified clean-up plan that will place it in a position to address its future with every guarantee of success,” the Spanish central bank said.

Bankia has the industry’s largest exposure to the property market, which burst spectacularly and has saddled its banks with bad debt.

Spain’s fourth-biggest bank was only created in 2010 from a merger of seven struggling savings banks.
‘Controversial’

The BBC’s business editor Robert Peston said: “The partial nationalisation will be a controversial operation, because it will lead to huge losses for many thousands of Spanish investors, who bought shares in Bankia and provided it with loan capital when it was listed on the stock market last year.”

Many are worried about the level of bad debt that Spanish banks have, and fear that Spain will need a bailout.

The central bank added: “Bankia is a solvent institution that continues to operate on an absolutely normal footing. Its customers and depositors have no cause for concern.”

The current Spanish government, elected in December, has so far insisted that no public money would be used to rescue banks.

But Prime Minister Mariano Rajoy conceded on Monday that “if it were necessary to prompt lending”, he would do so “as a last resort”.

On Monday, the executive chairman of Spain’s Bankia resigned.

 

 

UK home repossession levels are stable, says CML

A total of 9,600 homes were repossessed in the UK in the first three months of the year, according to lenders.

This was the same number as during the same period of 2011, but up slightly on the previous quarter, the Council of Mortgage Lenders (CML).

It described the situation as “stable”, suggesting that it might lower its forecast for the year as a whole in the summer.

It had predicted that repossessions would reach 45,000 in 2012.

 

 

Public sector workers stage strike in pensions dispute

Hundreds of thousands of public sector workers are taking part in a 24-hour UK-wide strike in a dispute with the government over pension changes.

Unions say the changes will leave their members paying more and working longer for lower pensions.

But the government says current pension schemes are unfair – and unaffordable because people are living longer.

Meanwhile, about 20,000 off-duty police officers are expected at a rally in London to protest against cuts.

Union leaders say up to 400,000 workers will strike while the government says it is more likely to be half that number.

Among the public sector workers taking part in the 24-hour strike are civil servants, NHS workers – including paramedics – border force staff and lecturers.

Gail Cartmail, from the Unite union, which represents NHS workers and others, said members had rejected the proposals in a vote “by a very large majority – 94%”.

“What the proposals mean is they will have to pay more, work longer and get less and they have said, by this very large majority, enough is enough,” she told BBC News.

But Conservative Party chairman Lady Warsi told the BBC that workers were being asked to “to work a little bit longer and to pay a bit more but they will be guaranteed a pension which is index-linked and inflation proof”.

“I’m disappointed that a handful of unions are striving to carry on with union action which is going to benefit no-one and is going to inconvenience the public.”

There were two days of industrial action last year in the dispute over public-sector pensions, including what unions called the biggest strike in a generation on 30 November.

About 30 unions’ involvement that day caused disruption, including the closure of thousands of schools; postponement of thousands of hospital operations and tens of thousands of appointments, and the cancellation of all bus and train services in Northern Ireland.
Police rally

The industrial action on Thursday is expected to be much smaller than November’s protest.

The unions taking part are: the Public and Commercial Services Union (PCS), the largest civil service trade union; Unite, representing NHS workers, Ministry of Defence firefighters and others; the University and College Union; the Immigration Services Union; Rail, Maritime and Transport (RMT) union members in the Royal Fleet Auxiliary, and the Northern Ireland Public Services Alliance.

In a central London march, thousands of off-duty police officers will protest against cuts to police funding and proposed changes to pay, pensions and working conditions.

It is expected to be the biggest police rally since a protest in 2008 against a pay award imposed by the then Labour Home Secretary Jacqui Smith.

The Police Federation, which organised the rally, says it wants to send a message to the government that “enough is enough”.

Policing Minister Nick Herbert told BBC Radio 5 live he expected “an entirely peaceful demonstration” from the officers.

“Police officers will continue to be rewarded for doing an exceptional job but they do earn more than other members of the emergency services and are able to earn overtime.”

On public sector pensions generally he said: “If you were in the private sector and you had to pay for the equivalent pensions that are going to be provided it would cost you around a third of pay.

“Isn’t this a question of fairness for the majority of taxpayers who aren’t in receipt of these pensions?”

But PCS general secretary Mark Serwotka told 5 live: “Although the government tries to divide people in the public and private sector, we simply say, wherever you work, why should you not have the right to a decent pension?

“Because we’ve got pensions in the public sector that are seen to be better than most, it doesn’t follow that everybody should be cut.

“Our view is pension levels should rise.”

He said people were striking because they were being “robbed”.

He said the cost of pensions was falling as a proportion of GDP while “we pay more and not a penny goes into anybody’s pension fund”.

“In every major public sector scheme – health, education and the civil service – the majority of trade unions have refused to accept these cuts in their pensions.

He added: “We’re going to have the highest pension age of any western European country.”

The government’s controversial Public Service Pensions Bill featured in the Queen’s Speech on Wednesday, and will be considered in Parliament.

The proposals seek substantially increased employee contributions and would raise the retirement age in line with the state pension age, which will eventually rise to 68.

Final-salary schemes will also eventually be replaced by less generous career-average schemes.
‘Among the best’

The government argues that at a time when private-sector final-salary schemes have been closing and returns from defined contribution schemes are falling, “unreformed gold-plated” public-sector pensions are unfair and unaffordable.

Cabinet Office Minister Francis Maude said the strike action was “futile” and pension talks would not be reopened.

“Our reforms ensure that public sector pensions will remain among the very best available and that they can be sustained for the future.”

He added: “Most staff on low and middle incomes will receive a pension at retirement as good as what they expect today, and for many it will be even better.”

Mr Maude said that “rigorous contingency planning” was in place to minimise the impact of the strike action.

 

 

Dave and Nick fight back ahead of Queen’s Speech

PRIME Minister David Cameron and his deputy Nick Clegg launched their coalition fight-back yesterday, visiting small firms in Essex ahead of a Queen’s Speech that they hope will boost business and reaffirm faith in the City.

Today’s announcement of the coalition government’s plans will include a bill to slash red tape and may involve reforms to shareholders’ rights.

The Enterprise and Regulatory Reform Bill will aim to streamline the procedure for unfair dismissal, which employers and lawyers say is open to exploitation and costs businesses and the government millions of pounds every year.

Spurious claims should be able to be thrown out of court quicker than the current system allows, employers say, while the government wants more cases to be solved by conciliation instead of reaching tribunal.

Yet companies will have to deal with plans to give parents the right to transfer maternity leave between themselves, as well as pushing for more flexible so-called family-friendly working hours.

And Clegg’s Liberal Democrat colleague Vince Cable, the coalition’s business secretary, is keen for the Queen’s Speech to lay out plans to bolster the power of shareholders, potentially to show the government is taking action over high executive pay.

The speech is also likely to include:

• A banking reform bill, which could contain some favoured recommendations from the Vickers Report, such as some form of requirement to ringfence retail banking operations.

• A Lords reform bill, although Clegg yesterday played down the importance of such constitutional changes.

• A bill to reduce the huge cost of government sector pensions to the taxpayer. A key austerity measure from the coalition, it is likely to be pushed through despite fierce opposition from public sector trade unions.

Observers will also be noting which policies are left out of the annual speech, signalling that they have been dropped by the government.

A pledge to raise the UK’s foreign aid budget to 0.7 per cent of GDP could be scrapped after a Lords committee said the move could actually hinder development by stoking corruption in poor countries.

 

 

Easyjet narrows losses over winter

EasyJet expects second-half revenue to rise, helped by a growing band of business travellers paying higher fares to help Europe’s second-largest low-cost carrier overcome higher fuel costs.

The Luton-based airline posted a pre-tax loss of £112m for the six months to March, compared with a £153m loss in the equivalent period for 2010/11.

Its first-half revenue rose 16 per cent to £1.465bn, while the number of passengers carried grew 5.4 per cent to 25.2m, as it continued to grow its share of the shorthaul business travel market.

The airline, which has increased the number of flights between top business destinations, said today that nearly half its summer seats had been sold.

Chief executive Carolyn McCall said that would help boost revenues per seat by “the low to mid single-digit range”.

 

 

Miners & Political Turmoil Drag FTSE 100 Lower

UK markets fell sharply on Tuesday, with miners leading the entire FTSE 100 lower. The overall market drop comes as UK traders and investors had their first chance after a long-weekend to react to election results in France and Greece. The election results from both countries could potentially threaten Europe’s political and financial stability.

“The FTSE 100 lost 1.78% to hit a new 2012 low as traders in London returned to their desks and sold out of risky asset classes such as the miners and banks,” said Joshua Raymond, chief market strategist at City Index. “Political deadlock in Athens threatened the country’s bailout and [Francois] Hollande swept to victory in France, a victory itself that investors in London are concerned could threaten the countries good relationship with Germany.”

Darren Sinden, senior sales trader at Silverwind Securities explains that this political turmoil led to poor performance for miners: “The concerns about the direction that EU economic policy will now take [took] centre stage and the very real likelihood of a Greek exit from the single currency has allowed the [US] dollar to gain ground on the euro. Of course a stronger dollar has a negative effect on commodities and commodity-related stocks.”

Market Winners and Losers
Polymetal International (POLY) saw its shares fall by nearly 9%, while shares in the precious metals group Fresnillo (FRES) dropped by nearly 7.5%. These were the main market losers on the FTSE 100, but many other miners also saw their shares prices bid down by traders and investors.

The only company that saw a significant, lasting rise in its share price during the trading day was Tullow Oil (TLW). Shares popped up by nearly 3.5% after the oil company announced that it had discovered further oil reserves in Kenya.

By the close of the trading day, the FTSE 100 index had fallen by 1.78%, or 101 points, to 5,555. The FTSE 250 index slumped by 2.54%, or 284 points, to 10,873.

 

 

Clinton Cards enters administration

Retailer Clinton Cards is set to become the latest casualty on the British high street after its debt was sold by lenders including state-owned RBS and subsequently called in, putting thousands of jobs at risk.

Clinton Cards, said it had no option but to agree to a proposal by the new owner of the debt, its biggest supplier American Greetings, that it should be placed in administration as it could not repay a £35m loan.

The company, which employs over 8,000 people in the UK, warned on its outlook in March, amid tough trading conditions, and as it battles intense competition from supermarkets and the Internet.

Analysts said the expected administration was a surprise, however, as the supplier had enforced the loan.

“The supplier has pulled the rug, so it’s by no means a usual sequence of events. The question really is why the supplier hasn’t been more supportive,” said independent retail analyst Nick Bubb.

 

 

Sainsbury’s profit climbs in tough UK market

Supermarket giant J Sainsbury posted annual profit towards the top end of expectations as it lured cash-strapped shoppers to its cheaper own-brand ranges and tapped into growth areas like convenience stores and internet shopping.

The group said profit before tax and one-off items rose 7 per cent to 712 million pounds in the year to March 17.

“Whilst the wider economic situation remains uncertain, we remain confident that our clear strategy, market insight and strong values will enable us to make further progress both in our core food and non-food businesses, as well as new channels and services in the year ahead,” chief executive Justin King said this morning.

Sainsbury’s has said it is well placed to benefit from the roster of summer events – Euro 2012 soccer, the Queen’s diamond jubilee, the Olympics and the Paralympics.

 

 

U.K. Approves 299-Megawatt Vattenfall Wind Farm in Wales

Vattenfall AB, Sweden’s biggest utility, won permission to build a 299-megawatt wind farm in Wales, the U.K. Department of Energy and Climate Change said today in an e-mailed statement.

The Pen Y Cymoedd project in south Wales will have the highest generating capacity of any onshore wind farm in England and Wales, producing enough electricity to power 206,000 homes, the department said.

 

 

HSBC profit rises

HSBC, Europe’s biggest bank, beat expectations with an underlying profit of almost $7bn (£4bn) in the first quarter thanks to a rebound in investment banking income and a fall in US bad debts.

HSBC said its underlying profit in the first quarter was $6.8bn, up 25 per cent on the year and above the $5.8bn expected by analysts. Its statutory profit was $4.3bn, hit by a negative $2.6bn impact of movement in the value of its own debt.

The bank said it had made “good progress” on all areas of strategy, including cost savings, as part of Chief Executive Stuart Gulliver’s plan to boost profitability by cutting costs, quitting areas where the bank lacks scale and increasing its focus on Asia.

 

 

Deutsche Post beats first quarter forecasts

Deutsche Post reported better than expected quarterly results and confirmed its outlook, citing its strong express delivery and supply chain business in Asia.

Earnings before interest and tax (EBIT) were up 9.9 per cent at 691m euros (£557m) in the three months through April, beating a consensus forecast of 656m euros in a Reuters poll.

Europe’s biggest mail and express delivery company said it still sees its 2012 EBIT improving to 2.5-2.6bn euros from 2.44 billion euros last year, with an increase in sales.

 

 

TUI forecasts strong summer

TUI Travel, the world’s biggest tour operator, said it was on track to meet expectations for the full-year and that it expects to deliver a strong performance in its key summer trading period.

The group, which owns Thomson and First Choice, said it made an underlying operating loss of £317m in the six months to the end of March, compared with a £307m loss in the 2010/11 period.

Tour operators traditionally make a loss in the first half of the year, which does not include the key summer period.

TUI Travel, whose first half revenues rose five per cent to 5.44 billion pounds, said overall trading for summer 2012 was good with booking volumes well ahead of last year.

“We have seen improved summer 2012 trading performance in all other mainstream markets except France which remains difficult,” TUI Travel Chief Executive Peter Long said.

“Given the challenging economic environment, we remain cautious, however, overall trading performance continues to be in line with the board’s expectations.”

TUI Travel has benefited from difficulties experienced by main rival Thomas Cook, which issued a string of profit warnings last year before securing a three-year funding lifeline worth £1.4bn last week.

 

 

Aviva boss quits after pay revolt

Insurer Aviva, hit last week by one of the biggest pay revolts ever suffered by a British company, said its chief executive Andrew Moss had stepped down with immediate effect.

The group said he would be replaced by Chairman Designate John McFarlane in the interim. Moss had told the company that he believed it was in the best interest of the firm for him to step aside.

Last week Moss waived his 2012 salary increase following shareholder concerns over executive pay, which culminated in half of the group’s investors revolting on remuneration at its annual general meeting three days later.

 

 

Risk of Greek euro exit rises after messy vote leaves no clear winner

THE CHANCES of Greece leaving the euro jumped yesterday after national elections resulted in an anti-bailout party being given a mandate to form a government.

Analysts at Citi revised upwards the probability of a Greek exit from the euro from 50 per cent to 50-75 per cent due to the growing likelihood that Greece will end up with an anti-austerity coalition or no government at all.

The “radical left”, or Syriza, party will today receive a mandate from Greece’s President to open coalition talks after the centre-right New Democracy party, which won the most votes, said its invitation to rivals to form a “unity coalition” was rejected.

The election saw Greeks split roughly fifty-fifty between parties that are in favour of Athens’ bailout and austerity package and those strongly against it. But even those parties in favour say it requires extensive renegotiation.

Parties on the extremes saw a surge in support: the extreme nationalist Golden Dawn party took 6.9 per cent of the vote, or 21 seats, while the KKE/communist party took 8.4 per cent, or 26 seats.

If no government can be formed, Greece will have to hold another vote in June, making it “very unlikely” that it can meet its bailout conditions, according to Citi. If that causes its foreign lenders to cut off its bailout cash, “the Greek sovereign and its banking sector would run out of funding [meaning] that Greece would be forced to leave the euro”. Berenberg Bank analysts agreed, saying the vote “adds to the risk that Europe could turn off the flow of support funds and… force Greece to leave the euro.”

Q and A: Greek vote: what will happen next?

Q What happened following the vote?

A The party with the biggest vote share, New Democracy (ND), won 50 bonus seats and the first shot at forming a coalition, but said it had failed to do so yesterday.

Q So what now?

A The runner-up, the self-identified “radical left” Syriza party, gets three days to form a coalition. But even with every left-wing party on board, such an alliance would only have 137 seats, and Syriza yesterday ruled out a deal with ND. The same problem applies for PASOK, the Socialists, whose negotiations with ND also broke down yesterday.

Q So what if no one can form a government?

A Another vote. The earliest it can happen is 10 June. But Greece also has to show lenders plans for savings equal to seven per cent of GDP in June to get its new bailout cash.

 

 

WHAT THE OTHER PAPERS SAY THIS MORNING

FINANCIAL TIMES

Chinese groups drive rise in pre-sold HK IPOs
Zhengzhou Coal Mining Machinery has enlisted nearly a dozen banks to hunt down investors willing to take stakes in the Chinese business ahead of its $1bn Hong Kong listing, an example of a trend gripping the world’s biggest market for new listings.

Hopes rise UK will build GM model
Hopes have been raised for the future of General Motors’ plant in Ellesmere Port, England, after a union leader said the next generation of the carmaker’s main Astra would be made there and in Poland. GM is drafting a new business plan to stem losses at its European Opel-Vauxhall business.

Ships risk fights with pirates to save on fuel costs
Violent confrontations between Somali pirates and merchant ships’ armed guards could become more common as some shipping companies have reduced ship speeds through the highest-risk area to save on fuel, maritime experts have warned.

THE TIMES

Monopoly fixes rules to keep new players out of the game
Start-up banks are being hampered by rules that massively favour the incumbent high street banks, think-tank Civitas will claim today.

Manufacturers must step up pace
Britain must match the breakneck speed of South Korean growth before the global downturn if it is to meet the government’s target of exports topping £1 trillion by 2020, says manufacturers’ body EEF.

The Daily Telegraph

Twitter will be more valuable than Facebook
Twitter is likely to last longer and become more valuable than Facebook, Rory Sutherland, the vice-chairman of Ogilvy & Mather, has claimed.

Ecolution appoints BDO to raise as much as £40m
Solar power company Ecolution has appointed advisers to raise up to £40m to fund its expansion plans.

THE WALL STREET JOURNAL
EUROPE

Japan investigates social-gaming sector
Japan’s Consumer Affairs Agency said yesterday it is investigating the legality of sales tactics used by the country’s social-gaming industry, raising doubts among analysts and investors over whether the sector can sustain its fast pace of growth.

Roche halts trial of cholesterol drug
Roche said its experimental drug designed to raise HDL, or “good” cholesterol, failed in a large human study.

 

 

New car sales rise 3.3% in April, SMMT says

New car sales in the UK rose to 142,322 last month, up 3.3% from April 2011, the Society of Motor Manufacturers and Traders (SMMT) has said.

It was the largest percentage increase in sales so far this year.

The increase was down to a 14.8% rise in private sales, with fleet sales down 3.4% and business sales dropping 11.2%.

The SMMT has revised its forecast for 2012 sales up 0.4% to 1.95 million vehicles, which would take it above the level seen in 2011.

The best-selling car in the month was the Ford Fiesta again with 8,780 sold, and the Fiesta is also the best-selling car in the year to date.

“We are seeing a steady increase in consumer confidence with growth in private demand, boosted by the arrival of a raft of new products,” said SMMT chief executive Paul Everitt.

“A strong April new car market has raised confidence across the UK motor industry.”

 

 

HMV predicts return to profits next year

Troubled music and film retailer HMV has predicted a profit for the next financial year.

It is forecasting pre-tax profits of at least £10m for the 12 months from the end of April. City analysts expect a loss of about £5m for the period.

But HMV forecast a worse-than-expected loss for the current year of £16m.

For the year to 28 April, HMV Group reported an 11.4% decline in like-for-like sales, which exclude the impact of store openings and closures.

The retailer said trading in the first few months of 2012 had been hit by a “weak new release schedule in CDs and DVDs”.

“The last year has been a difficult and challenging one for HMV and this will be reflected in our annual results,” said chief executive Simon Fox.

“However we are confident that the actions we have taken will enable us to significantly improve our profit and cash generation in the year ahead.”

HMV said its closer relationship with suppliers and the collapse of video games retailer Game Group would help it in the coming year.

The company is in the middle of a strategic review that may lead to the sale of its HMV Live business, which runs 13 venues and a number of festivals.

HMV shares rose 12% in early trading, but they have fallen 66% in the past year.

The company struck a deal with banks and suppliers in January that aimed to halve its debts in the next three years.

It had previously raised doubts about its ability to continue trading in its current form.

As part of the deal, suppliers were given 2.5% of the shares in HMV.

In the past year, HMV has sold its Canadian arm and the Waterstones book chain.

 

 

BNP Paribas reports fall in profits

French bank BNP Paribas has seen first quarter net profit fall by 22% to 2.03bn euros ($2.7bn; £1.6bn).

It came during what the bank said was “economic slowdown in the eurozone”.

But net profit after exceptional items rose 9.6% to 2.86bn euros, boosted by the sale of a 29% stake in investment fund Klepierre for 1.5bn euros.

BNP Paribas also said it continued to reduce holdings of government bonds in struggling eurozone nations such as Greek, Ireland and Portugal.

However, it lost 142m euros on its sale of sovereign bonds.

The bank has also cut its holdings of French government bonds by a quarter to 10.3bn euros.

Chief executive Jean-Laurent Bonnafe said the group had seen a “good operating performance with growing business activity in domestic markets and good performance of capital markets”.

The bank’s Tier 1 capital ratio, an indicator of its ability to handle losses, rose to 10.4% from 9.6%.

 

 

House prices fluctuating widely, Halifax says

House prices in the UK fell sharply in April after the end of the stamp-duty holiday for first-time buyers, the Halifax has said.

It said the 2.4% drop last month was partly due to sales falling back, after they had risen briefly before the end of the tax concession on 24 March.

The lender said this had caused monthly price changes to “fluctuate widely”.

Last month’s dip took the cost of the average home down to £159,883, which was 0.5% lower than a year ago.

Despite this, the lender said the underlying trend showed prices still rising slightly.

“Prices in the three months to April were 0.3% higher than in the previous quarter, marking the first rise in this measure for seven months,” said the Halifax’s housing economist, Martin Ellis.

“The ending of the stamp duty holiday for first-time buyers in late March appears to have boosted home sales early this year as buyers strove to beat the deadline, and has probably contributed to the volatility in house prices in the last few months,” he added.

Howard Archer, of IHS Global Insight, said: “Housing market activity is very low compared to long-term norms.”

“And the economic fundamentals currently look worrying overall for the housing market with unemployment high and likely to rise further, earnings growth muted, and the outlook uncertain,” he added.

On Thursday, the Nationwide building society also reported that prices had fallen last month, though by just 0.2%.

However, its figures suggested that in the past few months prices had been falling slightly, rather than rising as the Halifax says.

The lenders construct their house price indexes from samples of their own mortgage lending, so it is not unusual for them to paint a different picture of recent trends in the market.

But both agree that prices have fallen over the past 12 months, with the Nationwide putting the annual fall at 0.9%.

 

 

Facebook IPO values company at between $85bn and $95bn

Facebook has set the share price for its upcoming initial public offering (IPO) at between $28 and $35 per share, valuing the company at between $85bn-$95bn (£52bn-£59bn).

The IPO is set to be the largest ever for an internet firm, bigger than Google’s valuation of $23bn in 2004.

IPOs are when companies list shares on the stock market for the first time.

Facebook is set to list on the Nasdaq and would rival Amazon’s and Cisco System’s current market values.

It is thought that Facebook will start promoting the share offering on Monday. Its shares are expected to start trading under the symbol “FB” on 18 May.

More than 10% of the business is being sold, which is expected to raise about $12bn for the company.

The eight-year-old social network has 900 million users worldwide and made a profit of $1bn last year.
Mobile growth

There is expected to be a huge take-up, though some investors have voiced concerns about the company’s longer-term growth.

Last week, Facebook reported its first drop in revenue between quarters for two years.

But during a video presentation on Thursday Facebook executives sought to allay those concerns, pointing to mobile as an area for growth that the company will invest heavily in.

Last month Facebook said it would buy the fast-growing mobile phone photo sharing app Instagram for $1bn, its largest purchase ever.
Zuckerberg-controlled

The higher valuation still falls short of the $100bn that had been talked about for Facebook.

But it is not uncommon for IPO price ranges to move up if there is strong investor demand for the stock.

Facebook founder and chief executive Mark Zuckerberg will remain in control of the company even after the IPO, controlling more than 57.3% of the voting power through shares he holds and through voting agreements with other stockholders.

He will own 31.5% of Facebook’s outstanding stock. At the top end of the price range, this would make his holdings worth $17.6bn.

Such a value would put him at about number 33 on Forbes’ list of the world’s richest people.

 

 

High unemployment to do ‘permanent damage’ to UK

The UK unemployment rate will rise from its current 8.3% to almost 9% by the end of this year, doing “permanent damage to the UK’s productive capacity”, a think tank has said.

The National Institute of Economic and Social Research (NIESR) said that the persistent weakness in the economy was “unprecedented”.

It says growth in 2012 will be close to zero. It forecasts 2% growth in 2013.

On Thursday, the CBI forecast growth of 0.6% this year and 2% next year.

Official figures from the Office for National Statistics (ONS) last week showed that the economy shrank by 0.2% in the first quarter, returning the UK to recession.
Moot point

NIESR acknowledged that later revisions may change this, but said “small quarter-to-quarter movements of this sort are largely irrelevant to the broader picture of an economy that remains very weak”.

“Our monthly estimate of GDP suggests the level of economic activity in the economy in March 2012 was the same as in September 2010,” it said in its latest forecast for the UK economy.

“This clearly does not constitute a sustained recovery, so the question of whether or not the economy is technically in a double-dip recession is moot.”

It said that four years after the start of the recession, the economy was still well over 4% below its pre-crisis peak, showing unprecedented weakness over the period.

It said it expected unemployment to remain elevated until 2013, which was likely to do “permanent damage to the supply side of the economy, with large long-run economic costs”.

However, NIESR said its growth estimates were essentially unchanged from its January forecast and it expected inflation to fall below the Bank of England’s 2% target by the end of the year.

 

 

RBS confirms £163bn emergency loan repayment

Royal Bank of Scotland has confirmed it will repay next week the last of the £163bn in emergency loans it received from the US and UK governments.

The announcement came with its first quarter results. It reported a pre-tax loss of £1.4bn, compared with a loss of £116m in the same period last year.

Much of the loss came from changes in the valuation of RBS’s debt. It made an operating profit of £1.2bn.

RBS has also set aside an extra £125m to cover claims for PPI mis-selling.

It means the bank will have set aside a total of £1.2bn for payment protection insurance compensation.

Earlier in the week Lloyds Banking Group set aside an extra £375m, while Barclays made an extra £300m provision last week.

RBS has also announced that it will resume paying dividends on preference shares, which were suspended for two years under state aid rules.

It is not yet paying dividends on its ordinary shares.

The bank said impairments for bad debts were £1.3bn, down 33% from the same period last year.

“The start of 2012 has shown pleasing progress at RBS within the context of a flat economic environment,” said RBS chief executive Stephen Hester.

He said that RBS had two jobs: removing past mistakes and improving the new RBS.

He added that repaying emergency loans and resuming dividend payments were important milestones for the first job.

Lloyds said earlier in the week that it should have repaid all of its emergency loans by the end of the year.

Having the emergency loans repaid by RBS will not mean taxpayers have made all their money back as the government still owns an 81% stake in the bank, for which it paid £45.5bn.

The Treasury bought the shares at an average price of 50 pence each, which is double the current value.

 

 

FTSE rise fuelled by solid earnings

The FTSE 100 pushed higher in early deals, recovering some of the previous session’s falls as investors turned their attention to a European Central Bank (ECB) meeting and tomorrow’s key US jobs report.

ECB chiefs meet today after a week in which a string of bleak economic data, including manufacturing figures, has cast a shadow. And figures out today showed that the UK service sector grew more slowly than expected in April as clients remained cautious.The main Markit/CIPS Purchasing Managers’ Index (PMI) for the service sector – measuring the change in business activity such as income or chargeable hours worked – fell to 53.3 from 55.3 in March.

But another flood of earnings provided the main direction on London’s blue chip index with medical products firm Smith & Nephew the top riser. The company was up 2.4 per cent in early trading after reporting a rise in profits. Sugars and sweeteners firm Tate & Lyle nudged up 1.7 per cent while consumer products giant Unilever lifted by 1.5 per cent.

Imperial Tobacco gained 1.4 per cent after yesterday announcing a £500m share buyback in tandem with growing revenues. Supermarket giant Morrisons also nudged up despite reporting a dip in sales.

In banking Lloyds was up just over one per cent while Barclays and RBS were broadly flat.

On the downside miners took a hit with Antofagasta dropping by 4.6 per cent after its copper output was hit in the last quarter. Gold miner Randgold Resources dropped 1.5 per cent despite saying that its gold production was on target even though operations at its key Mali mines had been under threat from a coup.

British gas giant BG Group was off by 2.9 per cent after announcing that it had offloaded its Brazilian Comgas unit for £1bn. Steelmaker Evraz was down 1.5 per cent as commodities were weak early in the trading session.

Packaging firm Rexam dipped by 0.5 per cent after investors gave a negative reaction to an update in which it said it was trading in line.

In Asia the Nikkei closed up 0.3 per cent and the Hang Seng down 0.2 per cent.

April’s US jobs report will be released tomorrow and is seen as one of the barometers of the state of the country’s economic recovery.

 

 

King defies City critics

MERVYN King hit out at his increasing number of critics in the City and Westminster last night, saying “vested interests” who wanted to defend their bonuses and profits were no match for a central bank with “over three centuries of history”.

In an extraordinary attempt to defend his record in power, he said he had seen the crisis coming but had been powerless to stop it because the Bank’s wings had been clipped in 1997.

His comments at the BBC’s Today Programme lecture will raise eyebrows in the City, where a growing number of players privately argue that he failed to hike interest rates during the bubble years and refused to provide enough liquidity to the financial system during the early months of the financial crisis, making matters worse.

But King said he did try to warn regulators and banks and that nobody listened to him. He said he wished he had shouted louder.

Striking a defiant note, King defended the wide-ranging powers he is poised to grab and claimed his reforms to the banking system will have a long-term impact on the UK. He said that he is seizing this “historic opportunity” to pass on a legacy of economic stability.

King defended his record in office, arguing that he was successful in the role he was given, and that inflation was under control before the crisis.

The new structure of the Bank seeks to focus on the big picture, recognising and acting on risks preemptively – which he says should always have been in the Bank’s power. King said: “Already we see vested interests rise up to defend their bonuses and profits. But, as an independent central bank with over three centuries of history, we can resist those short-term pressures and take the longer view needed to prevent another crisis.”

But critics believe that the Bank is being unrealistic in believing that pay and dividends can be slashed. They also argue that his desire to hike capital requirements – discussed again yesterday – have gone too far and are the main reason for the scarcity of credit.

Recent Bank critics include Treasury Select Committee chairman Andrew Tyrie, who warned new banking rules could worsen the squeeze, ex-MPC member Andrew Sentance who thinks King is risking inflation; Peter Sands of Standard Chartered; and David Cumming of Standard Life.

 

 

Diageo sales rise fuelled by emerging markets

Sales at Diageo, the world’s biggest distilled drinks group, were up six per cent in the first three months of 2012 with fast-growing emerging markets and a recovery in North America offsetting falling sales in Europe.

The London-based maker of Smirnoff vodka and Captain Morgan rum said that despite weakness in Europe its fiscal third-quarter performance was in line with its expectations, and this put it on track to hit its medium-term target which is also for 6 percent sales growth.

The British group gained as markets in Latin America, Africa and Asia showed strong demand for its range of drinks, a US recovery gathered steam while in Europe, Spain and Greece were in decline and the UK market disappointed.

“Trading in the third quarter remained strong with the year-to-date performance in line with the first half and our expectations,” said Chief Executive Paul Walsh in a trading update.

The 6 percent rise in its January-March third quarter underlying sales beat a forecast for 5 percent growth from a Reuters survey of six brokers. The rise was split equally between price rise and volume increases.

This saw the group’s nine-month sales to end-March rise 7 percent, similar to the increase in its July-December first half, with some three per cent coming from price rises.

The nine-month sales picture was led by Latin America and Caribbean with a 18 percent rise, Africa was up 12 percent, Asia Pacific 10 per cent ahead and North America 5 percent higher while Europe saw a fall of one percent.

Last week Pernod Ricard, Diageo’s biggest rival, reported a 3 percent rise in its third-quarter sales, with growth in the period limited by the early Chinese New Year and by French consumers stocking up ahead of a tax rise which boosted sales in the closing months of 2011 at the expense of early 2012.

 

 

BG agrees to sell Comgas to Cosan for $1.8bn

Gas and oil producer BG Group said it had agreed to sell its Brazilian gas distribution business Comgas to Cosan for $1.8bn (£1.1bn) as it unveiled soaring first quarter profits on the back of higher oil prices and production.

BG is selling its controlling stake in Comgas to focus resources on developing major finds in Brazil and elsewhere. Upstream oil production activities are traditionally more profitable than downstream businesses.

The company reported a 55 per cent rise in underlying profits to $1.27bn, in line with analyst forecasts.

BG said production rose 5 percent in the quarter compared to the same period in 2011, to 670,000 barrels of oil equivalent per day.

BG’s result compares to falling output at rivals BP, Chevron Corp and ExxonMobil Corp.

 

 

Service sector growth slower than expected

Business in the service sector grew more slowly than expected in April as clients remained cautious, although firms’ optimism rose to a two-year high and hiring picked up pace, a survey showed.
Combined with slower growth in manufacturing and construction, the data will fuel talk that the Bank of England may overcome its reluctance to inject more monetary stimulus into the economy, which has plunged into recession again around the turn of the year according to official figures.

The main Markit/CIPS Purchasing Managers’ Index (PMI) for the service sector – measuring the change in business activity such as income or chargeable hours worked – fell to 53.3 from 55.3 in March.

That was the lowest reading since November and compared to analysts’ forecasts for a smaller drop to 54.2, although the index still remained above the 50-mark that separates growth in activity from a decline.

PMI surveys earlier this week showed that manufacturing and construction also expanded, albeit less than in March.

“From what we are hearing from panelists, this certainly does not sound like an economy in recession,” said Chris Williamson, chief economist at Markit, which compiles the surveys.

“The PMI surveys suggest that the economy will have expanded again in April, and that the recent gloomy official data pointing to a downturn in the first quarter will eventually be revised to show modest growth.”

 

 

Cable seeks fund managers to guide green investment

The UK government is looking for fund managers to take care of a £100m public investment in energy-efficient infrastructure, in its latest move to attract private sector money and expertise into long-term infrastructure projects.

The fund managers selected will invest in so-called “non-domestic energy efficiency” projects. These will take place in the public sphere and include offshore wind farms, green recycling of industrial products and improving the energy efficiency of public infrastructure.

The government expects to invest between £20m and £50m with each manager and wants public money to be matched by private sector investment. It said it would make more funding available if it is impressed by the asset managers’ proposals, and if it is convinced that more investment would speed the expansion of the clean infrastructure sector.

To win the tender, fund managers have been asked to identify a pipeline of eligible projects that meet the yet to be agreed business plan. This includes “environmental goals and financial return targets”, according to a document released by UK Green Investments, part of the Department for Business, Innovation and Skills, headed by Vince Cable.

The government said it favoured “shovel-ready” plans that could be started immediately.

The move follows Chancellor George Osborne’s Budget that said the government was looking for partnerships with the private sector to improve UK infrastructure, including privatising some roads.

 

 

Why Sir Richard Lambert is the right man for the Committee on Climate Change

Sir Richard Lambert and John Gummer are reportedly in the running for the role, but it is the former CBI man who has the edge

01 May 2012, 00:05

It is one of the most important roles in the country, charged with independently assessing the UK’s transition to a low carbon economy and the government’s efforts to aid that transition. It has the power to embarrass governments, inform public opinion, and shape the policy environment for green businesses – which is why more attention should be being paid to the race to replace Lord Turner as chair of the Committee on Climate Change.

According to reports in the Financial Times it increasingly looks like a straight run-off between the former head of the CBI, Sir Richard Lambert, and the former Conservative Environment Secretary John Gummer, now Lord Debden.

It goes without saying that green groups would like to an experienced environmentalist to take up the role, after all who would not enjoy seeing an Attenborough or a Porritt periodically slamming the government for failing to take climate change more seriously. But the government has rightly decided that the Committee should be chaired by someone in a similar mould to Lord Turner, with extensive experience in and around government and business.

The chair of the committee is a position that will require considerable talents in balancing different points of view and policy responses, while also managing a wide array of environmental, economic and political priorities. It will be hard enough building widespread support for many of the committee’s more controversial recommendations as it is, without them being presented by a dyed in the wool environmental campaigner who will be accused of failing to understand competing economic concerns.

So the reported shortlist makes sense, but if the government is to choose between Lambert and Gummer there can only be one winner from a green business perspective. The next chair of the Committee on Climate Change has to be Sir Richard Lambert.

This assessment will be controversial in many green quarters. Lambert is both a former head of the CBI and a former editor of the Financial Times – two venerable institutions who have often belittled or undermined environmental causes while failing to pay sufficient attention to green businesses or the fast-emerging low carbon economy. It is easy to see why some green groups will immediately argue that they do not want to see “a CBI-man” passing judgment on the UK’s climate change strategy.

But while such a position is to be expected it also misunderstands Lambert’s role as a reformer at both the CBI and the FT. It was Lambert who enjoyed a decade of success at the FT, broadening its coverage beyond narrow financial concerns and cementing its position as the world’s premier source of business news and analysis. Just as it was Lambert that reinvigorated the CBI after the unreconstructed corporate dinosaur days of Sir Digby Jones, putting it on a noticeably more progressive path, particularly on environmental issues, which has been continued by his successor John Cridland. Significantly, he also chaired the Lambert Review on the relationship between business and higher education, an issue that remains crucial to the success of the low carbon economy.

As CBI director-general Lambert was a vocal critic of both the current and previous government’s lack of progress on green economic issues, using his last few years in the post to repeatedly criticise ministers on their failure to deliver much-needed energy and planning reforms, carbon reporting rules, a properly capitalised Green Investment Bank, and funding for carbon capture and storage, while praising measures such as the Climate Change Act.

He was also not above criticising businesses, once blaming the banking sector for failing to deliver the innovations in financing required to drive investment in energy efficiency. Yes, he sided with carbon intensive firms on plenty of issues, as bosses of the CBI often do, but talking to some of those who worked with him, behind the scenes he was an articulate advocate of the green economy, capable of cajoling politicians and business leaders into taking climate-related issues more seriously.

Anyone who thinks Lambert would be a soft touch on climate change needs to look more closely at the work he undertook at the CBI.

More important still, there are few people in the country with a more impressive black book than an erstwhile boss of the country’s most influential business group and most influential business newspaper.

The Committee on Climate Change is staffed by many of the UK’s leading economists and scientists and has a remit designed to rigorously enforce its independence. As such the reports, conclusions, and recommendations put forward by the Climate Change Committee should not change significantly, regardless of who is serving as chair. It is the chair’s role not to write the committee’s reports, but to use their influence and presentational skills to ensure they have an impact. Lambert’s ability to open doors and get meetings with the UK’s top business and political leaders, not to mention his former colleagues in Fleet Street, is likely to prove invaluable.

Lord Debden is without doubt a similarly experienced and impressive candidate. He was a respected Environment Secretary, has chaired several green businesses, proven himself a powerful advocate of environmental legislation through his work with Globe International, and more recently played a key role in the Quality of Life report that helped shape David Cameron’s position on green policies.

But several factors count against him. Politics is a rough game, and rightly or wrongly when people think of John Gummer it is still in association with his fateful decision to invite the cameras in to photograph his young daughter eating a burger at the height of the BSE crisis. Moreover, his public profile has remained relatively low over the past 15 years and it is hard to envisage him using the position as chair of the Committee on Climate Change to command too many headlines.

Most importantly, however, the committee is meant to be independent and it is difficult to understand how the government could defend appointing someone with such close links to the Conservative Party. This might be hugely unfair, and there is nothing to suggest Debden would not publicly castigate the Prime Minister if the UK’s commitment to tackling climate change slipped, but such an overtly political appointment would still undermine confidence in the committee. Lord Prescott has plenty of experience of climate change policy, but something tells me Conservative MPs would be none too happy if a future Labour government handed him the role.

According to Jim Pickard at the FT, none of these concerns bother David Cameron and he is keen to hand Debden the role, while Ed Davey is thought to have recommended that Lambert gets the job.

Neither candidate will satisfy everyone in the green community, just as neither candidate would let the committee or the wider green economy down. But if green business leaders want to see the Committee on Climate Change build on its record of occasionally rattling cages in Whitehall while also raising the profile of the low carbon economy, then Lambert is the man to lead it into its second act.

 

 

FTSE closes above 5,800 mark after good US data boosts world outlook

BRITAIN’S top share index jumped more than one per cent yesterday after stronger-than-expected US manufacturing data gave a lift to global growth hopes, pulling commodity stocks higher.

Banks were also in demand as investor risk appetite returned. Shares of Lloyds rallied more than eight per cent after the part state-owned lender reported a £288m pre-tax profit for the first quarter, significantly better results than a year ago.

At the close, the FTSE 100 index was up 74.5 points, or 1.3 per cent at 5,812.23, ending above the 5,800 level for the first time since 3 April.

Growth in the US manufacturing sector picked up unexpectedly in April, while new orders gained, Institute for Supply Management (ISM) data showed.

“Especially encouraging, that not only the overall ISM index is showing an improvement and beat expectations but also both the ISM new order index and the employment index are showing strong gains compared to the previous month,” said Markus Huber, senior trader at ETX Capital.

Aside from the US data boost, earnings news provided the main focus for Britain’s blue chips yesterday.

Lloyds was the top blue-chip riser, jumping 8.4 per cent after its results.

Its shares had fallen by up to 10 per cent in the run-up to the results.

The bank warned of a long, hard economic recovery and said it would set aside another £375m to cover compensation for people who were mis-sold insurance. But it also said it was making progress in reducing its loan book, cutting costs and reining in bad debts – all key parts of its recovery plan.

Royal Bank of Scotland, which will unveil its first-quarter numbers on 4 May, added 4.2 per cent.

As of Monday, European quarterly earnings were enjoying a better start than for the previous quarter, although results remain mixed, with 55 per cent of companies that have reported so far having met or beaten expectations.

Imperial Tobacco was also a top blue-chip gainer, up 3.7 per cent after the world’s number four cigarette group set up a £500m share buyback and said it saw a return to sales growth as it put its 2011 problems behind it.

Away from the earnings flow, miners rallied with copper prices after the US ISM data boosted hopes for improved demand. They had earlier been hit by below-forecast PMI data from top metals consumer China.

Energy stocks also bounced higher as crude prices recovered too, with the sector depressed earlier in the session by disappointing results from BP.

BP shares ended well off session lows but still shed 0.8 per cent after the group announced a bigger-than-expected drop in profits, despite rising crude prices, as production fell after it was forced to sell fields to pay for the Gulf of Mexico oil spill.
“Both [BP’s] upstream and downstream segments missed expectations and the group miss came despite a tax rate of 33 per cent vs 37 per cent in quarter one last year,” Bernstein Research said in a note.

Hedge fund manager Man Group was the biggest FTSE 100 loser, tumbling 5.5 per cent after it said clients withdrew a net $1bn in the three months to March.

Retailers also suffered ahead of trading news.

Next, which issues a first-quarter trading update today, fell 1.1 per cent, while mid cap Home Retail Group shed 5.3 per cent, with its full-year results due today.

 

 

House price slump is already upon us

HOUSE prices remain overvalued in Britain, locking out many aspiring buyers. Of that there is no doubt. But it is also the case that average prices have fallen far more than is usually understood; the single biggest reason why so many younger people cannot enter the market is because they have to put down much larger deposits and cannot borrow as much relative to their incomes. Given the prospect of further house price declines, these frustrated wannabe buyers may actually end up thanking their lucky stars.

The UK housing market peaked four years ago, with the average property going for a record £199,612 in August 2007, before tumbling all the way down to £154,663 by April 2009, according to the Halifax. The average price is now £163,981, and has been fluctuating around that level for the past 11 months. In cash terms, the average UK house is back to where it was in June 2005 – the gains of the last six years have been entirely wiped away. In real terms, we are probably back to early 2003 levels; this further demolishes the case for a wealth tax. The extent of the slump is rarely discussed – the continuing rise of prime central London property prices, fuelled by overseas demand and a ridiculous scarcity of family homes, has obscured the overall picture.

Compared with the all-time peak of four years ago, in cash terms, the average house price is down by 17.9 per cent, a devastating reduction. During that time, the retail price index has risen by a crippling 13.5 per cent – so in real terms, the price of the average home in the UK has collapsed by around a third. Prices are down in London too, on average, which busts another myth: they peaked at around £319,000 in the third quarter of 2007 and are now at £262,000.

Of course, the real loss to homeowners is even greater: billions are poured into the housing stock every year to refurbish, extend or modernise properties. Transactions are expensive; stamp duty raises a fortune and is a weird and unfair tax. Against that, the real value of mortgages is being eroded; homeowners with the largest mortgages are losing the least from the crash. Mortgage debt is a partial hedge against inflation. Interest bills are also down, often substantially.

Further house price falls are on the way, at least in real terms. The average house peaked at a preposterous 5.82 times full-time male earnings in April 2007. It is now at 4.45 times, still too high; the ratio won’t fall all the way back to the 3.1 seen in 2000, however, because the population is growing so fast and because restrictive planning rules are still scandalously constraining the supply of new homes. But the market will take another hit when the Bank of England eventually starts to increase rates, which will shock those who have become used to permanently rock-bottom rates.

Given that prices are bound to drop further, lenders will continue to insist on large deposits to protect themselves in case borrowers default – and of course it is these down-payments, combined with smaller loan to value ratios, which have put home-ownership out of reach for millions of people who could actually afford mortgage payments at current rates. But while having to pay exorbitant rents isn’t fun, the younger generation could yet have the last laugh: on current trends, they could end up paying significantly less for their first home when they finally manage to cobble a deposit together.

 

 

Delta to Buy ConocoPhillips Refinery for $180 Million

Delta Air Lines Inc. (DAL) is bringing some jet-fuel production in house, breaking with U.S. carriers’ reliance on outside providers, by acquiring a refinery that Phillips 66 had targeted for shutdown.

The world’s second-biggest airline will pay $180 million for the complex in suburban Philadelphia, according to a statement yesterday. Pennsylvania’s state government is putting up $30 million in assistance to defray the expense.

An airline-owned refinery is an experiment in the U.S. industry, said Ray Neidl, an airline analyst at Maxim Group LLC in New York. Atlanta-based Delta estimated the accord will save $300 million on its annual fuel bill, which was $11.8 billion last year, or about $32 million a day.

“Nothing ventured, nothing gained,” said Neidl, who has a buy rating on Delta shares. “Delta likes to try new things and I’m sure they studied this for months and ran the calculations. Nobody has done something quite like this before.”

Delta is buying the refinery in Trainer, Pennsylvania, through a subsidiary called Monroe Energy LLC, a nod to the airline’s original headquarters in Monroe, Louisiana. Trainer will add to earnings, boost margins and allow the airline to recoup its upfront investment in the first year, Chief Financial Officer Paul Jacobson said in the statement.

Delta fell 1.5 percent to $10.80 late yesterday in extended trading. Phillips 66 (PSX-W) begins trading today after the pipeline- and-refining company’s spinoff from Houston-based ConocoPhillips. The new company also will be based in Houston.
$100 Million Upgrade

Trainer can refine 185,000 barrels of crude per day, and Delta said it will spend $100 million to convert the refinery to maximize production of jet fuel, of which the airline consumed 3.86 billion gallons last year.

The plant had been idled for months, and without a buyer it would have been closed by the end of May because tighter profit margins are squeezing East Coast refineries. Sunoco Inc. (SUN) and Valero Energy Corp. (VLO) are among companies also shutting or planning to sell refineries along the U.S. East Coast, in Europe and the U.S. Virgin Islands as oil prices rise and demand wanes.

BP Plc (BP/) will supply crude oil to be refined at the Trainer refinery, and Delta said it will exchange gasoline and other refined products for more jet fuel through multiyear agreements with BP and Phillips 66.

Delta estimates that refining costs account for $2.2 billion of its fuel bill, and those production-related expenses are the fastest growing at the airline, Chief Executive Officer Richard Anderson told reporters yesterday on a conference call.
Delta Fuel Access

The deal also will help ensure jet-fuel availability at important Delta hubs, including New York’s John F. Kennedy International and LaGuardia airports, Anderson said.

“We have had this matter under study for the better part of the year,” Anderson said. “It was clear we needed to exert much more control over the supply chain.”

Delta’s purchase was also “driven somewhat by the alarming rate of shutdowns” of refineries in the northeastern U.S., President Ed Bastian said.

Fuel accounted for 36 percent of Delta’s operating costs last year. Delta has hedged 70 percent of this quarter’s fuel needs pegged to prices at $3.05 to $3.40 a gallon, according to data compiled by Bloomberg.

Jet fuel for immediate delivery in New York Harbor rose 0.2 percent to $3.30 a gallon yesterday. The average price in 2012 before today was $3.23 a gallon, 6 percent more than for the same period a year earlier.
Profit Challenge

One challenge for Delta may be showing that it can operate the Trainer refinery more profitably than its previous owner did.

“You do have to question a little bit Delta management’s thought that they can run it better than ConocoPhillips,” said Kyle Cooper, director of research at Houston-based consultant IAF Advisors. “They’ve hopefully done their work and their analysis that says that this hedging cost is going to be lower than their current hedging cost.”

Cory Garcia, an analyst at Raymond James & Associates Inc. in Houston, said letting the Trainer plant close might have been a better outcome for the oil industry, which is adding refining capacity outside the U.S.

“What you need to see is these less-profitable refineries come out of the market, shut down in order to rationalize or balance the overall supply-demand equation,” said Garcia, who rates ConocoPhillips (COP) as market perform.

Trainer will be run by Jeffrey Warmann, who has 25 years of experience in the industry, most recently as refinery manager for Murphy Oil USA Inc.’s plant in Meraux, Louisiana, Delta said.

Delta’s longer-term commitment is to invest $350 million at the facility, including acquisition costs, and keeping at least 402 full-time workers for five years from the date of occupancy, Steven Kratz, a spokesman for the Pennsylvania Department of Community and Economic Development, wrote in an e-mail message.

 

 

Gold Falls a 2nd Day on Speculation Stimulus Not Needed

Gold declined for a second day in London on speculation economic growth will reduce the need for the Federal Reserve to add to stimulus measures.

Three voting members of the Federal Open Market Committee said they don’t see a need to ease policy further as the economy maintains its expansion. Gold-backed exchange-traded products fell to a three-month low after prices yesterday reached a two- week high. Gold imports by India plunged to 30 to 35 metric tons in April from 90 tons a year earlier, the Bombay Bullion Association said today.

“Pockets of profit-taking have been seen,” James Moore, an analyst at TheBullionDesk.com in London, said today in a report. “Comments from several Fed officials diminished the likelihood of QE3, prompting investors to cut” gold ETP holdings, he said, referring to more quantitative easing.

Bullion for immediate delivery slipped 0.5 percent to $1,653.93 an ounce by 9:41 a.m. in London. Prices reached $1,671.57 yesterday, the highest since April 13. June-delivery futures were 0.5 percent lower at $1,654 on the Comex in New York.

Fed Bank of Richmond President Jeffrey Lacker said in Washington yesterday that more monetary stimulus risks stoking inflation while doing little to strengthen the recovery. The San Francisco Fed’s John Williams said the outlook he sees doesn’t warrant more bond buying, and Atlanta’s Dennis Lockhart repeated that he’s skeptical of the benefits of such action.

Holdings in bullion-backed ETPs fell 4.1 tons to 2,381.6 tons yesterday, data compiled by Bloomberg show. Assets are about 1.2 percent below the March 13 record and the lowest since Feb. 1. Prices are up 5.7 percent in 2012 after advancing for 11 consecutive years.
‘Aimless’ Bullion

“Significant ETF buying will have to resume in order to breathe some life back into gold,” Edel Tully, an analyst at UBS AG in London, wrote today in a report. “Absent that resuscitating factor, we think gold is likely to continue its aimless wander.”

Silver for immediate delivery dropped 0.7 percent to $30.7675 an ounce. Palladium fell 0.8 percent to $675.25 an ounce, after reaching $686.75 yesterday, the highest level since March 22. Platinum was 0.4 percent lower at $1,565.50 an ounce.

 

 

Emerging Stocks Advance to 3-Week High on Manufacturing

Emerging-market stocks headed toward the highest in more than three weeks after manufacturing in the U.S. and Chinese picked up pace in April, boosting the outlook for exporters to the world’s two biggest economies.

The MSCI Emerging Markets Index (MXEF) advanced 0.6 percent to 1,031.59 as of 9:56 a.m. London time, set for the strongest close since April 6. Most emerging markets were closed for public holidays yesterday. China Construction Bank Corp. (939) led Chinese shares higher in Hong Kong. The BUX Index (BUX) rose 1 percent in Budapest as Hungary prepared to start negotiations on a credit line from the International Monetary Fund and the European Union.

The final reading of a Chinese purchasing managers’ index from HSBC Holdings Plc (HSBA) and Markit Economics rose to 49.3 today from a preliminary 49.1 reported April 23 and a final 48.3 in March. In the U.S., the Institute for Supply Management’s factory index climbed to 54.8 in April from 53.4 a month earlier, the Tempe, Arizona-based group’s report showed yesterday. The median forecast of 79 economists surveyed by Bloomberg News called for a drop to 53.

“If countries like China are already exporting across Asia and now there’s signs of the U.S. recovering, they will have to boost production to meet that new demand,” Irvin Patmadiwiria, who helps manage about $141 million at PT Lautandhana Investment Management, said by telephone in Jakarta. “This may change analysts’ views to be more positive on the global outlook.”
Euro Region PMI

Emerging shares pared gains after a factory gauge based on a survey of euro-region purchasing managers slipped to 45.9 from 47.7 in March, London-based Markit Economics said today. That’s the lowest in 34 months and compares with an estimate of 46 published on April 23. A reading below 50 indicates contraction.

Haci Omer Sabanci Holding AS (SAHOL), Turkey’s second largest conglomerate, fell 1.9 percent in Istanbul. Standard & Poor’s cut its outlook for Turkey’s long-term foreign and local currency debt ratings to stable from positive yesterday.

The Micex Index jumped 0.8 percent in Moscow and the FTSE/JSE Africa All Shares Index (JALSH) gained 0.6 percent in Johannesburg.

The Hang Seng China Enterprises Index (HSCEI) of Chinese stocks listed in Hong Kong rose 0.6 percent. China Construction Bank rose 2 percent. The Shanghai Composite Index gained 1.8 percent, the most in two weeks.
Asustek Computer

Taiwan’s Taiex Index (TWSE) gained 2.3 percent after the government said today it decided to postpone electricity price increases to June 10 from initially May 15. Asustek Computer Inc. (2357), a laptop maker, rallied 7 percent to its highest level since May 2008 after reporting earnings that beat analyst estimates.

The Kospi Index advanced 0.9 percent in Seoul. Samsung Electronics Co. (005930), South Korea’s largest exporter of consumer electronics, added 1.4 percent. OCI Co. (010060), South Korea’s No. 1 maker of polysilicon for solar cells, surged 9.1 percent. OCI’s steepest increase since came after El Pais newspaper reported the European Union is working on a 200 billion-euro ($265 billion) investment package in infrastructure renewable energy and technology in the euro-area’s worst-hit countries.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell one basis point, or 0.01 percentage point, to 342, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps fell two basis points to 275.

 

 

BSkyB reports record results

Pay-TV group BSkyB posted record nine-month operating profit as an increasing number of subscribers turned to the group for broadband and phone services.

Showing little effect from the fallout of a failed bid by Rupert Murdoch’s News Corp to seize full control of the group, BSkyB posted revenues up 5 percent to £5.1bn and earnings per share up 24 per cent.

The strong financials were driven by solid demand for services such as broadband and telephony, which made up for the fact that the group has started to add fewer new customers to its main television service.

The group added 15,000 new customers to the TV service, broadly in line with expectations, but well below the 51,000 it added in the quarter last year.

“We have made a good start to 2012,” chief executive Jeremy Darroch said. “In what remains a tough economic environment, strong and consistent execution of our plan has delivered good growth across our product range.”

BSkyB has added fewer net new customers to its service in recent quarters, but instead focussed on good cost control and selling more products to existing customers to boost its financial performance.

 

 

Media giant under siege as MPs strike

News Corp savaged in report – but Labour and Tories clash over whether Rupert Murdoch is fit to run his empire
LAUREN DAVIDSON

RUPERT Murdoch was yesterday lambasted by a powerful group of MPs for turning a blind eye to instances of wrongdoing at News International.

The House of Commons’ culture, media and sport committee found after its five-year investigation concluded yesterday that “the whole affair demonstrates huge failings of corporate governance at [News International] and its parent company [News Corp]”, adding that the group’s chief executive Rupert Murdoch “exhibited wilful blindness to what was going on at his company.”

But MPs split along political lines over a clause in the report which said the tycoon “is not a fit person to exercise the stewardship of a major international company”, using words widely seen as a reference to a current probe by Ofcom. The media regulator is looking into whether BSkyB, and its dominant shareholder News Corp, is a “fit and proper” owner of a broadcast licence and could force News Corp to divest some or all of its shares in BSkyB.

The relevant section, proposed as an amendment by Labour MP Tom Watson, scraped through with a vote of six to four MPs, with all the Tory members of the committee refusing to back the final report in its entirety.

Watson claimed he was standing up for what he believes because he wanted to avoid accusations that the committee ducked its responsibility. He expressed disappointment that not all committee members felt “inclined or confident to hold the most powerful to account”.

But Conservative MP Louise Mensch criticised Watson’s actions, calling the clause “wildly outside the scope of the committee” and an “improper attempt to influence Ofcom”.

Ofcom said it was reading the select committee’s report “with interest” and would continue to assess independently the evidence from the culture department’s inquiry.

The ten MPs were, however, unanimous in their agreement that three executives at News International “demonstrated contempt for parliament in the most blatant fashion”.

Former News International executive chairman Les Hinton, News Group Newspapers’ ex-legal manager Tom Crone and the final editor of the News of the World Colin Myler were singled out as having misled the committee by deliberately withholding information or answering questions untruthfully.

News Corp last night conceded the “hard truths… that there was serious wrongdoing at the News of the World, that our response… was too slow and too defensive, and that some of our employees misled the select committee”

But the media giant criticised the committee’s commentary on Rupert Murdoch, calling it “unjustified and highly partisan”.

 

 

Standard Chartered in single digit income growth

Standard Chartered said its first-quarter income grew by less than its previous 10 percent target, as the strength of the US dollar against Asian currencies impacted income growth.

London-based Standard Chartered, which gets about four-fifths of its income in Asia, earns much of that income in local currencies, which translates to fewer dollars when the US currency strengthens.

Despite this, the overall tone of the bank’s management update was positive, with expenses under control and income growth exceeding cost growth. The bank said that while India continued to disappoint it saw double-digit income growth in Hong Kong, Malaysia, Indonesia, China and the Americas, as well as in its home market.

The bank reported most difficulty in areas such as corporate finance that have been tough for the industry as a whole. It reported strong growth as expected in both its consumer and wholesale banking divisions.

“Overall, the statement is broadly in line with the guidance given when the bank reported (2011) second half results,” said Tom Quarmby, an analyst at Barclays, “and the consensus forecast for the stock should be reachable.”

 

 

FTSE shored up by strong blue chip results

The FTSE 100 was flat in early trading as better than expected US manufacturing figures were offset by the bleak picture in the Eurozone.

US manufacturing expanded at its fastest pace for 10 months fuelling confidence in the recovery of the world’s largest economy. However, the Eurozone’s manufacturing sector slipped further into decline last month, figures out this morning showed.

Strong UK corporate results helped keep the London market steady in early trading. Next was the top performer on the blue chip index, up 2.2 per cent after a resilient trading update, while luxury retailer Burberry also lifted by just over one per cent.

Satellite broadcaster BSkyB was ahead by 2.1 per cent after posting record third-quarter profits. Another top riser was packaging giant Rexam, up 1.2 per cent. Sugar and sweeteners company Tate & Lyle nudged up by a similar level.

Ex-dividend factors knocked 3.43 points off the FTSE 100 with Admiral Group, ARM Holdings, Barclays, Croda International, ITV, Kingfisher, Weir Group and Xstrata all trading without their payout attraction.

Home Retail Group fell more than five per cent after the Argos owner said its full year profit was down 60 per cent. The company also scrapped its dividend.

Hedge find giant Man Group was off by more than two per cent as the company continues to struggle. Shareholders yesterday staged a revolt over a $7m package awarded to chief executive Peter Clarke despite the company’s sinking share price.

In banking Barclays was the biggest loser, down by more than two per cent. Asia-focused Standard Chartered also dropped by two per cent after reporting a single digit rise in income. The bank said it was planning growth in China and was upbeat on the year ahead.

RBS dipped by 0.4 per cent while Lloyds was pegged back by 1.5 per cent. In European banking UBS reported a halving of profits.

In Asia the Nikkei closed up 0.3 per cent while the Hang Seng nudged up by just over one per cent.

Meanwhile approvals for home loans in Britain rose unexpectedly in March, suggesting the housing market continued to recover despite the end of a tax exemption for first-time buyers, Bank of England data showed.

 

 

UBS first quarter profit down

UBS said first-quarter profit more than halved, dragged down by a 1.16bn Swiss franc (£788.76m) hit to profit due to charges on its own debt.

The Swiss bank struck a cautious note for the second quarter, saying economic worries rattling wealthy clients such as the eurozone debt crisis, concern over Europe’s banks and the US deficit are likely to take a toll.

“Failure to make progress on these key issues would make further improvements in prevailing market conditions unlikely and would have the potential to continue the headwinds for revenue growth, net interest margins and net new money,” UBS said in a statement.

The bank voiced confidence its flagship private banking arm would still attract fresh assets, a key bellwether for future revenue.

Net profit fell to 827M Swiss francs from 1.807bn a year earlier. Analysts called for net profit of 1.11bn Swiss francs in a Reuters poll.

UBS, which announced in November it would scale back its investment bank business to focus on private banking, said it is on track to achieve its target of CHF 2 billion of cost savings by the end of 2013.

The bank cut risk-weighted assets by roughly 30 billion Swiss francs in the quarter, putting it ahead of its reduction target for this year.

 

 

German Jobless Unexpectedly Up in April as Crisis Flared

German unemployment unexpectedly rose in April as the sovereign debt crisis damped economic growth.

The number of people out of work increased a seasonally adjusted 19,000 to 2.87 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 10,000, the median of 34 estimates in a Bloomberg News survey shows. The adjusted jobless rate was unchanged at 6.8 percent, a two-decade low. The labor agency revised up some figures for February and March

Declining unemployment has helped gird Europe’s largest economy against the debt crisis by bolstering household spending as export growth slows. Exports will climb 3 percent this year compared with 8.2 percent last year as demand in primary European markets wanes, the government forecast on April 25.

“The positive trend on the labor market remains intact, but the economy has lost momentum,” Frank-Juergen Weise, the labor agency’s president, said in an emailed statement. He said the jobless survey also ended during rather than after the Easter holiday in April, meaning fewer people were taking part in labor agency employment programs at the time.

The euro extended its decline after the jobless data were published, dropping as low as $1.3166 from $1.3228 this morning.

Euro-area manufacturing shrank for a ninth month and more than initially estimated in April, another report showed today, adding to signs the economic slump in the region is worsening.
Euro-Area Recession

The German economy will grow just 0.7 percent this year after 3 percent expansion in 2011, according to the Berlin-based Economy Ministry.

The economy of the 17-nation currency area will contract 0.3 percent, the European Commission forecast on Feb. 23, abandoning a November forecast of 0.5 percent growth. Spain’s economy, the euro area’s fourth largest, shrank 0.3 percent in the first quarter. Germany sells 40 percent of its exports in the euro region and 60 percent to the European Union as a whole.

Still, German business and investor confidence indicators have beaten forecasts every month this year. The Ifo business confidence gauge rose to an 9-month high in April and an investor confidence index published by the ZEW Center for European Economic Research rose for a fifth straight month.

Production in Germany’s electrical sector may expand 5 percent this year, outpacing pre-crisis levels of growth in 2007 and 2008, the ZVEI industry lobby group said on April 23. China will import about 12 billion euros ($15.9 billion) of goods this year from ZVEI members, the group said.
New Jobs

German companies from builders to information technology firms aim to boost hiring. Germany’s ZDB building trades group will create about 16,000 construction jobs this year as orders rise, the group forecast on April 25. IT federation BITKOM said on April 4 that demand for technology linked to smart phones, tablets and cloud computing will help create 6,000 new jobs in Germany in 2012.

Demand from the U.S. and China will lead to Volkswagen AG (VOW)’s Audi unit creating about 2,000 jobs this year at its Ingolstadt and Neckarsulm plants, the company said on April 9. That’s 800 jobs more than previously announced.

Moderate wage claims that helped the economy climb out of recession in 2009 are being abandoned in sectors from banks to engineering and public services, helping support private consumption. The Ver.di union won a 6.5 percent wage increase last month for about 2 million public sector workers. The increase matches the current wage demand of IG Metall, Europe’s biggest union.

Weise said rising wages “could increase private consumption, which would help the employment market.”

 

 

Madness in Spain Lingers as Ireland Chases Recovery: Mortgages

From atop the stone walls of Avila, Spain, a medieval city an hour’s drive northwest of Madrid, beyond the parking lots and empty playgrounds and thousands of vacant new apartments, a construction crane can be seen moving on the horizon as building continues.

“Avila isn’t an exception,” said Jesus Encinar, co- founder of Madrid-based Idealista, Spain’s largest property website, and an Avila native. “It’s a small-scale example of the madness that gripped the whole real estate industry.”

In the stages of death of a real estate boom, Spain is still in denial. In Ireland, they’re moving toward acceptance. The first auction of one of 2,000 unfinished housing estates takes place tomorrow at the Shelbourne Hotel in central Dublin, with sales expected to fetch cents on the euro, showing the Irish may be closer to the end than the beginning.

“Ireland faced up to its problems faster than others and we expect growth there rather soon,” said Cinzia Alcidi, an analyst at the Centre for European Policy Studies in Brussels. “In Spain, there was kind of a denial of the scale of the problem and it may be faced with many years of significant challenges before full recovery takes place.”

Spain, Europe’s fifth-largest economy, is the current focus of attempts to contain the region’s sovereign debt crisis, as Prime Minister Mariano Rajoy struggles to quell speculation it will need a bailout. Developers are showing similar optimism. They continue to build even with 2 million homes vacant around the country, new airports that never saw a single flight being mothballed, and property appraisers and banks reporting values have fallen only about 22 percent, said Encinar, who estimates the real decline is probably at least twice that.
Legacy of Bust

Ireland, where home prices have fallen a record 49 percent since peaking in 2007, is making more progress as it deals with the legacy of a bust that crippled its economy, once the most dynamic in Western Europe. The state purged lenders of 74 billion euros ($98 billion) of mostly toxic commercial mortgages by creating a bad bank, and poured enough cash into the financial system to make it among the best capitalized in Europe. Building virtually halted overnight in 2008 after debt markets seized up globally.

Spain has so far rejected the bad bank model, even after Standard & Poor’s last week cut the country’s credit rating to BBB+ from A, on concern the government will need to provide further support to banks.
Truth About Spain

On the plain below the central walled city of Avila, a world heritage site and a popular tourist destination, the province with a population of 171,680 has about 19,000 apartments and villas empty or unfinished, according to Borja Mateo, the author of “The Truth About the Spanish Real Estate Market.”

Ministry of Infrastructure figures show 23,419 homes were constructed in the decade through 2007, with another 11,000 homes built there since 2008. The sprawling developments are dotted with thousands of empty parking spaces, while streets have makeshift barriers where the money has run out, others simply end in fields.

Miguel Angel Garcia Nieto, mayor of Avila for the past decade, disagrees that his city has been overbuilt.

“When we approved the first urban plan back in 1998 there was an unprecedented demand for homes,” Nieto said in a telephone interview on April 19. “Yes, there is oversupply at the moment because of the financial crisis and everyone’s gone back home to live with their parents, but it’s not because there is lack of demand. When the economy gets back on track I am confident the supply will be absorbed.”
European Bailouts

That may take decades, said Encinar, after Spain’s jobless rate rose to 24.4 percent in the first quarter, the highest in almost two decades and the economy is mired in a recession that the International Monetary Fund predicts will cause it to shrink by 1.8 percent in 2012.

The Spanish real estate bust is the biggest test to date for European authorities. Spain’s economy is almost twice that of Greece, Portugal and Ireland combined, and yields on its 10- year bonds have climbed to 5.8 percent from 4.8 percent in February, approaching the levels of those countries when they had to be bailed out.

Spain and Ireland are “very similar,” said Angel Mas, president of European mortgage insurance at Genworth Financial Inc., in an interview in Madrid. “They had never experienced this cheap credit, same as here. And they experienced a construction boom that at the beginning was out of necessity, but they couldn’t stop it.”
Speed of Response

The key difference is the speed in which the two nations are responding to the collapse. In 2009, Ireland created the National Asset Management Agency, or NAMA, a so-called bad bank. It used bonds to buy commercial real estate loans from the banks with a face value of 74 billion euros for 32 billion euros. That left banks needing capital, leading the state to pour in cash and nationalize five of the six biggest lenders.

NAMA is now seeking investors for those assets it can sell, and forcing debtors to rent out some of the remaining properties to produce revenue.

Irish home prices were unchanged in March, the first month values have not fallen since August 2010, according to the country’s statistics office. In Dublin, residential prices rose 0.7 percent in March.

“The big knock to the domestic economy was the fact that building and construction totally collapsed and that was over 20 percent of the economy and it was bang, gone completely,’” Finance Minister Michael Noonan said in a speech to a Parliamentary committee on April 25. “It is beginning to move, it is very tender shoots of growth at the moment.”
Second Recession

While the negative drag from construction in Ireland is largely over, Spain still has a ways to go, Alcidi said. The economy will barely grow next year after contracting in the fourth-quarter, entering its second recession since 2009. The Irish economy will expand 0.5 percent this year and 2 percent next year, the IMF said on April 17.

Still, the empty buildings that pockmark the landscape of both countries are testament to their similarities.

South of Dublin’s city center lies Sandyford, earmarked as a new residential quarter at the height of Ireland’s boom. Instead, two towers lie unfinished, with one covered by a fraying tarpaulin depicting imaginary residents drinking cocktails on non-existent balconies. A Bank of Ireland branch at ground level is one of just a few businesses open in the area.

A glass window in the South Central apartment block’s marketing suite there has been shattered and the chairs inside draped with dust covers.
Europe’s Poorest Countries

Sandyford and Avila are reminders of the booms that fueled both economies and the busts that crippled them. In the 1970s and 1980s, Spain and Ireland were among the poorest countries in Europe. Following the creation of the euro, both tapped into international money to fuel the growth in their real estate markets.

Prices doubled in Spain in the decade through 2007. Irish house prices more than quadrupled from 1995 to 2005 to an average of 303,247 euros, the fastest growth among 18 countries surveyed by the Paris-based Organization for Economic Cooperation and Development.

Former Irish Minister Tom Parlon recalls putting a 2.1 acre site of the state’s veterinary college in Dublin’s embassy belt of Ballsbridge up for sale in 2005.
‘Wildest Dreams’

“We thought in our wildest dreams that maybe it might make 100 million euros, which was a crazy price,” he said. “When the bids were opened there was a bid of 171 million euros and the developer was backed up by one of our main banks. That was just a flavor of the madness.”

The site is currently being used by a local luxury car dealer, MSL Ballsbridge Motors, to store vehicles, mainly Daimler AG’s Mercedes-Benz models.

On the northern outskirts of Madrid, near Barajas airport and the Real Madrid soccer team’s training ground, is Valdebebas, a development project under construction covering more than 10.6 million square meters of space. About 5,400 of the planned 12,500 homes have been built and another 2,100 are under construction, according to a spokesman for the project who declined to be identified by name, citing company policy. The development, which belongs to private land owners who pooled their property, is backed by banks including Banco Bilbao Vizcaya Argentaria SA and Aareal Bank AG. (ARL) There are bus tours on Saturday for potential buyers, and an open house of the model homes every Sunday.

“In Spain, there seemed to be an effort to smooth out the pace of activity rather than face the shock, as Ireland did,” said Alcidi. “That means the adjustment is going to take much longer in Spain.”
Fueled by Incentives

At the height of their respective real estate booms, construction accounted for more than 20 percent of the economies of both Spain and Ireland. In Spain, the figure is now about 14 percent, according to Alcidi. In Ireland, the figure is just 5 percent.

Both booms also were fueled by incentives. In Ireland, the government gave investors tax breaks to build in certain areas, and granted homeowners breaks on their interest payments. In Spain, there were incentives for municipalities to approve land for development because they could keep 10 percent of all the land they reclassified. The towns would get revenue from the developments and they could use the land they acquired as collateral for loans, said Encinar.

About 230,000, or about two-thirds, of Irish construction jobs have gone since 2007. Home building will hit an all time low this year, with just 1 house per 1,000 people being built, compared with 15 in the 2000s, according to the Society of Chartered Surveyors Ireland.
‘Drunk on the Revenue’

“It was a mania,” said Parlon, the former Irish government minister who now heads the Construction Industry Federation. “You could say the government was drunk on the revenue that was coming from all the construction taxes.”

In other respects, too, the Irish are moving to deal with the overhang of vacant properties. On Dublin’s north quays lies a half-completed, eight-story skeleton of an office block. Anglo Irish Bank Corp. had planned to use the tower as its headquarters before the company’s collapse helped push Ireland toward the international bailout the country agreed in 2010.

It was constructed by Liam Carroll, one of the country’s biggest developers, who has seen many of his assets seized by banks.

The skeleton office block is “becoming a landscape photo for Ireland internationally,” Brendan McDonagh, NAMA’s chief executive officer, told lawmakers on Oct. 26. “Everybody who comes to Dublin to see us wants to see the Anglo Irish Bank building; they ask the taxis to bring them around,” he said. “It is a landscape eyesore and it needs to be dealt with.”
Visible Wound

Ireland’s central bank has agreed to pay about 8 million euros ($10 million) for the office block, and will make the tower its headquarters, removing the most visible wound of the crash. In all, about 15 percent of Irish homes were vacant in 2011, the country’s statistics office. About 20 percent of office space in Dublin is vacant.

In places like Sandyford, NAMA is behind the rental of about 1,000 properties, as it seeks to make it more attractive to sell towers of apartments to investors. The agency is also enticing buyers for homes by effectively insuring against price declines.

NAMA is finishing a plan to ask individual buyers for 80 percent of the purchase price at the time of the transaction and only collect the remaining 20 percent if the market value remained the same or increased by a certain amount. If the value fell, the purchaser would have to pay only part of the outstanding amount or, in some cases, nothing at all.
‘Stabilize and Recover’

“The banking system is in a lot better shape than it was two years ago but there is a road still to be travelled,” McDonagh said in an interview. “What you’re trying to do is balance out and give yourself a chance for the Irish market to stabilize and recover.”

McDonagh has said the agency may end up bulldozing some of the ghost estates that litter the country. Two estates controlled by NAMA may be demolished, and the agency used laws for the first time last month to take control of a development to stop it from falling into a dangerous state.

Others may end up at distressed property auctions run by Allsop, whose previous auctions have drawn crowds of hundreds. At one point, the company had to employ security guards to marshal bidders, and broadcast the sale to the overflow crowd watching at Doheny & Nesbitts, one of the city’s best known bars.
‘Eyes on This Sale’

Now they are readying for their first sale of an unfinished estate at the Shelbourne Hotel, where the Irish constitution was drafted in 1922. The lot, in Cavan, consists of three unfinished houses and a field with planning permission for another 31 homes.

“There will be a lot of eyes on this sale,” said Robert Hoban, director at auctions at Allsop. “‘It is representative of a large number of unfinished developments across the country that people are trying to find a solution to.”

Spain shunned proposals to create a bad bank like NAMA to acquire toxic real estate assets, with Economy Minister Luis de Guindos saying this week the nation won’t seek a European bailout for its lenders. Instead, authorities pushed banks to pay for the clean up by absorbing weaker lenders. Spanish banks hold about 329,000 foreclosed homes, helping to prevent steep price declines, and provide 100 percent financing on easy terms such as interest-only payments for up to three years, for buyers who agree to buy the banks’ properties.
Artificially High Prices

“Banks are employing financing like a weapon of mass destruction to sell their stock and keep prices artificially high by using high loan-to-value mortgages,” said Mikel Echavarren, chairman of Irea, a corporate finance company that specializes in the real estate industry. “Today in Spain it’s easier to buy a 200,000 euro flat from a bank with 100 percent financing than buy a 150,000 flat from an individual homeowner where you have to have a 20 percent deposit.”

The psychological shock in Spain stems in part from the length of the boom, which stretched more than a decade, said Encinar. After the country made the transition from the dictatorship of Generalissimo Francisco Franco, who ruled from the end of the Spanish civil war in 1939 until his death in 1975, to a modern European democracy, economic expansion and home price growth were driven by a succession of developments over the next four decades: women joining the workforce, slowing inflation, the adoption of the euro and the growth of tourism and increasing property purchases by foreign buyers, mainly in coastal areas.
‘Coffee All Around’

Governmental authority also moved to regions and municipalities. The decentralization was nicknamed “cafe para todos” or “coffee all around,” and Spain’s autonomous communities demanded self-government and greater control over issues such as health and education, and taxes and financing. And many local governments were eager to build.

“It took 20 centuries for the center of Avila to be developed, and in the last 10 years they’ve developed twice that amount,” said Natalio Encinar, a brother of Jesus Encinar who still lives in Avila. Until demand collapsed, “the main industry here was building houses. And plumbers made more than engineers.”

 

 

Legal firms hit by fresh downturn

LONDON’S increasingly embattled legal sector suffered a further blow yesterday, as magic circle stalwart Slaughter and May froze associate salaries and Herbert Smith announced 51 redundancies in its City office.

Only second-year associates at Slaughters will see their pay packets rise, though by less than one per cent, while salary bands for the firm’s other qualified lawyers remain static.

The pay freezes at Slaughters come on the heels of minimal rises at fellow magic circle firm Allen & Overy, which set the scene for an anaemic round of pay hikes earlier this month when it announced associate salary increases of less than one per cent – well below the average across the private sector.

Adding to the misery was Herbert Smith, which said yesterday it would cut just over three per cent of its London staff, with the bulk of lay-offs falling in the firm’s corporate team. The global firm employs 700 lawyers in London, including 164 partners.

The firm’s management put the cuts down to a stagnant deal market, but outside sources told City A.M. that given that the firm had already seen several departures from its corporate practice in recent months, the redundancies were surprising.

“We have waited in the hope that conditions in transactional markets would improve – but against a backdrop of continuing uncertainties in these markets, we believe now is the right time to address the issue,” said managing partner David Willis.

Though the numbers being cut are still a long way off the widespread redundancies seen across the sector during 2008-09, there are also ominous-sounding “partner restructures” underway at magic circle firms Clifford Chance, Allen & Overy and Linklaters, and industry analysts expect more to come.

A study last month by RBS’s legal services team predicted that 3,000 lawyers will leave the UK legal sector this year, with a further five per cent of overall headcount needing to be cut in order for margins to return to pre-crisis levels. The survey of 60 senior legal executives also found most to be bearish on the outlook for the rest of the year, predicting flat or falling revenues for their firms.

Fee income at the UK’s top 100 law firms increased by 7.2 per cent year-on-year in the three months to the end of January according to Deloitte – but this was down on the 9.8 per cent growth seen in the previous quarter, and law firms bosses have made no secret that they’re expecting a tough second half of 2012.

“I’m not surprised by the pay freezes,” said Guy Adams at legal recruiter Laurence Simons. “Law firms are very cautious due to downbeat economic data, as well as pressure from clients who are becoming much more savvy about pricing.”

New York firm Dewey & LeBoeuf – which has 140 lawyers in London – is also proving that the US legal sector is far from unscathed. Around 20 partners left the firm yesterday after a weekend that saw its chairman step down and merger talks with Greenberg Traurig end. The firm was last night racing to extend a deadline on more than $75m of its debts.

 

 

Xstrata copper production dips

Miner Xstrata, which is moving into the final stages of a record tie-up with commodities trader Glencore, posted a drop in first-quarter copper production as it prepares for the ramp up of key projects in the second half of the year.

Xstrata, which said all its major projects were making good progress and remained on schedule, said quarterly copper output dropped more than 18 per cent year-on-year, after it reached the end of life of mines including the Ernest Henry open pit in Australia, while newer projects were still ramping up.

It produced 171,121 tonnes of copper in the quarter.

Mined coal, a key earner for Xstrata along with copper, saw consolidated production increase by nine per cent year-on-year to 21.1m tonnes in the first quarter of last year, when the sector was battered by bad weather. Production was slightly down, however, on the fourth quarter of last year.

While iron ore has become the focus of operations at several of the largest diversified miners, copper and coal account for more than 70 percent of Xstrata’s profits and both are key planks of its growth strategy.

Xstrata agreed in February to a long-awaited $37bn (£22bn) all-share takeover by Glencore, its largest investor. The trader is offering 2.8 Glencore shares for every Xstrata share held.

 

 

Man Group says client outflows slow

Man Group said clients pulled out less of their cash in the first three months of this year than in the previous quarter, raising hopes that the beleaguered hedge fund manager may soon stabilise its business after a dire past six months.

The firm, whose share price has fallen by almost 60 percent since September due to investor outflows and poor performance from its flagship fund, said clients withdrew a net $1 billion in the three months to 31 March.

Analysts at Numis had expected a $1.5bn net outflow. In comparison, the firm saw $2.5 billion of net outflows in the final three months of 2011.

“Redemptions reduced but investor sentiment remained fragile and we are yet to see an increase in sales,” CEO Peter Clarke said in a statement.

Assets under management fell to $59bn from $59.5bn at the end of February.

Man’s $21bn black box fund AHL has struggled this year, losing 2.2 percent so far in 2012 after falling 6.4 per cent last year. The firm said on Tuesday that AHL was on average 14 per cent away from its so-called high-water mark, above which it can earn lucrative performance fees.

However, funds at Man’s manager-driven GLG unit – which it bought for $1.6bn in 2010 – have made gains this year.

Buoyant markets have helped drive appetite for hedge funds this year. Data from GlobeOp shows investor demands to pull money out of hedge funds fell in April.

In March CEO Peter Clarke said there had been a “significant” fall in net client outflows this year, particularly in February

 

 

BP profit falls as Gulf spill takes toll

Oil najor BP reported a bigger-than-expected drop in profits despite an increase in crude prices, as production fell after it was forced to sell fields to pay for the Gulf of Mexico oil spill.

London-based BP added it would continue its disposal programme, putting some smaller fields in the Gulf of Mexico on the block. A spokesman said the group was not pulling back from the area but was seeking to focus on larger fields there.

Europe’s second-largest oil group by market value said its replacement cost (RC) net profit – the standard measure of profit in the industry – was $4.93bn (£3.03bn) in the quarter, compared to $5.61bn in the same period last year.

BP said oil and gas production, excluding its Russian joint venture, TNK-BP, was down 6 percent at 2.45m barrels of oil equivalent per day.

The company said tough conditions in the refining business led to a drop in profits at its downstream unit.

Stripping out one-off items such as the profit on asset sales, the result was down 13 per cent to $4.80bn, below an average forecast of $5.10bn from a Reuters poll of nine analysts.

Royal Dutch Shell last week reported a 16 per cent rise in underlying profits, while U.S. rival ConocoPhillips reported a 1 percent drop and industry leader Exxon Mobil reported an 11 percent drop.

Brent crude prices averaged $118.60 per barrel last quarter, up from $105.43 in the same period a year before.

RC earnings strip out unrealised gains or losses related to changes in the value of inventories, and as such are comparable with net income under US accounting rules.

 

 

Lloyds hit with another £375m mis-selling charge

Lloyds said it would set aside another £375m to cover compensation for people mis-sold insurance, offsetting a drop in bad loans and weighing on quarterly profit.

Lloyds, 40-per cent owned by the government after a bailout during the financial crisis, said the increased provision reflected a rise in the volume of complaints received in February and March.

It adds to a £3.2bn provision last year, which analysts had thought was conservative, and follows an increase in provisions by rival Barclays last week.

Lloyds made a first-quarter statutory pretax profit of £288M, down from £316m in the previous quarter and a loss of £3.5bn in the first quarter of 2011.

Lloyds last week said it may start talks with new banking venture NBNK about its planned sale of 632 branches after an exclusivity period with The Co-op ended. It also continues to consider an initial public offering for the branches.

“At the moment we have three options on the table,” Chief Executive Antonio Horta-Osorio told reporters.

He ruled out the sale of its insurance arm Scottish Widows.

Bad debts fell 36 per cent from a year ago to £1.7bn and the bank cut its non-core assets by £12.4bn in the quarter, shrinking its bad loans faster than expected.

Loans as a percentage of deposits fell to 130 per cent at the end of March, from 135 percent at end-December, and the bank said it had reduced its target to 120 percent.

Excluding the effects of liability management, volatile items and asset sales, it made a pre-tax profit of £543m compared with £661m the year before.

 

 

BORIS POISED TO TAKE CONTROL OF COMMUTER TRAINS

BORIS Johnson is set to gain control of suburban rail services after the transport secretary Justine Greening gave City A.M. the strongest indication yet that she is willing to hand him control of key commuter routes if he is re-elected on Thursday.

Under the proposals Transport for London (TfL) would have direct control over certain routes and run them on the same basis as the London Overground services.

Last night Johnson said: “The fractured organisation of London’s suburban railways is totally inefficient and needs a complete overhaul. My vision is for one integrated suburban service operating to the standards we have demonstrated can be achieved on London Overground, which is now one of the most reliable and popular railways in the UK.”

“This is an opportunity for Londoners. This service would be more punctual, more reliable, cheaper and would be integrated with the London Underground network.”

Johnson believes that he can improve staffing levels at stations and institute a “turn up and go” level of service on suburban routes – all while using cost savings to keep fares down for commuters.

He initially wants to take control of certain lines on the South Eastern and Greater Anglian networks when the existing privately held franchises are up for renewal in 2014.

This includes existing routes out of Charing Cross, London Bridge and Victoria to destinations such as Dartford, Hayes and Sevenoaks, in addition to services from Liverpool Street to Hertford East, Chingford and Enfield Town.

A new five-year national rail plan is due for publication in June and Greening has suggested she is willing to accede to Johnson’s demands.

“Boris has been making the case strongly for TfL to be given control over more rail services in London,” she said.

“We’re in the middle of a Government consultation on rail devolution. But if Boris is re-elected, we will give serious consideration to his proposals and work together to deliver a better rail network for London.”

Johnson has said that his plan could save up to £100m over 20 years by removing the need for private franchisees to build “risk premiums” into their ticket prices.

A spokesman for Ken Livingstone commented: “The agreement that Londoners really need to know about is by how much Johnson has promised the Tory government he will raise fares each year.”

 

 

Secret collapse in corporate profits is hurting UK’s recovery

IF you repeat a myth often enough, it eventually becomes the received wisdom. That is as true in the City as it is politics. Take the supposedly well-established “fact” that profits are booming despite the recession. That is certainly the story in America and in emerging markets. But while most large UK-based quoted firms are doing well, thanks to buoyant demand from Asia, the general picture for profits generated in the UK is actually pretty gloomy. In fact, anybody who can be bothered to look up the figures from the Office for National Statistics (ONS) will soon discover that the situation is actually quite horrendous – something which, bizarrely, most commentators have completely missed.

The bounce-back in UK profits in 2009-10 has already been dramatically reversed, with the share of profits by private companies (excluding oil and financial firms) down from 18.2 per cent of GDP in the second quarter of 2007 (prior to the popping of the bubble and subsequent recession) to 14.6 per cent of GDP in the fourth quarter of 2011, if the ONS figures are to be believed. It gets worse: as the excellent Michael Saunders of Citigroup points out, profits account for their lowest share of GDP since 1984. (The definition of profit used here is gross operating surplus). And while profits are recovering in finance, they too remain very weak.

One reason why everybody thinks UK profits are at all-time highs is that in the US, profits as a share of value added for non-financial companies have just hit their highest level since 1969 – with the share of output going to labour in the form of wages at its lowest in decades. The lazy assumption – that this must also be true in the UK – is entirely wrong. As profits have declined, labour’s share of UK GDP has risen from 60.1 per cent at the start of 2008 to 62.9 per cent at the end of last year, well above the 1985-2010 average of 61.7 per cent, according to Citigroup.

That is excellent news in the short-run for all of us in work: we have grabbed a greater share of the pie. But those putting up the capital without which our jobs wouldn’t exist have taken a hit (and of course, millions of workers own shares directly or indirectly) and are now far less inclined to invest and recruit in the UK.

This temporary victory of labour over capital explains why unemployment remains such an appalling problem in Britain: real unit labour costs are up 3.4 per cent since the start of 2008 because productivity has fallen faster than wages. Workers are being priced out of work: real unit labour costs were flat at the same stage of the economic cycle in the 1970s, and had fallen in the 1980s and 1990s. No wonder we are not seeing the jobs boom associated with previous recoveries. At last count, real personal disposable income remained 1.7 per cent higher than before the recession – even though the economy is 4.1 per cent smaller. This cannot last: unless growth recovers very quickly, real wages are going to have to fall.

Collapsing profits are the key reason why firms are not investing more. If they have spare capital, they are better off pulling it out of the UK and investing in an emerging nation. Companies invest and hire for one reason only: to make money. That is why the coalition needs to start freeing up the economy, rather than merely talking about it and then doing the opposite. Unless the UK becomes a more profitable place for firms to conduct business, we will be condemned to years of falling real wages, scandalously high unemployment and economic stagnation. Most UK firms, especially small ones, are hurting. It’s a shame the coalition cannot grasp this.

 

 

Double dip set to push house prices lower

HOUSE prices slowed to a crawl this month and will slump again through the second half of 2012, a new report warns today.

The double dip recession is dragging down demand and consumer confidence is draining out of the market, according to Hometrack, just as supply is starting to pick up.

Prices rose just 0.1 per cent in April, down from 0.2 per cent in March, the survey of estate agents found.

London remained the strongest region with prices rising 0.3 per cent, while the South East saw increases of 0.1 per cent and every other area saw stagnation or decline.

In previous months prices were driven by first-time buyers snapping up property before the end of the stamp duty holiday last month – but this demand seeped away through April after the tax break was scrapped.

Demand slowed sharply in April, with new buyer registrations up by 2.1 per cent, down from 4.4 per cent in the previous month and from a much bigger 25 per cent over the quarter.

“If April’s slowdown in demand and rising supply continues over the coming months, we will begin to see an impact on prices,” said Hometrack.

 

 

Aviva boss waives pay rise

The chief executive of insurer Aviva, Andrew Moss, has waived his 2012 salary increase as part of a review of its executive pay policy launched in response to pressure from shareholders.

The review will look at whether senior executives’ pay is justified by shareholder returns, and will also examine how much Aviva compensates executives who join the firm for benefits they forego in their previous jobs, Aviva said on Monday.

Shares in Aviva, Britain’s second-biggest insurer, lost almost a quarter of their value last year, reflecting its exposure to troubled Eurozone economies such as Italy and Spain. That compares with a five per cent fall in the FTSE Life Insurance index and a 12 per cent decline in the Stoxx 600 European insurance index.

“We take the views of our shareholders very seriously,” said Scott Wheway, the chairman of Aviva’s remuneration committee.

Moss was to have received a salary increase of 4.8 per cent for 2012, equivalent to £46,000.

 

 

RBS M&A team to be spun off into boutique advisory unit

HARRY BANKS

Royal Bank of Scotland’s mergers and acquisitions (M&A) business will be spun off into a boutique advisory firm run by some of its current staff, the bank’s chief executive for the Middle East and Africa said.

“The M&A bankers plan to form a boutique business,” Simon Penney said in Dubai.

“It’s not clear as to which regions would join in but that’s the plan,” he added.

The bank, 82-per cent owned by the British government, is exiting mergers and acquisitions as part of a restructuring announced in January.

 

 

Aberdeen profit rises

HARRY BANKS

Aberdeen Asset Management saw its underlying pre-tax profit rise 14 percent in its first half year after a recovery in client risk appetite boosted assets under management and the funds house improved its fee margins.

The UK fund manager said in a statement on Monday its pre-tax profit rose to £162.2m in the six months to end-March, up from £142.8m a year earlier, driven by a 3.4 basis point rise in its average fee margin to 43.9 basis points.

The group also said assets under management stood at £184.7bn at the end of March, up nine per cent from six months earlier.

Aberdeen is among a handful of asset managers, including Jupiter Fund Management and Polar Capital, to have reported a recovery in demand for riskier assets this year, as worries about the health of the global economy take a backseat.

However, Aberdeen’s chief executive Martin Gilbert said the recovery remains in its early stages.

“Global economic conditions remain uncertain and any recovery is still tentative,” he said.

“Nevertheless, we remain confident that our long term investment philosophy and process, couple with the scale and diversity of our business and financial strength, leave us well placed to meet the expectations of our investors.”

Aberdeen said it is paying a dividend per share of 4.4 pence, up 16 per cent on last year.

 

 

Cameron pledges to do more to boost economy

MARION DAKERS

PRIME Minister David Cameron has said his government will “redouble all our efforts” to turn around the UK economy in the face of a fresh recession and “a very long and painful process” to fix the Eurozone.

Cameron said last week’s confirmation of a double dip recession in Britain was “very disappointing”.

He said: “What’s actually happening in our economy is a very difficult, very painstaking process of rebalancing our economy because the old model of growth – all about financial services, all about the south of England, all about debt in our banks and houses and government – that model is broken,” he told the BBC’s Andrew Marr show.

Cameron was very bearish on the prospects for the Eurozone, saying he did not think the single currency bloc was “anywhere near halfway through” the crisis.

But he said he will not “throw away” plans to cut public spending.

Shadow chancellor Ed Balls warned that last week’s figures highlighted the risks of a “lost decade” for the British economy, made worse by the coalition’s cuts.

“Right now the government must come forward with a plan for jobs and growth to get the economy moving, a cut in VAT, bring forward infrastructure projects, repeat the bank bonus tax for youth jobs, a cut for small firms taking on new workers, a VAT cut to help small businesses doing repairs and maintenance,” Balls said.

Away from the economy, the Prime Minister appeared to take a harder line on culture secretary Jeremy Hunt, who is under fire for his department’s close contact with News Corp while the media group was trying to take full control of BSkyB.

While deferring to the ongoing Leveson inquiry into media ethics, Cameron said Hunt could be forced to resign if he is shown to have misled parliament.

“As things stand, I don’t believe Jeremy Hunt breached the ministerial code. If evidence comes out through this exhaustive inquiry where you’re giving evidence under oath, if he did breach the ministerial code then clearly that’s a different issue and I would act… I’m not trying to duck any of my responsibilities.”

He insisted, however, that he had never made a “grand deal” with Murdoch to smooth News Corp’s path in exchange for political support.

 

 

WHAT THE OTHER PAPERS SAY THIS MORNING

FINANCIAL TIMES

Nokia in talks to sell Vertu to Permira
Nokia is in advanced talks to sell the world’s most expensive mobile phone brand to Permira, the private equity group, as the Finnish company looks to dispose of non-core assets to help turnround its devices division. Permira is in discussions to acquire Vertu in a deal that will raise about €200m for Nokia.

NYSE shareholder vote reflects pay discontent
Only a small majority of shareholders voted in favour of the pay of top executives at NYSE Euronext, the global exchange operator, in the latest sign of rising shareholder discontent with executive pay.

Alliance Boots chief attacks UK tax regime
Stefano Pessina, executive chairman of Alliance Boots, has launched a stinging attack on the climate for big business in the UK, warning that a relentless focus on tax could drive away global corporations. Mr Pessina also said that he was ready for another “transformational deal”, possibly in the US. Alliance Boots has been resident in Zug in Switzerland since 2007.

THE TIMES

Stake sale on the radar as airlines raise value of Nats
A consortium of airlines has increased its valuation of a stake in Britain’s air traffic control system by 10 per cent, delivering a boost to the government’s coffers. The latest accounts of the Airline Group value its 42 per cent stake in Nats at £227m, up from £206m a year earlier and implying a valuation of £540m for the partly state-owned company. This suggests the government would receive about £65m more than analysts estimated if it sold its 49 per cent share in Nats.

The Daily Telegraph

Sir John Beckwith teams with Digby Jones for fund launch
Sir John Beckwith, the property tycoon and financier, is joining forces with Lord Jones, the former boss of the CBI, to launch a foreign exchange fund manager.

East London in Olympics boost
The Olympic Park and surrounding area has already attracted more than £1.6bn of private investment ahead of the 2012 Olympics, boosting ambitious plans to regenerate East London after the Games.

THE WALL STREET JOURNAL
EUROPE

China Postal plans large IPO
China Postal Express & Logistics plans to raise 9.98bn yuan (£971m) in an initial public offering in China this year, joining a growing list of state-run firms eager to tap a slowly recovering domestic stock market.

Japan Tobacco’s Bright Light
Japan Tobacco has emerged as a clear winner among Japan’s blue-chip companies, with strong earnings and an even more impressive rise in share price.

 

 

WHAT THE OTHER PAPERS SAY THIS MORNING

NEW SFO BOSS VOWS TO STAY RELEVANT
The incoming director of the Serious Fraud Office has promised to pursue a more aggressive crime-fighting strategy, saying he will investigate “significant strategic targets” suspected of committing the most complex financial crime and overseas corruption.

INVESTORS TURN HEAT ON MAN CHIEF
Leading shareholders of Man Group, Europe’s biggest hedge fund manager, have warned Peter Clarke, chief executive, he must revive the company’s fortunes in the coming months or face calls to step down. Top 10 institutional investors in the FTSE-listed company said they had given Mr Clarke a “window” in which to bolster Man’s ailing share price, which hit an 11-year low this month.

ARGENTINIAN OIL BOSS SOLD SHARES BEFORE NATIONALISATION
The head of Repsol in Argentina sold shares in the Spanish oil group ahead of Buenos Aires nationalising its YPF subsidiary. Antonio Gomis sold 9,424 shares in the company in November last year. Repsol said Mr Gomis had acted lawfully.

THE TIMES

BT PUTS PHONE BOXES UP FOR SALE
The public has a chance to obtain a piece of classic British design as BT launches a sale of its iconic red phone boxes — yours for a mere £1,950. The number of phone calls from payphones has dropped 80 per cent in the past five years.

BARCLAYS BANKROLLED FALLEN TYCOON
The High Court heard how Derek Quinlan, the Irish businessman who masterminded a takeover of the Savoy Group, was forced to accept a €500,000 handout from the Barclay brothers after the financial collapse.

The Daily Telegraph

FALKLANDS OIL FIRM GIVEN ULTIMATUM
Argentina has vowed to press criminal and civil charges on British oil companies exploring off the Falkland Islands if they do not “justify their actions” by a May 2 deadline. It is the latest escalation of rhetoric over the disputed islands.

WILLIE WALSH WANTS SHORTER QUEUES
Aviation boss Willie Walsh is demanding “urgent” action to tackle the chaos at Britain’s borders, warning the country is losing out on billions of pounds in investment and jobs due to delays.

THE WALL STREET JOURNAL

CHINA COMES TO EUROPE
Chinese Vice Premier Li Keqiang arrived in Russia yesterday on a trip that will include Hungary and Belgium, while Premier Wen Jiabao is still on his own European tour, signaling unusual attention from Beijing on a region deeply mired in financial woes and political uncertainties.

GREEN CLOUDS SHOCK MOSCOW
Moscow officials assured residents that green-colored clouds that appeared over the city yesterday were only pollen, and not the result of an industrial accident.

 

 

Tucker calls for controls over shadow banks

THE SHADOW banking sector could face a raft of new red tape, with a senior Bank of England official outlining 10 fresh regulatory proposals at a speech in Brussels this morning.

Paul Tucker will recommend widening capital requirements and applying “bank-type regulation” to the shadow industry, which includes money market funds, securitisation and securities lending.

The deputy governor for financial stability sits on the new Financial Policy Committee, a body set up to grant the Bank exceptional new regulatory powers over the City.

He will call for banks to include shadow banking arms on their balance sheets – although this would need changes to accounting rules – and to “hold more liquid assets against such exposures”.

And shadow banks financed materially by short-term debt “should be subject to bank-type regulation and supervision of the resilience of their balance sheets,” he will say.

His speech today follows the publication of a consultative paper by the EU Commission on shadow banking, with authorities in many countries pushing for stronger regulation.

 

 

Ireland plots a summer return to bond markets

IRELAND will dip its toes back into the international bond market this summer, but only if it passes a referendum on the European Union’s proposed fiscal compact.

Michael Noonan, the country’s finance minister, said yesterday that Ireland’s rosier economic outlook should allow the government to test some sales of its bonds.

“We don’t have a fixed timetable,” Noonan admitted, yet Ireland will wait until the result of a poll on the new EU pact scheduled for 31 May.

Noonan appeared keen for Ireland to be able to return to the markets, yet said that conditions have to be in place. As well as the government’s deficit reduction plans being fixed, the finance minister said that bank balance sheets would also need to be in a healthier position.

Yet the economic slowdown, which has forced Ireland back into recession, has dented prospects for this year and Noonan said his department will likely trim 2012 GDP growth forecasts to around 0.75 per cent from 1.3 per cent when they publish figures next week.

Irish debt is set to peak at 119 per cent of GDP next year.

 

 

Shareholder activism is vital for a properly functioning City

ALLISTER HEATH

OWNERS of publicly listed companies need to behave as proprietors. They shouldn’t micromanage firms in which they invest – that is their executives’ jobs – but they should ratify some key decisions, including the pay of their top staff. In his 1970 polemic Exit, Voice and Loyalty, Albert O Hirschman explained that members of any organisation – including a firm or a country – can respond to an issue in two ways: they can either exit (sell their shares or emigrate) or use their voice (vote or protest).

Both approaches have their uses. In democracies, exit is under-rated as a mechanism to effect change – politicians are forced to respond to brain drains, for example. The pendulum in firms has swung too far in favour of exit (with unhappy institutions selling their shares) rather than voice (shareholders trying to change policy or voting against management).

So this is my message to shareholders: If you don’t like how a company is managed or if you think top execs are paid too much, make your voice heard. If nobody is listening during your private communications, then vote no at AGMs. It’s your company, not the management’s or the staff or anybody else’s. The government’s only role is to reform the system to make it easier for owners to exercise control and make their voice heard.

Investors who slapped down Citigroup’s recent pay proposal (by 55 per cent to 45 per cent) for its CEO Vikram Pandit were not merely in their rights to do so – they were also morally responsible to ensure the best possible stewardship of their company. Companies should always strive to pre-emptively listen to shareholders; any substantial vote against the management is always a sign of failure. Most large companies need to spend more time interacting with their owners. Shareholder activism is an essential part of a properly functioning capitalism, a key self-regulating mechanism at the heart of the City.

We shall see what shareholders think of Barclays’ revised offer today, which comes as the UK giant managed to increase its return on equity to 12.2 per cent in the first quarter, higher than its cost of equity, a development which is bound to go some way towards assuaging at least some institutions. One thing is clear, however: its chairman Marcus Agius will rightly be apologising later today for mismanaging the bank’s relationship with its UK shareholders. They may no longer control that much of the bank, compared with their overseas counterparts; but they still matter.

CHINA CHEAP NO MORE

CHINA is the world’s factory. But that may not remain true for too much longer. Its advantage was based on cost; that is now eroding, according to new research from Deloitte, which predicts the end of the era of “Cheap China”. Domestic Chinese wages are rising, reducing the cost advantage for foreign companies seeking cheap factories; even Chinese firms are being hit, as better living conditions in China’s hinterland are discouraging workers from moving and looking for work in the wealthier urban coastal provinces. With Chinese production moving up the value chain, and workers understandably demanding higher wages, better working conditions, and added benefits, costs are rising. The last piece of the puzzle is the increasing upwards pressure on China’s exchange rate, which has long been artificially under-valued. So who will take over China’s role as a purveyor of cheap goods? India and other Asia Pacific nations – and also Sub-Saharan Africa and the Middle East. It will take a while longer but eventually the world’s economic geography will shift again.

 

 

Honda doubles quarterly profit

Honda posted a more than doubling in quarterly operating profit, as production recovered from the earthquake and tsunami in Japan last year, and it forecast a 38 percent rise in global sales in the year ahead as it makes up for lost time.

The company, which has lagged a recovery from the effects of disasters in Japan and Thailand by rivals Toyota and Nissan, reported operating profit for the January-March fourth-quarter of 111.98 billion yen (£800m).
Net profit, which includes earnings made in China, rose 60.7 per cent to 71.59bn yen.

The results ended a five-quarter decline in operating profits for Japan’s No.3 automaker, after a 2011 hammered by the yen’s record strength, natural disasters and a crisis of reputation in its key US market.

Honda suffered more than its rivals from disasters in Japan and Thailand last year.

It was the last Japanese car maker to get its supply chain in order after a massive earthquake and tsunami in March 2011, and only re-started work at its Thai car plant at the end of March this year after a six-month hiatus following October’s floods.

Honda forecast its global car sales to jump 38.4 per cent to 4.3m vehicles and its motorcycle sales to rise 10.2 per cent to 16.6m in 2012/13.

It sees sales in North America rising 31.5 per cent to 1.74m vehicles, sales in Japan climbing by 20.7 per cent to 710,000 and the rest of Asia by 56.5 per cent to 1.31m.

 

 

WPP raises full year forecast

WPP, the world’s largest advertising group, nudged its full-year outlook higher after strong growth in Asia Pacific and Latin America got the group off to a solid start to 2012.

Martin Sorrell’s firm said revenues on a like-for-like basis were up four percent in the first quarter and said it now expected full-year revenues to be up over four percent as opposed to an earlier forecast of around four percent.

Aegis, a British marketing group which specialises in digital and the buying and selling of ad space, said on Friday it had posted first quarter organic revenue growth of 8.1 per cent as it also benefited from strong demand in Asia Pacific and the United States.

“Following the group’s record year in 2011, 2012 has started well with all geographies and sectors growing revenues,” WPP said in a statement.

“A preliminary look at our quarter one revised forecasts indicates revenue growth slightly better than budget at over four per cent and a slightly better second half.”

WPP said it had been boosted by strong demand in its faster growing markets of Asia Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe. Britain continued to perform strongly.

 

 

D-DAY FOR DIAMOND

BARCLAYS boss Bob Diamond will be hoping that he has managed to head off a major shareholder rebellion today by unveiling a bumper set of first-quarter results.

The bank has been preparing for 10 to 15 per cent of its investors to vote against its remuneration package in today’s shareholder meeting, although there were suggestions yesterday that it could be as high as a third.

A very large protest will put the spotlight on Barclays’ chairman Marcus Agius and Alison Carnworth, chair of the bank’s remuneration committee.

Agius will say he “recognises and accepts that remuneration levels across the industry have to adjust to the new reality of higher capital and lower returns for the sector. Evidently, we have not done a good enough job in articulating our case: on some matters we should have communicated earlier and more clearly…for this I apologise. I assure you that in future we will be engaging differently and more purposefully with shareholders to ensure we obtain a broader level of support on remuneration policy and practice.”

But Barclays is banking on some investors being mollified by the 22 per cent boost in pre-tax profits to £2.4bn announced yesterday – even though an extra £300m put aside to compensate customers mis-sold payment protection insurance (PPI) has absorbed most of the rise.

Its investment bank posted strong results even compared to rivals, which have all seen trading bounce back this year. Investment banking pre-tax profits fell only slightly compared to a record start to last year, and its $8.1bn in revenues was a three per cent rise on the same period of 2011. Return on equity for the quarter was 17 per cent, well above Diamond’s 13 per cent target – although the group figure was 12.2 per cent. The fixed income, commodities and currencies division drove the growth due to a surge in bond trading that brought revenues up nine per cent to £2.4bn, a figure Espirito Santo’s Andrew Lim called “stellar”.

The bank also reported a strong increase in the profitability of its UK high-street bank, where pre-tax earnings rose 16 per cent to £334m, and its African retail and business bank saw profits grow by a fifth to £177m.

Losses in its non-UK European business narrowed from £59m in the first quarter of last year to £43m. Unlike rivals, Barclays is seeing losses slow in Spain, though that is being offset by a deterioration in Portugal and Italy.

The bank could now revise down its estimate of impairment losses for the year from £3.8bn to £3.4bn. It attributed the move to fast action to absorb its Spanish write-downs in 2009-2010, unlike many EU banks that are now making extra provisions in Spain.
But like all bank chiefs who have reported results so far this year, Diamond warned that the environment is souring. The outlook “frankly continues to be challenging”, he said.

 

 

Economists question the reliability of GDP figures

THE UK might not actually be in a recession, economists said yesterday, fearing the Office for National Statistics (ONS) is using dodgy data to work out the GDP figures – and if they are correct, the ONS might have delivered a blow to confidence by declaring a recession incorrectly.

Survey data over the past months has indicated a relatively healthy recovery across the services, manufacturing and construction sectors – all of which came in for a beating according to the ONS.

Manufacturing output increased modestly in the last three months, according to the Confederation of British Industry’s industrial trends survey. A net balance of five per cent of manufacturers reported output growth, and a balance of 30 per cent plan to increase investment spending over the next 12 months.

Similarly Nationwide’s consumer confidence study, out today, showed sentiment rising to a nine-month high, in stark contrast with the official GDP data.

The ONS readily admits its initial estimate of GDP is made up of only 40 per cent of the final data, and so is prone to later revisions – the average revision is 0.2 percentage points, which could easily mean output was flat in the quarter.

“We know construction was weak in February, in part due to very bad weather, but it showed a strong rebound in March – and I suspect a lot of March data was not included,” said Chris Williamson, economist at Markit who compiles influential purchasing managers’ indices.

“It was the same in services and manufacturing.”

He points to the third quarter of 2009 as an example of major revisions, when initial estimates of another quarter of recession turned out to be wrong – the economy was actually growing again. At the time, the ONS said that the UK had shrank by 0.4 per cent; it now says it grew by 0.2 per cent.

“Business and consumer confidence flipped on the news that we were still in recession,” said Williamson.

However, the ONS disagrees – its data is taken from 40,000 sources, compared with up to 700 firms in any Markit survey and 394 companies in the most recent CBI study.

Furthermore, when it sees surprising results, as in yesterday’s construction figure, the ONS’s statisticians repeatedly check the data at its source.

 

 

FTSE lifted by Shell and Barclays boost

The FTSE 100 opened on the front foot today with gains fuelled by the energy sector after Shell reported encouraging fourth quarter profits. In banking Barclays announced a 22 per cent rise in first quarter earnings, which also helped to inject some momentum into the market.

Investors shrugged off yesterday’s bleak news that the UK had technically slumped back into recession. Shell was the leading light, up three per cent, after an 11 per cent profit triggered by higher oil prices.

Meanwhile consumer giant Unilever was up more than two per cent after also issuing an upbeat trading update in which it said price hikes on its goods had helped to raise profits.

Whitbread lifted by 2.9 per cent after it announced an earnings rise attributed to the strong performance of its Costa Coffee and Premier Inns businesses. Barclays was up 1.7 per cent with investment banking unit had bounced back, enabling it to raise profits.

Lloyds nudged up by two per cent and RBS 1.3 per cent as the sector overall was given a lift.

In Europe the picture was more downbeat with Deutsche Bank reporting a drop in earnings. Spanish banking giant Santander saw its profit fall by 24 per cent after hefty property loans losses.

AstraZeneca was the biggest loser London in early trading, down four per cent, after the pharmaceutical giant revealed that its chief executive David Brennan is to step down on 1 June in an abrupt exit that follows rising investor discontent at the company’s performance.

Chemical giant Croda edged down by two per cent despite reporting a profit rise.

Insurer Admiral was down just over one per cent and Aberdeen Asset Management 0.9 per cent.

On the FTSE All-share online retailer Asos reported a revenue climb of a third but investors remained unimpressed and the stock dropped by eight per cent.

The fall was attributed to tough comparatives with soaring growth last year. In Asia the Nikkei closed flat and the Hang Seng was up by 0.7 per cent.

 

 

Goldman’s tax bill unveiled as Blankfein talks

GOLDMAN Sachs has put aside $684m (£424m) for its 2011 UK tax bill, two thirds more than it has budgeted for the previous year, it was revealed yesterday as chief executive Lloyd Blankfein spoke out to defend the banks’ corporate culture.

Although the bank has so far only paid over $6.6m to the exchequer for its 2011 activities due to a $1.8bn accounting loss on staff share payouts, it now expects to have to stump up hundreds of millions.

The predicted tax bill for 2011 is significantly higher than the equivalent figure for 2010, which totals $412m. The increase is due to the profits booked through its UK entity rising from $1.2bn to $3.1bn. The figures were revealed in the annual report for the bank’s UK entity, Goldman Sachs International, which break down its British tax bill in more detail.

•The news came as Goldman chief executive Lloyd Blankfein last night ended a two-year media silence to defend the bank’s corporate culture, and reject a former employee’s criticism. Goldman’s mantra remained “always put the client first”, Blankfein said in a CNBC TV interview.

 

 

Shell earnings rise fuelled by higher oil prices

Royal Dutch Shell beat forecasts with an 11 percent rise in fourth-quarter profit, as higher oil prices outweighed the impact of lower U.S. gas prices.

Europe’s largest oil company by market capitalization said its current cost of supply (CCS) net income was $7.7bn (£4.7bn).

Excluding one-offs, the result was $7.27bn, compared with a forecast for $6.7bn in a company poll of analysts.

Shell lifted its target for assets sales in 2012 to $4bn from $2-3bn, echoing an industry trend of companies trying to churn their portfolios more regularly.

By jettisoning mature assets earlier in their life cycle, companies hope to focus reserves on higher growth activities.

Production was up 1.4 percent in the quarter compared to the same period a year earlier at 3.55 million barrels of oil equivalent per day, with the ramp-up of new projects being off-set by asset sales.

Shell’s refining division produced a weaker underlying result despite some improvement in industry refining margins.

Chief executive Peter Voser said he expected weakness in the division to continue, and for low U.S. natural gas prices to continue to eat into profit.

“In downstream and North American natural gas we see continued challenges for our industry,” he said.

Brent crude prices averaged $118.60 per barrel last quarter, up from $105.43 a year before.

CCS earnings strip out unrealised gains or losses related to changes in the value of inventories, and as such are comparable with net income under US accounting rules.

 

 

Deutsche Bank misses profit forecast

Deutsche Bank missed market expectations for profits in the first quarter as Germany’s biggest bank was hit by one-off charges and weak markets which hurt earnings from trading and asset management.

Group pretax profit of 1.9bn euros, came in below the 3 billion euros in the year-earlier period and the 2.4bn euro forecast in a Reuters poll, weighed by litigation charges and an impairment on its investment in Actavis.

Pretax profit at the corporate banking and securities division, traditionally Deutsche’s main profit driver, fell to 1.7bn euros in the quarter in what the bank described as a difficult environment, down from 2.3bn euros in the year-earlier period.

Deutsche said that while overall performance was strong, reflecting increased client activity compared to the second half of 2011, it remains less favourable compared to a year ago. Conditions in the global economy remain challenging, the bank said.

“Against this backdrop financial markets remain cautious as we have seen in April, with investor risk appetite markedly lower,” chief executive Josef Ackermann said.

An economic recovery will benefit mainly US banks, Ackermann said, while euro zone banks, particularly those in Southern Europe, will may experience “even harder times.”

Last week, stronger fixed income markets helped rivals Morgan Stanley and Bank of America post forecast-beating earnings as action by the European Central Bank to prop up markets dampened concerns about the European debt crisis.

Revenues from debt trading were down eight per cent compared to the first quarter 2011.

Deutsche said its core tier one capital ratio had improved to 10 per cent at the end of March, from 9.5 per cent at the end of 2011.

 

 

Barclays profit up as investment bank bounces back

Barclays (BARC.L) posted a 22 percent rise in first-quarter profit, ahead of market forecasts, as a strong rebound in revenue from its investment banking arm and a drop in bad debt countered increased compensation for insurance mis-selling.

The bank reported an adjusted pretax profit of £2.45bn in the three months to end-March, up from 2 billion a year ago and above the average forecast of £2bn from a poll of analysts supplied by the company.

“Barclays first quarter results are an encouraging start to the year and demonstrate continued progress across our execution priorities,” Chief Executive Bob Diamond said in a statement on Thursday.

However, Barclays made a statutory pretax loss of £475m, compared with a £1.6bn profit the year before, including a £2.6bn accounting loss on the value of its own debt and an extra £300m charge to cover for mis-selling of payment protection insurance (PPI).

Losses on bad debts dipped to £778m in the first quarter, down 16 percent on a year ago.

Top-line income at Barclays Capital, the investment bank business that provides the bulk of the bank’s profit, rose to 3.46 billion pounds, up three per cent from a year ago. That marked a 91 percent jump from the weak fourth quarter of 2011 and was above the consensus forecast of 3.36 billion pounds.

BarCap, along with other investment banks, endured a miserable end to 2011 when a slump in bond trading income due to the euro zone sovereign debt crisis led to its worst quarter for three years. That same year banks were hit by tougher regulations.

Investment banks performed better in the first quarter as the eurozone crisis showed signs of easing. The first quarter is typically the strongest for investment banks and can set the tone for the year.

However, Swiss rival Credit Suisse said on Wednesday April market conditions had dropped off from healthier first-quarter activity levels echoing comments from US investment banks Goldman Sachs (GS.N) and JP Morgan Chase.

Barclays said its adjusted return on average shareholders’ equity had risen to 12.2 per cent in the first quarter, from 10.2 percent in the same quarter the year before.

Diamond said the improvement reflected strong results in retail banking, Barclaycard and wealth and investment management as well as the improved performances in corporate and investment banking.

“Our rock solid capital, funding and liquidity positions remain a source of competitive advantage and enabled us to fund a substantial proportion of our 2012 term funding requirements he said.

In February, it pushed back a return on equity target of 13 per cent.

The bank said its Core Tier 1 ration remained strong at 10.9 per cent, compared with 11 percent at the end of 2011.

Oriel Securities reiterated its ‘buy’ recommendation and 285 pence price target on the stock.

“The current and forecast profitability should be seen in the context of a strongly capitalised, conservatively funded and very liquid balance sheet,” said Oriel analyst Mike Trippitt.

 

 

HSBC to cut 2,000 UK jobs

HSBC, Europe’s biggest bank, is set to cut about 2,000 jobs in Britain as part of its drive to slash costs and boost profitability in the face of a changing banking landscape, a source told Reuters.

The cuts are part of chief executive Stuart Gulliver’s global revamp to cut 30,000 jobs by the end of 2013, and to streamline the bank for changes in UK regulation, people familiar with the matter said.

HSBC declined to comment.

The bank employs about 52,000 staff in Britain, so less than five per cent of its staff will be affected by the changes, which will affect retail banking, head office functions and other areas.

 

 

 

BAA profit rise triggered by Heathrow growth

Airport operator BAA posted a 15 per cent rise in first-quarter profit as it squeezed more growth from its capacity-constrained London Heathrow hub.

BAA, which is part owned by Spanish infrastructure group Ferrovial, reported earnings before interest, tax, depreciation and amortisation of £231.2m in the three months to the end of March on sales 11.5 per cent higher at £537m.

The company said 15.7m passengers passed through Heathrow – Europe’s busiest airport – during the period, up 4.4 per cent on the same period last year.

“Heathrow remains resilient in a challenging economic environment,” BAA chief executive Colin Matthews said.

“Whilst traditional markets like the US continue to perform well, the UK’s capacity constraints prevent Heathrow from adding new routes to the emerging economies which are so vital for trade and investment.”

BAA said it had completed the transition to long-term capital markets financing platform and had raised £2.2bn in new financing since the start of 2012.

Traffic at BAA’s London Stansted airport, however, fell 5.3 per cent to 3.5m passengers.

 

 

Premier Foods sales rise

Premier Foods, Britain’s biggest food manufacturer, said first-quarter sales rose slightly and its cost cut and restructuring programme was on track.

The maker of Bisto gravy and Hovis bread, which has been working to turn its business around, said the consumer environment would be less challenging than 2011, and it would continue to divest some businesses.

Quarterly sales rose one per cent to £427m.

“Our focus for 2012 remains unchanged, to stabilise the business and invest in our recovery,” said Chief Executive Michael Clarke, who joined Premier Foods from Kraft last September.

Food manufacturers are facing pressure on margins from rising costs of ingredients and raw materials.

Premier Foods, whose debt had ballooned following the acquisitions of RHM and Campbell Soups’ UK and Irish business in 2006, has been selling assets and cutting costs and jobs..

 

 

Credit Suisse profit falls

Credit Suisse’s first-quarter net profit shrank, as a 1.5bn Swiss franc (£1bn) loss on its own debt ate into profits.

In a statement the Swiss bank didn’t add to ongoing job cuts of seven percent of its workforce, or roughly 3,500 staff, as some analysts had expected.

Credit Suisse posted a net profit of 44m Swiss francs, compared to 1.13bn net profit last year.

“Our performance in the first quarter is indicative of what our business model can produce and it underscores the strength of the client franchise we have built over the past years,” Chief Executive Brady Dougan said in a statement. The bank didn’t provide an outlook.

Stripped of the debt loss, Credit Suisse’s first-quarter profit was 1.355bn Swiss francs.

Banks can record gains if the value of their debt falls, since it becomes theoretically cheaper to repurchase it, and conversely book losses if the value of the debt rises, as rival UBS is expected to do when it reports the quarter on 2 May.

 

 

Plans for asteroid mining emerge

Details have been emerging of the plan by billionaire entrepreneurs to mine asteroids for their resources.

The multi-million-dollar plan would use robotic spacecraft to squeeze chemical components of fuel and minerals such as platinum and gold out of the rocks.

The founders include film director and explorer James Cameron as well as Google’s chief executive Larry Page and its executive chairman Eric Schmidt.

They even aim to create a fuel depot in space by 2020.

However, several scientists have responded with scepticism, calling the plan daring, difficult and highly expensive.

They struggle to see how it could be cost-effective, even with platinum and gold worth nearly £35 per gram ($1,600 an ounce). An upcoming Nasa mission to return just 60g (two ounces) of material from an asteroid to Earth will cost about $1bn.

The inaugural step, to be achieved in the next 18 to 24 months, would be launching the first in a series of private telescopes that would search for asteroid targets rich in resources. The intention will be to open deep-space exploration to private industry.

Within five to 10 years, however, the company expects to progress from selling observation platforms in orbit around Earth to prospecting services. It plans to tap some of the thousands of asteroids that pass relatively close to Earth and extract their raw materials.

The company, known as Planetary Resources, is also backed by space tourism pioneer Eric Anderson, X-Prize founder Peter Diamandis, Ross Perot Jr, son of the former US presidential candidate, and veteran astronaut Tom Jones.

The founders of the venture are to give further details in a press conference on Tuesday.
Long game

“We have a long view. We’re not expecting this company to be an overnight financial home run. This is going to take time,” Eric Anderson told the Reuters news agency.

The billionaires are hoping that the real financial returns, which are decades away, will come from mining asteroids for platinum group metals and rare minerals.

“If you look back historically at what has caused humanity to make its largest investments in exploration and in transportation, it has been going after resources, whether it’s the Europeans going after the spice routes or the American settlers looking toward the west for gold, oil, timber or land,” Mr Diamandis explained.

Water from asteroids could be broken down in space to liquid oxygen and liquid hydrogen for rocket fuel. Water is very expensive to get off the ground so the plan is to take it from an asteroid to a spot in space where it can be converted into fuel.

From there, it could be shipped to Earth orbit for refueling commercial satellites or spacecraft.

“A depot within a decade seems incredible. I hope there will be someone to use it,” Dr Andrew Cheng, a planetary scientist at Johns Hopkins University’s Applied Physics Laboratory told the Associated Press.

“And I have high hopes that commercial uses of space will become profitable beyond Earth orbit. Maybe the time has come.”

Prof Jay Melosh from Purdue University said that the costs were just too high, calling space exploration “a sport that only wealthy nations, and those wishing to demonstrate their technical prowess, can afford to indulge.”

Eric Anderson, who co-founded the space tourism firm Space Adventures, said he was used to sceptics.

“Before we started launching people into space as private citizens, people thought that was a pie-in-the-sky idea,” He said.

“We’re in this for decades. But it’s not a charity. And we’ll make money from the beginning.”

 

 

Shell to buy Cove energy for $1.8bn

Royal Dutch Sheld said it agreed to buy oil explorer Cove Energy in a $1.8bn (£1.12bn) cash deal, after the major raised its previous offer to match a rival bid from Thailand’s PTT.

Shell said it would pay 220 pence for each Cove share and that the deal was conditional upon approval from the government of Mozambique amongst other things.

Cove’s main asset is an 8.5 per cent stake in the Rovuma Offshore Area 1, in Mozambique, where huge gas discoveries have been made.

Thailand’s PTT made a £1.12bn bid for Cove in February, trumping Shell’s previous offer of £992.4m, and prompting hopes of a bid battle.

 

 

Facebook reveals income slip ahead of IPO

Facebook Inc reported its first quarter-to-quarter revenue slide in at least two years, a sign that the social network’s sizzling growth may be cooling as it prepares to go public in the biggest ever Internet IPO.

The company blamed the first-quarter decline, which surprised some on Wall Street, on seasonal advertising trends.

Spending roughly doubled over the past 12 months, outpacing the 45 percent revenue increase during the period, it said.

Net income slid 12 per cent to $205m in the quarter, from $233m a year earlier at the rapidly expanding company.

“It was a faster slowdown than we would have guessed,” said Brian Wieser, an analyst with Pivotal Research Group.

“No matter how you slice it, for a company that is perceived as growing so rapidly, to slow so much on whatever basis – sequentially or annually – it will be somewhat concerning to investors if faced with a lofty valuation,” Wieser said.

Facebook is preparing to raise at least $5bn (£3bn) in an initial public offering that could value the world’s largest social network at up to $100bn.

 

 

Arm receives first quarter lift from licences

ARM, the British company whose technology powers Apple’s iPad, met market expectations with a 22 per cent rise in first-quarter profit, helped by growth in chip-makers licensing its energy efficient designs.

The company reported adjusted pretax profit of £61.9m on revenue 14 per cent higher at 132.5 million pounds, both in line with forecasts.

Cambridge-based ARM licenses its technology and receives a royalty of a few cents on every chip shipped in devices ranging from mobile phones to domestic appliances and toys.

It signed 22 new processor deals in the quarter, driving revenue for processor licensing up 27 per cent to £41.1m.

Some 1.1bn chips based on its designs were shipped into mobile phones and mobile computers in the period, similar to a year ago, it said, while 800m chips were shipped into consumer and embedded digital devices, up 15 per cent year-on-year.

The second half will see Microsoft launch its next Windows operating system on an ARM-based architecture for the first time, helping bolster the British company’s dominance in mobile computing.

 

 

Public borrowing hits 2011/12 target

The public sector budget deficit was higher than expected in March, but downward revisions in previous months enabled the government to meet its full-year target, the Office for National Statistics said.

The Office for National Statistics said public sector net borrowing excluding financial sector interventions – the government’s preferred measure – rose last month to £18.174bn from £17.951bn in March 2011.

Public sector net debt excluding financial sector interventions rose to £1.0225 trillion in March, equivalent to 66 per cent of GDP, the highest since records began in 1993.

The government aims to largely eliminate Britain’s budget deficit, which was a record 11 per cent when it came to power in 2010, over the next five years.

So far, markets have given the Conservative-led government the benefit of the doubt and most analysts reckon it will achieve its aim of reducing its overall budget deficit to £120bn in the current 2012/13 year.

But that could change if the Eurozone situation takes a turn for the worse and Britain slides into a deep recession.

Official data on Wednesday is expected to show the economy skirted recession, recording growth of 0.1 per cent in the first three months of this year after shrinking by 0.3 per cent at the end of 2011.

In a sign that the austerity drive is starting to bear fruit, “Other current expenditure”, which largely consists of departmental spending, fell in fiscal year 2011/12 for the first time since 1955.

 

 

WHAT THE OTHER PAPERS SAY THIS MORNING

EX-CALPERS CHIEF ACCUSED OF FRAUD
The Securities and Exchange Commission has accused Federico Buenrostro, former chief executive of the California Public Employees’ Retirement System, and a friend of fabricating documents designed to show that $20m in fees paid by Apollo to Arvco, a “placement agent”, for help securing the pension fund’s investment had been fully disclosed.

TATA CONSULTANCY ARM IN PROFIT RISE
Tata Consultancy Services has shrugged off the tough conditions affecting rivals in India’s outsourcing sector to deliver quarterly results broadly in line with expectations. India’s largest IT services and software group by revenue reported net profits of Rs29.3bn (£346m) in the fourth quarter, up 23 per cent on the year before.

BEIJING HANDS CIC A FURTHER $50BN
China Investment Corp, the Chinese sovereign wealth fund, has received a further $50bn in capital from the government. The move was disclosed late last week in Beijing by CIC officials attending a forum for sovereign wealth funds and pension funds that meets twice a year.

THE TIMES

550 JOBS TO GO AT BRITISH GAS CALL CENTRE
The closure of a British Gas call centre in Southampton is likely to result in most of the 550 workforce losing their jobs. The company claimed that customers preferred to contact staff via e-mail than over the telephone and insisted that the closure would not affect its quality of service.

BACK ELECTED MAYORS, SAYS PM
Cities that fail to back the idea of directly-elected mayors will lose out on jobs and investments, David Cameron warned.

The Daily Telegraph

CHRISTOPHER TAPPIN GRANTED BAIL
Mr Tappin, 65, is set to be released from Otero Prison later this week after a US court overturned an earlier decision to hold him until his trial on weapons smuggling charges. The millionaire was ordered to submit a $1m bond, including $50,000 cash.

CRIME: IN WORLD’S TOP 20 ECONOMIES
Crime generates an estimated $2.1 trillion in global annual proceeds – or 3.6 per cent of the world’s gross domestic product – and the problem may be growing, a senior United Nations official has said.

THE WALL STREET JOURNAL

UNILEVER TAKES PALM OIL IN HAND
Unilever PLC is negotiating to build a $100m palm-oil processing plant in Indonesia, in an attempt to accelerate its commitment to sourcing the oil in ways that do not destroy the environment.

UNITED CONTINENTAL NEARS BOEING DEAL
United Continental will soon finalise a deal with Boeing for more than 100 of its 737 single-aisle jetliners, according to a person familiar with the matter. Boeing last year placed far behind its rival Airbus in landing orders for small airliners.

 

 

Spain’s energy sector emissions rise 53 pct in Q1 2012

The Spanish government’s policy of subsidising coal-fired electricity production led to a 53 percent rise in CO2 emissions from mainland electricity generation in the first quarter of 2012, a report by WWF Spain showed Friday.

The data shows emissions in the first quarter were 19.576 million tonnes of CO2 compared to 12.738 million tonnes in the same period of 2011 despite a 1 per cent fall in electricity demand.

The rise was largely due to an increase in coal-fired power generation.

Coal-fired production at 15,879 GWh was 97 per cent up in the first three months of 2012 compared to the same period last year, according to the Spanish grid REE.

A coal subsidy, which came into force at the end of February 2011, provides price support for electricity generated with Spanish-mined coal, led to the higher output.

Power plants burning Spanish coal had previously been unable to compete with technologies, especially expanding production from wind farms.

A drought in large regions of Spain has depleted reservoirs pushing hydro-electric production down by 62.5 per cent to 4,099 GWh.

Meanwhile, wind production was 4 per cent lower over the quarter at 12,277 GWh.

 

 

WHAT THE OTHER PAPERS SAY THIS MORNING

FINANCIAL TIMES

Non US banks hope for reprieve on swaps
US regulators are exploring ways to give large foreign banks and overseas subsidiaries of US lenders a reprieve from stringent new derivatives rules, potentially alleviating one of the biggest concerns facing global finance institutions.

Chesapeake discloses chief’s $661m payments for wells
Aubrey McClendon, the chief executive of Chesapeake Energy who has come under pressure over the scale of his personal borrowings, has had to commit $661m over the past three years to fund a controversial remuneration programme.

Oil traders face heat over better disclosure
Oil trading is likely to come under new disclosure rules as the industry-backed Extractive Industries Transparency Initiative discusses how to include deals between national oil companies and traders. The discussions could have significant implications for the publicity-shy Swiss-based commodities trading industry, including companies Vitol, Glencore, Trafigura, Mercuria and Gunvor.

THE TIMES

Developer plans to restore the faded glory of a flawed icon
Centre Point is set for a new lease of life if plans to convert the 34-storey building in Central London into flats are approved. Almacantar believes it can restore the faded Sixties tower.

You want a piece of the Empire State?
Ageing investors are trying to block plans by Malkin Holdings, the manager of the Empire State Building, to create a real estate investment trust that would be floated on the New York Stock Exchange.

The Daily Telegraph

Luciano Benetton hands over fashion empire to his son
Luciano Benetton, founder of the Italian fashion empire that bears his name, has announced he is handing control of the business he helped start 47 years ago to his eldest son Alessandro.

Kingfisher plants trees and hopes for a forest of sales
B&Q owner Kingfisher plans to grow sales by planting more trees – and with timber prices up 30 per cent in two years its not just about looking after the environment.

THE WALL STREET JOURNAL
EUROPE

Current and former BofA directors agree to settlement
Current and former Bank of America directors and ex-Chief Executive Officer Kenneth Lewis have agreed to a $20m settlement in one lawsuit alleging shareholders were wronged during the takeover of Merrill Lynch.

Disney studios chief steps down
The chairman of Walt Disney’s movie studio, Rich Ross, stepped down after less than three years on the job, in the wake of one of Disney’s biggest flops, John Carter.

 

 

Bank hunt will start in autumn

The search for the next Bank of England governor will not formally start until the autumn, George Osborne said yesterday. The chancellor has come under pressure from the Treasury Select Committee to set out how and when it will choose Sir Mervyn King’s replacement. “There will be a proper process for appointing the next governor,” Osborne said in a statement released to reporters at the spring meeting of the International Monetary Fund in Washington. “But that has not begun and will not until the autumn.” King’s second and final five-year term ends at the end of June next year. Names in the frame include Bank deputy governor Paul Tucker, FSA chairman Lord Turner and former civil service head Gus O’Donnell.

 

 

MPs go to war with Treasury over lack of scrutiny for all-powerful Bank

THE TREASURY will today face its last chance to strike a deal with angry MPs who have demanded fundamental changes to its flagship financial services bill.

In an unprecedented move, the Treasury Select Committee (TSC) has tabled an amendment that would force a vote on the government’s plans to give the Bank of England sweeping new powers without enough additional scrutiny.

“The concessions made so far by the Bank and the government on their behalf won’t satisfy parliament’s demands for more accountability for such a powerful institution,” said TSC chairman Andrew Tyrie.

Labour is backing the amendment, which MPs believe could attract enough support to persuade the Treasury to reopen negotiations rather than suffer a bruising vote that would store up trouble for the bill in the Lords.

The government has faced a chorus of criticism over plans to concentrate new powers over the cost of credit in the Bank, which presided over the 2008 crisis. Many MPs are also worried about the Bank’s concerted lobbying. The Treasury declined to comment.

 

 

Vodafone agrees to pay £1bn for C&W Worldwide

Vodafone has agreed to buy corporate telecoms company Cable & Wireless Worldwide (CWW) for £1.04bn, in a deal that adds a British fixed line network to its wireless network.

Vittorio Colao, chief executive of Vodafone, said: “The acquisition of Cable & Wireless Worldwide creates a leading integrated player in the enterprise segment of the UK communications market and brings attractive cost savings to our UK and international operations.”

Vodafone is offering CWW shareholders, who have had a torrid time since the group split from the former Cable & Wireless in March 2010, 38 pence a share in cash, a 92 per cent premium to the price before it declared its interest in February.

CWW has issued three profit warnings, had the same number of chief executives and has suspended it dividend since it split.

But it has a fibre network that would increase capacity for Vodafone, and it has contracts to provide voice, data and hosting services to British government departments and companies.

India’s Tata Communications was also in talks to buy CWW, but it withdrew last week

 

 

FTSE shored up by banks

The FTSE 100 was broadly flat this morning as investors turned their attention to an IMF meeting later today and French Presidential elections at the weekend.

IMF leaders gathering in Washington want a big boost in funding to handle the Eurozone dent but Brazil has called for more power in the organisation for emerging nations.

Meanwhile the French election is seen as crucial in Eurozone struggling to steer itself away from the stormy waters of the debt crisis, with Spain the latest country to struggle to stay afloat.

On London’s blue chip index modest gains in banks and miners were countered by weakness in integrated oils, which were hit by a drop in the price of brent crude.

The highest climber was engineer IMI, up 2.5 per cent, after reporting higher first quarter sales.

Water company Severn Trent nudged up by 2.4 per cent.

In the mining sector Kazakhmys enjoyed the biggest lift, up 1.6 per cent.

Among banks Lloyds was the best performer with a 1.6 per gain after Investec Securities repeated its buy rating.

Barclays, was up 0.8 per cent after the bank offered an olive branch to investors over the £17.7m package awarded to its chief executive, Bob Diamond. There will be amendments to his bonus. RBS bucked the trend, sipping by 0.6 per cent.

On the down side iPhone chip maker Arm Holdings was off by 2.4 per cent, the biggest faller on the index.

The drop came after a warning on Wednesday from leading cellphone chip maker Qualcomm that supply constraints will limit its revenues for the rest of the yea.

Mobile phones operator Vodafone was also weak, down 0.2 per cent, with the mobile telecoms firm still weighing up the possibilities of a bid for mid cap C&W Worldwide, after its Thursday deadline to make a bid was extended to noon on 23 April.

Meanwhile engineer Weir Group was off by 1.4 per cent.

Oil majors BP and Shell both edged down by around one per cent.

In Asia the Nikkei closed down 0.02 per cent while the Hang Seng was marginally up.

 

 

Petrol prices rise after brief halt, AA says

The average petrol price has risen to a new high of 142.48p per litre after a brief halt to weeks of rises, motoring association the AA says.

The average price of diesel, at 147.88p a litre, is just short of the record price set a week ago.

Petrol prices have risen by 10.23p a litre and diesel by 7.32p a litre, since the beginning of this year.

The AA blamed speculators for pushing up oil prices and said the government should do more to tackle the problem.

AA president Edmund King said: “Panic buying in March forced some cash strapped families to spend far more on fuel than their budgets could bear.

“Filling up a 50-litre tank costs more than some families spend on food each week. This panic buying masked a more persistent threat further up the fuel chain.”

In the past month, petrol prices have gone up 3.98p a litre and diesel 2.43p a litre.

Petrol cost 135.29p a litre a year ago and diesel 141.60p per litre.
‘Well supplied’

“Speculator driven oil prices have crashed petrol demand,” Mr King said.

The demand for petrol in the UK was down 20% on pre-credit crunch levels and in the US in January was back to 2001 levels.

This has resulted in refinery closures on both sides of the Atlantic.

The International Energy Agency and Opec (the Association of Oil Producing and Exporting Countries) said last week the global oil market was “well supplied”.

Mr King said the pressure to maintain petrol wholesale prices at or just below record levels and kill even more consumer demand was “absurd and incomprehensible”.

Speculative activities should not push oil prices to such an extent that it adversely affects the overall demand, Mr King said.

“To help the 35 million UK drivers, the government should address the current destructive tendencies in the oil and road fuel markets,” he said.

“Greater transparency would be a good start.”

 

 

Rents fell back again in March, say letting agents

The average level of private rents in England and Wales fell back slightly again in March, according to the letting agency group LSL.

Average rents dropped by 0.3%, or just £2, to £705 per month, after a drop of 0.6% in February.

But LSL said the recent drop-off would be short-lived, as it had been due to some first-time buyers moving out of their rented homes to beat the recent reintroduction of stamp duty.

Rents are still 2.7% up on a year ago.

“The rental market was still feeling the knock-on effect from the stamp duty deadline in March, with an increased number of tenants rushing to leave the sector in the first part of the year, easing tenant competition,” said David Newnes of LSL.

“With the passing of the stamp duty deadline increasing the cost of moving, and banks’ funding conditions likely to limit high value mortgage lending to first-time buyers, would-be buyers will be more reliant than ever on rented accommodation.”

LSL runs letting agencies under names such as Reeds Rains and Your Move, and its index of rents is based on about 18,000 homes.

In March, rents fell most in south-west England and the East Midlands, and they also dropped slightly in London, where they were down by 0.3% during the month.

However, the capital has still experienced the fastest annual growth in rents of any region, up by 4.9% compared to March last year.

 

 

Debenhams profit rises

Debenhams reported a 1.4 per cent rise in profit to £127.1m for the six months to 3 March

 

 

Eurozone banks face $2.3 trillion firesale, says IMF

EUROPEAN banks could be forced into selling off $2.3 trillion worth of assets as they battle to regain investors’ trust, the IMF warned yesterday.

The Washington based fund expects EU-based banks to sell almost seven per cent of their total assets – a staggering $2.3 trillion – over the next 20 months as they attempt to strengthen their balance sheets.

It expects the majority of this deleveraging to come from banks shedding non-core assets and securities, but says one fourth will come from a reduction in lending – reducing credit supply by an estimated 1.7 per cent.

The IMF – which based its forecasts on an analysis of 58 large EU-based banks – warns that the scale of the sell-off will exacerbate the “mild recession” it is currently predicting for the Eurozone this year. “A large scale and synchronised deleveraging by European banks could do a serious damage to asset prices, credit supply and economic activity in Europe and beyond,” said José Viñals, head of the IMF’s monetary and capital markets department.

The IMF warns an asset firesale would also hit US banks via the derivatives market, despite their lack of direct exposure to European banks.

 

 

Persimmon in strong start to 2012

British housebuilder Persimmon said it had made a good start to 2012 with both visitor levels and orders up on last year, boosted in part by a new government mortgage scheme.

The group, which in February cheered shareholders with a promise to return 1.9 billion pounds of surplus cash to them over the next decade, said visitor levels to its sites over the first 15 weeks of 2012 were up 10 per cent on last year.

Britain’s largest housebuilder by market value said its order book rose nine per cent to £1.24bn in the same period, as margins also rose.

The NewBuy scheme – which allows lenders to provide 95 percent mortgages on new build properties with guarantees from the government and developers – boosted enquiries from potential buyers, Persimmon said.

Britons have taken a hammering from a combination of government austerity measures aimed at cutting the budget deficit, prices rising faster than wages, and the relatively high cost of credit from banks compared to previous years.

However, a recent survey showed that British house prices declined at the slowest pace since June 2010 in March after a gentle increase in activity across the market so far this year.

“Whilst the availability of mortgage credit remains the key constraint on the UK housing market, we remain confident that Persimmon can operate successfully within existing market conditions,” the group said in a statement.

 

 

IMF sees ‘optimism return’ as faster growth predicted

The International Monetary Fund (IMF) has said that “some optimism has returned” to the global economy and has predicted slightly faster growth.

The IMF revised world economic growth for 2012 to 3.5%, up from its previous forecast of 3.3%.

It also expects the UK to grow faster this year, by 0.8% rather than 0.6%.

But the IMF noted another eurozone crisis was possible and that most major economies “still face major brakes on growth”.
Hopes raised

The eurozone recently agreed a second multi-billion-euro bailout for Greece, making a default of the country less likely, and has created a permanent rescue fund, hoping to contain a crisis that has dragged on for years.

Separately, the US unemployment rate has fallen to 8.2%, the lowest rate since 2009, raising hopes for a recovery in the world’s largest economy.

“With the passing of the crisis, and some good news about the US economy, some optimism has returned,” the IMF said.

But it added the “risk of another crisis is still very much present”.

As if to underline that point, Spain is the only eurozone country whose growth has been revised even lower for 2012.
Spain woes

Spain’s 10-year bond yields have risen past 6%, making it more expensive to borrow as investors fear that Spain will need a bailout.

Investors have been worried by data showing Spain’s banks are entirely dependent on emergency ECB loans, as the nation suffers from a deep economic slump brought about by a bust in its property and construction markets.

On Tuesday, the rate for Spanish 18-month bonds almost doubled to 3.1%, suggesting that rates could rise significantly at a more important sale of 10-year bonds on Thursday.

Unemployment is the highest in Europe, with a record 4.75 million out of work. Half of Spain’s under-25s are unemployed.

The IMF expects Spain to contract by 1.8% in 2012, compared with its previous prediction of a contraction of 1.6%.

The 17 countries of the eurozone are expected to shrink this year, but less than previously forecast, by 0.3% rather than 0.5%.

Meanwhile, developing economies such as China and Brazil are expected to grow even more this year, expanding by 5.7% rather than 5.5%.

More generally, the body warned on the austerity programmes most Western countries have engaged in, and advocated greater spending – possibly funded by tax increases – to keep growth ticking along.

“Given concerns about fiscal room, a balanced budget fiscal expansion could support activity and employment while keeping fiscal consolidation plans on track,” the IMF said.

“For example, temporary tax hikes matched by increases in government purchases – for much-needed infrastructure – could lead to an almost equal rise in output.”
British situation

The UK’s growth forecast for 2013 has been left at 2% by the IMF, which noted that “the financial sector was hit hard by the global crisis”.

The global body’s revised UK forecasts now match with those of the UK’s independent Office for Budget Responsibility.

But both are more optimistic than most independent UK economists, who expect economic growth of about 1.6% next year.

“In the United Kingdom, with inflation expected to fall below the 2% target amid weaker growth and commodity prices, the Bank of England can further ease its monetary policy stance,” the IMF said.

The IMF’s latest World Economic Outlook came a day after the World Bank appointed a new president, the US’s Jim Yong Kim.

By convention, the US has always held the top job at the World Bank since it was founded in 1944.

The top job of its sister organisation, the International Monetary Fund, has also always gone to a European but there has been much pressure from emerging economies to open the processes of both organisations to competition.

The IMF is currently led by France’s Christine Lagarde.

 

 

London close: Macro data sees stocks surge

- Footsie at intraday high by the close

- Economic data from Eurozone and US boost buying

- Banks and miners lead risers in London

London’s FTSE 100 index surged by nearly two per cent on Tuesday, as upbeat economic data from the Eurozone and US provided a spark in the banking and mining sectors. Meanwhile, some better-than-expected first-quarter results from American heavyweights Coca-Cola and Goldman Sachs also lifted sentiment.

Spain issued €3.18bn in short-term government bonds this morning and while yields rose as expected, the issuance was higher than the €2-3bn target range and demand for both 12- and 18-month notes was strong. After having surged beyond 6% yesterday, the yield on 10-year Spanish bonds had dropped 18.1 basis point to 5.889% by the close in Europe.

Elsewhere in the Eurozone, despite consensus expectations of a fall in the ZEW German economic sentiment index to 19, the survey improved to 23.4 in April from 22.3 the month before. Analyst Thomas Harjes from Barclays Capital said that the recent weakness in Germany’s financial market has been down to a “technical correction” and broader euro worries “rather than weaker fundamentals of the German economy.”

In other news, Eurostat revealed that consumer prices rose 2.7% year-on-year in March, higher than the initial reading of a 2.6% increase.

“These figures are a good indication that investors are optimistic about the direction of the Eurozone despite the current issues in Spain and Italy, and with CPI coming in slightly above expected at 2.7%, the door is left wide open for more monetary stimulus from the ECB,” said market analyst Craig Erlam from Alpari.

Meanwhile, US benchmarks opened strongly on Wall Street after new housing permits rose to their highest level since September 2008, despite expectations of a slight decline. Investors seemed to shrug off some weaker-than-anticipated industrial production data.

FTSE 100: Risk-on as banks & miners surge

Investors shifted their weighting into the banking and mining sectors today as improving data from the Eurozone temporarily eased concerns about the ongoing debt crisis. Mining peers Antofagasta, Anglo American and Vedanta Resources finished strongly, closely followed by ENRC after it announced the completion of the acquisition of thermal coal group Shubarkol Komir JSC, which is expected to enhance the company’s position as a leading coal producer in Kazakhstan. Rio Tinto also rose despite saying that production of copper and iron ore fell in the first quarter of 2012 compared with the final three months of last year.

Meanwhile, banking groups Barclays, Lloyds and RBS were in demand with Barclays leading the charge after Bank of America Merrill Lynch suggested the broking community could be about to up their earnings forecast for the firm. “With Eurozone fears hitting the shares recently, we think the first-quarter results could re-focus investors to the fundamental attractions,” the US broker reckons.

There were only a handful of stocks registering losses by the close, with luxury group Burberry and High Street retailer Marks & Spencer strongly out of favour. Burberry dropped nearly 6% after underlying revenue growth eased in the fourth quarter owing to a slowdown in growth at its Wholesale division. Meanwhile, M&S saw like-for-like sales in the UK fall by a worse-than-expected 0.7% in the first quarter.

Mobile phone networks giant Vodafone has cranked up its dispute with the Indian government by serving notice that it is prepared to go to international arbitration over India’s plans to introduce a retrospective tax law which will hit the UK-based company hard. Shares were up over 1%.

FTSE 250: Afren jumps on ‘potentially transformational’ oil discovery

Afren thinks it might have struck it big in the Kurdistan region of Iraq with its Simrit-2 exploration well. “The scale of the oil column that has been intersected suggests that the Simrit structure and surrounding prospects elsewhere on the Ain Sifni PSC have the potential to be transformational for Afren”, said Osman Shahenshah, Chief Executive.

Daily Mail and General Trust (DMGT) said that advertising at Associated Newspapers, which publishes the Daily Mail, has fallen 3% in the six months to the end of March.

 

 

UK inflation rises

British inflation ticked up in March, driven by higher food and clothing prices and reinforcing expectations the Bank of England will not inject more stimulus into the economy next month.

The Bank of England and the government have been hoping that falling price pressures will ease the squeeze on Britons’ budgets and boost consumer spending.

The Office for National Statistics said that consumer price inflation rose to 3.5 per cent in March from 3.4 per cent in February, calling a halt to a five-month run of declines from a peak of 5.2 per cent in September 2011.

The figures will heighten the concerns of BoE policymakers such as chief economist Spencer Dale and external member Martin Weale, who have expressed a worry that inflation might not fall as much as hoped, and indicated a reluctance to sanction another round of quantitative easing when the current £325bn programme is complete in May.

The BoE’s quarterly forecasts in February showed it expected inflation to fall below its 2 per cent target towards the end of this year.

The ONS said the biggest upward drivers of inflation last month were food and clothing prices. Food prices fell less on the month in March than they did a year ago, driving up the annual rate to 4.6 percent, which was the highest since October 2011.

Annual clothing inflation, meanwhile, picked up a whole percentage point to 3.2 per cent, also its highest since last October.

More worryingly for the BoE, core consumer price inflation – which strips out the volatile food, energy, tobacco and alcohol components – ticked up a notch to 2.5 per cent.

Retail price inflation, which is often used as a benchmark for pay deals, inched lower, however, to 3.6 percent, its lowest since December 2009.

Figures from the British Retail Consortium earlier this month had shown that food prices posted their biggest increase since August 2010. A drought across most of England risks pushing up fresh food prices even further, while petrol prices remain near a record high.

Tuesday’s data come after figures at the end of last week showed factory gate inflation was higher than expected in March, though firms’ raw material costs rose at their weakest pace in more than two years.

Separate figures published by the ONS showed UK house prices rose 0.2 per cent in February, taking the annual rate to 0.3 per cent. The average price of a home stood at £224,473.

The ONS said the annual increase was driven by rises in London and the South East. Prices for first-time home buyers were 1.3 percent higher on average than a year ago.

 

 

FTSE edges up thanks to banks

London’s blue chip index edged up this morning but the Eurozone debt crisis continued to cast a shadow.

Spain’s borrowing costs have jumped and the country is grappling to get back on track with a tough set of austerity measures.

The FTSE 100 built on limited gains in yesterday’s session as investors took cover in defensive stocks.

They were also eyeing figures out this morning which showed that UK inflation had risen to 3.5 per cent in March from 3.4 per cent in February.

The Office for National Statistics attributed the lift in the Consumer Prices Index to an edging up in food prices.

Barclays was the highest riser in London, up 2.3 per cent and RBS also climbed by more than two per cent. Lloyds, down 0.8 per cent, bucked the upward trend among high street banks.

Also in the financial sector Schroders was up 2.2 per cent and insurer Prudential nudged up 1.4 per cent.

Building materials giant CRH was up 2.5 per cent. Broadcaster ITV also lifted by more than two per cent.

On the downside luxury brand Burberry Group fell 3.9 per cent despite meeting forecasts with an 18 per cent rise in second-half sales.

Burberry’s shares have outshone the benchmark in 2012, rising 33.8 per cent, buoyed by soaring China retail sales.

Meanwhile Marks & Spencer shed 2.7 per cent as it missed forecasts for underlying fourth-quarter sales, with growth in food sales failing to offset a weaker outcome in general merchandise.

Miners were mainly on the back foot with BHP down 1.1 per cent and Kazakhmys 0.17 per cent.

But Randgold Resources was the biggest faller in the sector, down 2.9 per cent. Polymetal was off by 1.9 per cent despite yesterday reporting a jump in revenues.

In Asia the Nikkei and Hang Seng closed broadly flat.

 

 

EU’s ‘Recession-Busting’ Wind Industry Set to Triple in Value

The European Union’s “recession- busting” wind power industry is forecast to triple in value as its labor force doubles in the 10 years through 2020, the European Wind Energy Association said.

The contribution of the wind industry to the economy of the 27-nation EU will rise to 94.5 billion euros ($123 billion) in 2020 from 32.4 billion euros in 2010, the lobby group, known as EWEA, said today in a report published in Copenhagen at the start of its annual conference. Jobs supported by the industry will jump to 520,000 from 238,154, it said.

“Wind energy is a recession-busting industry,” EWEA President Arthouros Zervos said in a statement. It is “providing increasing economic activity, more jobs and exports every year to an EU struggling with an economic crisis intensified by ever-increasing amounts of fuel being imported at rising costs.”

The EU is chasing a target of getting 20 percent of all energy for power, heating and transport from renewables by 2020. The contribution of the wind industry to EU economic output increased by a third in 2010 from 2007, according to today’s report. EWEA said Feb. 6 that wind power capacity expanded more than 10 percent last year with 21 percent of the bloc’s new power capacity coming from wind.
Increased Competition

Even so, the industry has struggled in recent months amid increased competition, and as European governments work to rein in budget deficits. Spain, with just under a quarter of the EU’s wind farms, in January suspended subsidies to new developments. In its February report, EWEA said investment in the industry was unchanged at about 12.6 billion euros in 2011.

EWEA called for “stable national renewable energy frameworks” and a joined up European power grid to spur the industry further as well as a target to cut greenhouse gases in the bloc by 30 percent for the 30 years through 2020, up from the current goal of a 20-percent reduction.

The continent’s two biggest turbine makers, Aarhus, Denmark-based Vestas Wind Systems A/S (VWS) and Gamesa Corp. Tecnologica SA (GAM) of Zamudio, Spain, have both shed more than 60 percent of their value in the past year as competition from China helped crimp margins. Navigant Consulting Inc.’s BTM Consult said March 26 that they were the biggest and fourth- largest turbine makers by market share in 2011.

The industry now contributes 0.26 percent of European economic output, according to today’s report. By 2020, wind power will contribute 0.59 percent of EU economic output, rising to almost 1 percent a decade later, it said.

Net exports for wind totaled 5.7 billion euros in 2010, and the industry saved the bloc an identical amount in fossil fuel bills, according to the report.

EWEA included wind farm developers, turbine makers and component manufacturers in its study, as well as jobs and economic output relating to transportation of the turbines, and the electronics and metals used in them.

 

 

Glencore mine linked to child labour

Children as young as 10 are working in a mining concession owned by Glencore, the multi-billion pound commodity giant, BBC Panorama has found.

Undercover filming showed several under-18s working in the Glencore-owned mining area in the Democratic Republic of Congo.

Glencore stopped mining at the Tilwezembe concession in 2008.

It says the mine has been taken over by local workers, who are mining there without the company’s permission.

Panorama also tracked a lorry leaving the mine to a processing plant owned by one of Glencore’s main partners in the Congo.

And documents obtained by the programme show that some of the copper from Tilwezembe was sent from the processing plant to a Glencore smelter in neighbouring Zambia.

Rockfall

International law prohibits anyone under 18 working in a mine.

Tilwezembe mine workers told the BBC 60 miners died at Glencore’s mining concession last year, making it one of the most dangerous in the world. One 16-year-old said accidents were commonplace and fatal rockfalls routine. One rockfall had killed his friend.

Panorama secretly filmed miners climbing down mineshafts 150ft deep without any safety or breathing equipment to dig copper.

Although Glencore says it stopped operating at the mine in 2008, because of the collapse in the price of copper, it still owns the concession.

Glencore chief executive Ivan Glasenberg denied profiting from child labour.

He said the child miners were part of a group of freelance miners who “raided our land in 2010… against all of our authorisation. We are pleading with the government to remove the artisanal miners from our concession.”

He also denied that Glencore bought any of the copper from Tilwezembe.

Acidic river

Panorama also found evidence of acidic waste being pumped straight into a river near the Glencore copper refinery in Luilu.

Upstream, the river – used by local people to wash and fish – was clear and green; downstream of the Glencore pipe there was brown sludge.

A Swiss non-governmental organisation tested the acidity of the waste water and found a PH value of 1.9 where 1.0 is pure acid and 7.0 neutral.

Asked about the acid in the river, Mr Glasenberg said the pollution started long before the company took over the refinery.

He said: “I have been to that river. That is what people have dumped into the river for 50 years. That’s why Glencore has spent vast amounts of money to get rid of this problem, to ensure clean water in two weeks time will be discharged into that river.”

Glencore now says the pollution causing the acidity had been stopped. The villagers have so far received no compensatio

 

 

Spain bond yields jump above 6%, raising bailout fears

The implied cost of borrowing for Spain has jumped above 6%, raising again the prospect of a bailout.

The yield on Spain’s 10-year bonds reached 6.1%, ahead of auctions of debt on Tuesday and Thursday that could be increasingly expensive for Spain.

The nation’s cost of borrowing has been rising steadily over the past four months.

Investors have been worried by data showing Spain’s banks are entirely dependent on emergency ECB loans.

The yield suggests that if Spain wanted to borrow for 10 years today, it would pay more than 6%.

In comparison, the yield on 10-year bonds from Germany, the eurozone’s strongest economy, is 1.73%.
Recession

Spain is suffering from a deep economic slump brought about by a bust in its property and construction markets.

Unemployment is the highest in Europe, with a record 4.75 million out of work. Half of Spain’s under-25s are unemployed.

The Bank of Spain said recently that the county’s economy contracted in the first quarter of the year – but it did not say by how much. The economy shrank by 0.3% in the three months to December, so this additional contraction implies that Spain’s economy is in recession.

The country’s economy minister said on Monday that in the first three months of the year the country had probably contracted by as much as the last quarter of 2011 again, but added this was actually better than expected.

“If you had asked me two months ago, I would have expected the first quarter of 2012 to be much worse than the last quarter of last year,” Luis de Guindos told the El Mundo newspaper.

“But that’s not going to be the case.”
Too reliant?

On Friday, the Bank of Spain – the central bank – said its net lending to its banks in March had risen to 228bn euros ($298bn; £188bn), up from 152bn euros a month earlier.

The big jump was mainly due to a second auction of three-year emergency loans carried out by the European Central Bank, which has given 1tn euros to banks since December.

This money was intended to be lent by the ECB to national central banks, which is turn lent to commercial banks who would buy their country’s debts and bring borrowing costs down.

While this happened initially, investors are afraid of just how much the Spanish banks are relying on cheap ECB loans to stay afloat.

Since 2010, Greece has been bailed out twice and the Republic of Ireland and Portugal also needed bailouts to stay afloat.

 

 

UK economy will stall until 2013, says Item Club

The UK may have avoided a double-dip recession, but the economy will stall for the rest of the year, an independent forecasting group has said.

The Bank of England’s monetary policy measures have boosted confidence, but now big business needs to fuel growth, the Ernst & Young Item Club said.

It says UK corporates have stockpiled cash on their balance sheets and now need to increase investment.

It forecasts “dismal” growth of 0.4% this year, rising to 1.5% in 2013.

The independent Office for Budget Responsibility, which provides forecasts for the government, expects the economy to grow by 0.8% in 2012 and by 2% in 2013.

The Bank of England has increased its quantitative easing programme – aimed to boost the economy by buying bonds – to £325bn this year, and has continued to hold interest rates at a record low of 0.5%.

But Prof Peter Spencer, chief economic adviser to the Item Club, told the BBC there was only so much central banks could do.

“The problem is that they can keep us away from disinflation and depression but they can’t really pump any more in than that for fear of inflation.”
‘Stashing cash’

The Item Club said that “while the wider economy is bumping along, UK corporates remain in good shape and have continued to stockpile cash on their balance sheets at an accelerating pace”.

“Business investment has picked up nicely in the US, but UK companies remain extremely risk-averse, which is sapping strength from the economy,” said Prof Spencer.

“Until these companies stop stashing the cash and start increasing levels of investment and dividends, the economy will remain on the critical list.”

On a global scale, the Item Club pointed to China and Germany as having cash and not spending it and said that this too needed to change.
Export boost

In contrast to big business, the Item Club said UK households remained under intense pressure as the government’s austerity programme took hold.

It expects the unemployment rate – currently at 8.4% – to approach 9.3% by the middle of next year, with the number of people out of work rising to almost three million before beginning to fall back.

However, it highlighted the UK’s export performance as one piece of good news for the economy, after exports of goods increased in volume by 5.1% in 2011.

Last week, the Office for National Statistics said that exports of goods fell 3.4% in February this year, although monthly data is often volatile. January’s data had shown a strong rise in exports.

 

 

UK Market Recovers, Fuelled by US Data, China Talk

Though the UK trade gap widened in February, news that the US trade deficit narrowed helped give global markets a boost on Thursday

Thursday’s was something of a lacklustre session in London until Wall Street opened for business and provided a fillip to stocks on this side of the Atlantic.

The FTSE 100 index closed up 76 points or 1.3% at 5,710, while the FTSE 250 index gained 181 points or 1.6% to 11,415. Both had been struggling to break even on the day prior to the Wall Street open.

The cause of the uptick in the US and at home was vague market talk of better-than-hoped-for economic data to come from China. The Chinese GDP report, which is due Friday morning, has the potential to trigger a broad market rally tomorrow if miners rebound amid hopes of increased demand.

Expectations of such news saw Rio Tinto (RIO), Johnson Matthey (JMAT) and Kazakhmys (KAZ) take on 4.5%, 4.0% and 3.2%, respectively. Should the rumours turn out to be unfounded we could be set for a severe market correction, however.

In data released today, the UK’s trade deficit was shown to have widened to £3.4 billion in February from £2.4 billion the previous month, due to a fall in exports to non-EU countries, though services continue to show a surplus of £5.4 billion.

Despite a wider trade gap, Cebr economic Rob Harbron says export growth should pick up again over the medium term. “Continued weakness in the value of the pound alongside an improvement in the global economic outlook will support demand for goods and services,” he said. “The UK could export its way to growth yet.”

The US also unveiled details of its trade deficit today, which surprised the market by narrowing to £49 billion thanks to a record high from exports. The news helped bolster hopes that the quarterly earnings season in the US could turn out to be better than previously thought.

Returning to the FTSE, just five top-tier stocks slipped into the red on Thursday, among them heavyweight Royal Dutch Shell (RDSB), which lost as much as 4.0% but recovered sufficiently to close just 0.5% weaker. The oil major was hit by fears of an oil leak from its operations in the Gulf of Mexico, where BP’s (BP.) Macondo well exploded. Shell confirmed later in the day that operations were running as normal, quelling investor fears of a sequel to BP’s disaster.

 

 

RFU and BMW sign four-year sponsorship deal

The Rugby Football Union (RFU) has signed a new four-year partnership with BMW, which will become its official vehicle partner from September 2012.

The German carmaker will invest in various age levels of elite England rugby teams, from the main team to the U-16 side, and help grassroots schemes.

The deal follows other recent RFU tie-ups with Canterbury, O2, and GSK.

RFU chief commercial officer Sophie Goldschmidt said the body was “delighted” with the deal.
Sports portfolio

England appointed Stuart Lancaster as their new coach last month after he had led the team to second in the Six Nations table behind Wales.

Before that he had overseen the development of English players over the last four years in his role as RFU Head of Elite Player Development.

He said BMW’s support would be “a massive boost” in this task, particularly in the run-up to the 2015 World Cup in England.

Tim Abbott, managing director of BMW Group UK, said. “The game [rugby union] is a perfect brand fit for us and this news comes as a natural extension of the work we have already done to support some of the UK’s leading sports stars.”

As well as supporting the RFU, BMW has a number of sport sponsorships, including one as a top tier partner of the London 2012 Olympics.

In addition to a number of motorsport events and series which it backs, it also sponsors a number of high profile European golf tournaments.

 

 

NBNK makes fresh bid for Lloyds branches

New banking venture NBNK has submitted a fresh bid proposal to buy 632 Lloyds bank branches.

It had previously been in competition with the Co-operative for the branches, which Lloyds has to sell for regulatory reasons, but in December Lloyds named the Co-op as its preferred bidder.

Co-op chief Peter Marks has cast doubt on that deal, citing “significant economic and regulatory issues”.

However, Lloyds said it remained in exclusive talks with the Co-op.
Deadline

Lloyds – which is 40%-owned by the government – has a deadline of November 2013 to complete the sale in order to meet European Commission competition rules.

The sale includes all 185 Lloyds TSB branches in Scotland.

In its new offer, NBNK said it was proposing an “alternative demerger structure”.

It said it would underwrite 100% of the package of branches being sold by Lloyds, leaving Lloyds shareholders, including the government, the option of receiving cash directly and/or receiving shares in a new, listed banking group.

In a statement, Lloyds acknowledged “receipt of a letter outlining an indicative revised proposal from NBNK”.

“However, we continue to negotiate solely with the Co-operative Group and are continuing to prepare for a divestment through an initial public offering.”

 

 

Italy’s borrowing costs rise in bond auction

Italy’s cost of borrowing has risen, a sign of fresh concerns among investors about the country’s ability to reduce its high levels of debt.

In a three-year bond auction, Italy paid an interest rate of 3.89%, up from 2.76% in a similar sale last month.

The rate on Italian bonds had fallen in recent months, but markets are again becoming nervous about Italy and Spain’s ability to hit deficit targets.

Meanwhile, figures showed a further increase in Greek unemployment.

The number of unemployed people grew by 32,331 in January compared with December last year, with the unemployment rate rising to 21.8%.

There are were 363,369 more people out of work than a year earlier, when the unemployment rate was 14.8%.

Greece is in the midst of a deep recession that began in 2008.

Figures also released on Thursday showed a small increase in eurozone industrial production, which grew by 0.5% in February compared with the previous month.

Compared with February last year, production fell by 1.8%.
Doubts return

Italy raised 4.9bn euros in the debt auction, which also included longer-dated bonds.

Interest rates, or yields, on Italian bonds traded in the secondary market rose slightly following the auction, but still remained below Wednesday’s close.

Concerns about the eurozone debt market have returned this week, with European stock markets falling sharply on Tuesday.

New governments in Italy and Spain have announced deep spending cuts to try to hit stringent deficit targets and reduce the cost of borrowing on the international money markets, but investors remain unconvinced that these targets will be hit.

For this reason, they demanded a higher rate of interest to lend to Italy.

“The funding environment is getting tougher for the periphery,” said Michael Leister at DZ Bank.

“Overall, we believe [yields] are biased towards further [increases], although we still prefer Italian debt over Spanish.”

The eurozone debt crisis will also continue to have an impact on global trade, according to the World Trade Organisation (WTO).

The body said on Thursday that it expected growth in global exports to slow to 3.7% this year, down from 5% in 2011 and 13.8% in 2010.

“More than three years have passed since the trade collapse of 2008-09, but the world economy and trade remain fragile,” said WTO chief Pascal Lamy.

 

 

Indonesia Aceh quake triggers Indian Ocean tsunami alert

An earthquake with an magnitude of 8.7 has struck under the sea off Indonesia’s northern Aceh province.

The quake triggered a tsunami watch alert across the Indian Ocean region.

The Pacific Tsunami Warning Center (PTWC) said it was not yet known whether a tsunami had been generated, but advised authorities to “take appropriate action”.

The region is regularly hit by earthquakes. The Indian Ocean tsunami of 2004 killed 170,000 people in Aceh.

The US Geological Survey (USGS), which documents quakes worldwide, said the Aceh quake was centred 33km (20 miles) under the sea about 495km from Banda Aceh, the provincial capital.

It was initially reported as 8.9 magnitude but was later revised down to 8.7 by the USGS. Strong aftershocks were also reported.

The PTWC alert said quakes of such a magnitude “have the potential to generate a widespread destructive tsunami that can affect coastlines across the entire Indian Ocean basin”.

But Bruce Presgrave of the USGS later told the BBC that the nature of this quake made it less likely a tsunami would be generated, as the earth had moved horizontally, rather than vertically, therefore had not displaced large volumes of water.

“We can’t rule out the possibility, but horizontal motion is less likely to produce a destructive tsunami,” he said.

Sutopo, a spokesman for Indonesia’s disaster mitigation agency, said the quake had been felt “very strongly”.

“Electricity is down, there’s traffic jams to access higher ground. Sirens and Koran recitals from mosques are everywhere,” he told Reuters.
‘Minute of chaos’

The earthquake monitoring agency in Indonesia said the tsunami warning would remain in place for another few hours, but that there had been no reports so far of a low tide, which would indicate the water was receding before building into a tsunami.

The tremor was felt as far away as Singapore, Thailand, Sri Lanka and India.

“There was a tremor felt by all of us working in the building,” a man called Vincent in Calcutta, India, told the BBC.

“All just ran out of the building and people were asked not to use the elevator. There was a minute of chaos where all started ringing up to their family and asking about their well-being.”

The Thai office of disaster management said people along the coasts of Phuket, Phang Na and Andaman province should heed warnings and evacuate.

Tsunami warning sirens, set up in many vulnerable areas after the 2004 disaster, were heard in Phuket, where correspondents said people were calmly following evacuation routes to safe zones.

Indonesia straddles the Pacific Ring of Fire, a zone of major seismic activity.

The BBC’s Karishma Vaswani in the Indonesian capital, Jakarta, says there were reports of the ground shaking for up to five minutes. Contact with people in the immediate area around the quake has not been possible so far, says our correspondent.

 

 

BAA traffic in boost from emerging markets

Traffic at airports operated by BAA rose by four per cent in March, compared with the same month in 2011, helped by Easter being earlier this year and strong growth on routes to emerging markets.

BAA, which is Britain’s main airport operator whose largest shareholder is Spanish infrastructure group Ferrovial, said 8.6m passengers travelled through its airports last month.

The company said 5.7m passengers passed through London Heathrow – Europe’s busiest airport – last month, 6.9 per cent up on last March.

“That increase means Heathrow saw more than 70m passengers over a twelve month period for the first time,” BAA Chief Executive Colin Matthews said in a statement.

Traffic from Heathrow to the BRIC (Brazil, Russia, India and China) countries saw growth compared with March last year, with an increase of 62.3 per cent in traffic to and from Brazil.

BAA said Heathrow’s performance was particularly notable for the 4.2 percentage point increase in load factor – how full planes leaving the airport are – to 73.4 per cent compared to March last year.

The increase was also helped by Easter being earlier this year, with a substantial proportion of pre-Easter traffic falling in March rather than in April last year.

 

 

Michael Page profit rises despite weak banking

British recruitment firm Michael Page International posted a seven per cent rise in first-quarter profit but said weak markets, particularly in banking, continued to drag on growth.

Michael Page, which places people in accounting, financial and legal jobs, on Wednesday said gross profit rose to £136m in the three months to the end of March, up from £127.3m in the same period last year.

The group said growth in sectors such as IT, engineering and commodities in regions such as Germany, France, Latin America, China and Australasia had helped offset weakness in banking markets, southern Europe and in Britain.

The company said banking, which accounts for around 8 percent of group profit, fell 12 per cent in the quarter, with financial clients – having cutting large swathes of jobs in 2011 – slow to start hiring again because of the uncertain economic climate.

 

 

Euro crisis back with a vengeance

FEARS over the future of the Eurozone reignited yesterday, sparking a collapse in stock markets and a sharp upturn in borrowing costs for struggling Mediterranean states.

Yields on Spanish and Italian government bonds soared throughout the day, reversing the recent calming downward trend that had been temporarily achieved with a €1 trillion (£824bn) refinancing operation by the European Central Bank.

Recent bearish data has combined with political worries to bring back concerns and send investors fleeing to safe havens such as gold.

Just two weeks ago Italian technocrat Prime Minister Mario Monti declared the Eurozone debt crisis to be “almost over” – yet he now faces the daunting prospect of contagion from Spain and another summer of rising tension throughout the currency area.

“Previous good sentiment towards the US economy provided a good distraction from the troubles facing Europe,” commented trader Simon Furlong of Spreadex. “However, now the curtain has been lifted, Spain is really starting to feel the heat.”

Spanish 10-year yields touched the psychologically-damaging six per cent mark yesterday, with Italy’s close behind at around 5.7 per cent.

European shares hit a 12-week low, led by the FTSE MIB in Milan, which was down five per cent at the end of play – its largest fall in five months – and Madrid, where stocks lost nearly three per cent. The US followed suit, with stock markets suffering their worst day of the year so far.

Italy’s largest bank UniCredit saw its shares tank 8.1 per cent, closely followed by second-largest Intesa Sanpaolo, which lost 7.9 per cent.

The day began with Spain’s central bank governor admitting that the country’s banks will need more capital if the economy keeps deteriorating.

“The solutions to the crisis, which came from excessive debt or loss of competitiveness, are very slow within a monetary union,” added governor Miguel Angel Fernandez Ordonez.

Spanish Prime Minister Mariano Rajoy is desperately trying to tame his country’s deficit, yet even his pledges are now failing to temper yields.

Yesterday he met with fellow ministers in a bid to push through a further €10bn of cuts to core budgets.

Across the Med in Italy, reports from economic newspaper Il Sole 24 Ore claimed that official GDP estimates are being slashed – potentially forecasting the economy to shrink by up to 1.5 per cent this year.

Safe haven investments gold and silver rose 1.2 per cent and 0.5 per cent respectively, while investors also rushed into UK bonds, pushing 10-year borrowing costs to a six-week low of 2.01 per cent.

German politicians continued to deny there was a problem with the Eurozone’s recovery mechanisms, with Chancellor Angela Merkel’s ally Michael Fuchs declaring the firewall is “big enough by far”.

“Why should we worry about Spain now? I don’t think there’s anything that’s going to be a difficulty at the moment,” he told Bloomberg.

Analysts warned that the situation is not set to improve, as the “breathing space” created by the ECB has not been used properly to address the causes of the crisis.

“Bank balance sheets should have been de-risked, but exactly the opposite happened,” said Filippo Garbarino from Frontwave Capital.

“The Long Term Refinancing Operation was used to buy even more government bonds of insolvent countries, so systemic risk is even higher.”

DAX DOWN 2.49%

CAC40 DOWN 3.08%

GOLD UP 1.2%

SILVER UP 0.5%

FTSE MIB DOWN 4.98%

FTSE 100 DOWN 2.24%

 

 

FTSE steadied by banks and miners

The FTSE 100 steadied this morning but fears over world growth and in particular the continuing Eurozone debt crisis cast a shadow over markets.

Having fallen back to its weakest point this year the blue chip index was given a boost by miners and banks but the market was effectively flat.

The sector had been the poorest performer in the previous trading session but better than expected first-quarter numbers from US aluminium firm Alcoa buoyed the stocks.

Banks also saw a modest rally as Spanish bond yields eased back, relieving some of the fears over the European debt situation.

Security giant G4S was the highest climber on the index, up 3.1 per cent.

The lift came after Morgan Stanley upgraded its rating to “overweight” from “equal weight”.

Engineer Weir Group edged up by two per cent while broadcaster ITV lifted by more than one per cent.

Among miners Fresnillo was the biggest gainer, up 1.5 per cent, Anglo American was up by 0.7 per cent with Rio Tinto 0.8 per cent up.

Another heavyweight in the sector BHP Billiton had a slim 0.3 per cent lift.

Randgold Resources was up 0.4 per cent after a political settlement in Mali where a coup had put its operations under pressure.

In banking Barclays was up 2.2 per cent and Lloyds 0.8 per cent. However RBS was off by 1.7 per cent.

Other fallers included BT, down 1.7 per cent, after JPMorgan Cazenove downgraded its rating to “neutral” from “overweight” after a good run, citing revenue risk over the group’s full-year and first-quarter results.

BskyB shed 1.6 per cent after BofA Merrill Lynch cut its rating to “underperform” from “neutral”.

Publisher Reed Elsevier dipped by 1.5 per cent.

The biggest faller in London was pharmaceutical company Shire, down just over three per cent.

Meanwhile ex-dividend considerations clipped 1.31 points off the index with gas specialist BG Group and engineer IMI both trading without their payout attractions.

In Asia the Nikkei closed down 0.8 per cent and the Hang Seng a shade over one per cent.

 

 

Nissan to produce new hatchback in Sunderland

Nissan’s new hatchback is to be produced at its Sunderland plant, the Japanese car giant has announced.

The model, which has not yet been named, could lead to the creation of 225 jobs at the factory and a further 900 in the supply chain by 2014.

The company’s £127m investment is being supported by £8.2m from the government’s regional growth fund.

It follows the announcement in March that Sunderland will also build the new Invitation model from 2013.

Once production of the two models begins, it is estimated the Sunderland workforce will stand at a record 6,225.

The additional 80,000 hatchback and 100,000 Invitation models will bring the annual output up to more than 550,000 vehicles.
‘Tremendous work’

An additional production shift will be implemented allowing both lines to operate around the clock for the first time in the plant’s 26-year history.

Nissan chief operating officer Toshiyuki Shiga said: “In Europe, Nissan has achieved record growth in recent years by providing innovative, customer-focused models like Qashqai and Juke that are designed, developed and produced within the region.”

Speaking during a visit to Japan, Prime Minister David Cameron said: “I’ve already seen first hand the tremendous work at the Nissan Sunderland plant and it’s great to be visiting the company’s headquarters in Yokohama today.

“Nissan’s investment in the UK is a huge vote of confidence in the skills and flexibility of the UK workforce.”

Paul Watson, leader of Sunderland City Council, described it as “fantastic news” for the area.

He added: “Coming just weeks after the decision to build the Invitation model here, the announcement of an additional £127m investment in the plant is a proud testament to the skills and dedication of the Sunderland workforce.”

North East Chamber of Commerce chief executive James Ramsbotham added that the performance levels of the Wearside workforce had convinced “Nissan’s senior management that Sunderland is the perfect place to oversee production of this new vehicle”.

“This is great news for the UK automotive sector, the region’s economy and Nissan’s North East supply chain,” said Mr Ramsbotham.
He also pointed to the importance of Nissan to the regional economy citing that for every person employed by the company, “another four are supported in Nissan’s supply chain and with employment at the plant reaching a record high this is another welcome achievement”.

 

 

Japan Closer to Restarting First Reactors Since Fukushima

Japan’s government approved new safety measures for nuclear reactors, taking a step toward restarting the first atomic plant since the Fukushima disaster and to avert electricity shortages this summer that could set back the country’s economic recovery.

Prime Minister Yoshihiko Noda and three of his Cabinet members — the group of four with the final say on reactor restarts — held talks last night and approved safety measures to allow switching on two Kansai Electric Power Co. reactors. The units have passed so-called stress tests introduced after the Fukushima meltdowns.

The government will now take the plan for approval by authorities in Fukui prefecture, about 95 kilometers (59 miles) northeast of Osaka, where the reactors are located in Kansai Electric’s Ohi plant. Once local approval is secured, the final decision to restart the two reactors goes back to the Cabinet group. That decision may come early next month, Kyodo News reported, citing the ruling party’s policy chief Seiji Maehara.

The Kansai Electric safety measures meet “what the Nuclear and Industrial Safety Agency requested,” Industry Minister Yukio Edano, one of the Cabinet’s group of four, said at a news conference streamed over the Internet after the meeting last night.

Kansai Electric, the Japanese utility most dependent on nuclear power at 49 percent, has warned that if all its reactors stay offline during peak summer electricity demand, power shortages may follow.
Power Cuts

The company’s electricity output without nuclear power may be 19.6 percent short of peak demand this summer if Japan is hit by a heat wave similar to the one in 2010, the trade and industry ministry said in a statement yesterday.

The company serves the Kansai area of western Japan that covers an area the size of Belgium, has an economy worth $1 trillion — about the size of Mexico’s — and is home to the cities of Osaka and Kyoto as well as factories of Sharp Corp. (6753) and Panasonic Corp. (6752)

Companies such as Komatsu Ltd. (6301), the world’s No. 2 maker of construction machinery, have said they will move factories overseas if electricity supply isn’t guaranteed.

Kansai Electric’s president Makoto Yagi met Edano in Tokyo yesterday on the safety standards.

“Though I think we have improved safety to prevent an accident similar to Fukushima, steps to increase safety never end,” Yagi said after the meeting.
‘Not Enough’

The government and Kansai Electric “fell short of scientifically and quantitatively explaining why some measures don’t need to be taken right now and what alternative safety measures have been secured,” Hironobu Unesaki, a nuclear engineering professor at Kyoto University, said by phone yesterday. “Their explanations are not enough.”

All but one of Japan’s 54 reactors are now offline after the March 11 earthquake and tsunami last year crippled Tokyo Electric Power Co. (9501)’s Fukushima Dai-Ichi nuclear station.

The reactors, which previously supplied 30 percent of Japan’s electricity, have either been closed by the March 11 disaster, government order or not allowed to restart after regular maintenance shutdowns. Nuclear reactors are closed every 13 months in Japan for maintenance and to replace uranium fuel rods.

Hokkaido Electric Power Co.’s No. 3 reactor at its Tomari nuclear plant is the last reactor running and is due to come offline for regular maintenance on May 5, the company said in a statement on its website on March 26.
‘Rushing to Restart’

“It is so obvious the government is rushing to restart the Ohi reactors at any cost before the Tomari unit is shut,” Tomoko Murakami, a Tokyo-based nuclear analyst at the Institute of Energy Economics, Japan, said by phone today.

The shutdown of the Tomari No. 3 reactor would become a symbolic defeat for those promoting nuclear power, because Japan would become nuclear free, she said. “But it’s really stupid if that’s the reasons behind the rush.”

Japan’s liquefied natural gas imports rose to a record in 2011 as utilities have been forced to rely on fossil fuel power plants to replace idled reactors.

Fuel costs at nine regional utilities that own atomic plants may more than double to about 7 trillion yen ($86 billion) in the year ending March 2013 if reactors remain shut, according to the report by the trade and industry ministry. Kansai Electric’s fuel bills may rise by 800 billion yen to about 1.1 trillion yen, it said.

The Fukushima nuclear meltdowns poisoned an area about half the size of New York City with radiation fallout. About 160,000 people were forced to evacuate and many areas around the plant will be uninhabitable for decades.
Jobs Needed

Japan’s central government has typically sought approval from local authorities to restart reactors, though it has no legal requirement to do so.

The Mayor of Ohi said safety measures taken so far at the plant are “sufficient,” Kyodo News reported, citing his comments at a press conference yesterday.

“It’s questionable to let the plant restart, but it’s a very difficult problem,” said Masataka Tamagawa, a Buddhist priest in Obama city, about 10 kilometers from the Ohi plant. “Many people in the city have a job related to Kansai Electric. It’s not easy to find work if the plant goes.”

Toshitaro Akai, a 66-year-old resident of Ohi town said life and safety are more important than a job.

“I’m against the restart of the nuclear plant; respect for human life should take priority over any other things and nuclear power is dangerous,” said Akai. “Japan should switch to other energy sources such as thermal and solar. If that means higher electricity bills, it can’t be helped.”

 

 

Wind Power Seen Surging as Custom Barges Cut Set-up Costs

Offshore wind-power producers from Dong Energy A/S to RWE AG (RWE) are building custom ships at record rates to reduce the cost of the technology that’s three times as pricey as electricity from coal plants.

As many as 20 vessels, some with movable legs that reach the seafloor, will come onto the market in the next few years, reducing chartering costs of as much as 200,000 euros ($261,000) a day, said Marc Seidel, an offshore engineer at Suzlon Energy Ltd. (SUEL), which supplies turbines to Germany’s RWE.

A lack of specialized installation ships has forced companies to hire barges designed for oil exploration, holding up work at projects such as EON AG’s Robin Rigg wind farm off Scotland’s western coast. The British government estimates that offshore wind may contribute more than 35 billion pounds ($55 billion) to the economy by 2050 if costs are cut quickly enough.

“Having these vessels is the difference between being able to build the projects that we’re all looking at today and not,” Paul Coffey, chief operating officer of RWE’s Innogy unit, said from Swindon, England. “They allow you to operate in higher water depths, in more inclement water conditions. They allow you to get the job done faster and more safely.”

In the early 2000s, developers had to “beg, steal and borrow” vessels from other industries to get projects completed, Coffey said. Essen-based RWE won rights with SSE Plc (SSE), Norway’s Statoil ASA (STL) and Statkraft AS to develop the Dogger Bank wind park 100 kilometers (62 miles) off eastern England in the U.K.’s third licensing round. Dong had a similar struggle.
Adapting Equipment

“We applied equipment across all elements of the supply chain that were developed for something else,” Dong’s head of renewables construction, Christina Grumstrup Soerensen, said by phone. “We put land turbines out at sea, and we used vessels developed for the exploration and production industry, or bridge-building equipment.”

The new ships allow developers to install turbines in deeper waters, lift heavier weights, cope with bigger swells and carry more machines out to wind-farm sites, speeding up project completion.

A utility can earn 10,000 euros operating a 6-megawatt turbine on a “good wind day,” said Thomas Karst, an industry adviser with Make Consulting LLC in Aarhus, Denmark. “If you can have 10 turbines up a month earlier on a project, that’s 3 million euros in your pocket from early generation.”
Expensive Energy

While sea-based wind power is among the most expensive forms of renewable energy, countries including the U.K. have promoted large-scale projects to add jobs, harness the stronger winds offshore and lessen the noise and visual impact of turbines on nearby communities.

Offshore wind costs about $232 a megawatt-hour of power generated, according to data from Bloomberg New Energy Finance. That compares with about $80 for onshore wind, $62 for gas-fired plants and $77 for coal. The government supports the industry with incentives for power produced by renewable energy sources.

“If we gave away our turbine for free, we would not even be close to the price of coal,” said Jesper Moeller, head of offshore engineering for the wind division of turbine manufacturer Siemens AG. (SIE) The Munich-based company supplied the majority of machines installed at sea in Europe last year.
RWE’s Program

RWE spent 200 million euros on two custom-made craft that can operate in waters 45 meters (148 feet) deep and are due to begin work in June and July. The vessels, known as jackup barges, have platforms supported by legs that can be adjusted to fit different water depths and heights for the towers that support wind turbines.

“We didn’t want to be in a situation where we couldn’t choose when to build our wind parks,” Coffey said. “We don’t want to be at the back of a very long queue for a vessel.”

A2Sea, a Siemens-Dong venture which is installing turbines at the 1-gigawatt London Array, the world’s largest approved offshore wind park, initially operated two old container ships adapted with cranes and legs, according to Chief Executive Officer Jens Frederik Hansen. The venture now has two larger vessels with another due this year, and on March 23 announced a $155 million deal to have a fourth built by 2014.
‘Fully Booked’

“The larger vessels will be fully booked at least until 2020,” Hansen said. “The smaller vessels will go into the service area probably for maintenance.”

MPI Offshore Ltd., owner of the industry’s first purpose- built vessel, the Resolution, turns away “lots of enquiries” from developers, said Managing Director Peter Robinson. The U.K.’s Centrica Plc (CNA) has the option to use the Resolution until 2016, and a further MPI vessel has been chartered by Germany’s EON for six years when it completes its current task.

Europe will install about 10.4 gigawatts of offshore wind turbines from this year through 2015, more than 70 percent of the global total, according to New Energy Finance. From around 2015, U.K. developers will start building the country’s third round of offshore wind farms, which are typically further from the shore and in deeper waters than current projects.

“These Round 3 sites are going to kick in by 2015, 2016 and beyond, creating even greater demand on vessel capacity,” MPI’s Robinson said in an interview.
Rising Demand

Burgeoning demand was reflected in the $850 million acquisition of shipbuilder Seajacks International Ltd. last month by Marubeni Corp. and Innovation Network Corp. of Japan. The purchase allows Seajacks U.K. to boost its fleet of jackup barges, the third of which will be delivered in May, it said.

Seajacks vessels worked on Dong’s Walney 2 wind farm in the Irish Sea, a project that was installed on budget and ahead of schedule, said Sebastian Brooke, Seajacks commercial director.

Norway’s Fred Olsen Energy ASA (FOE) is having two vessels built in Dubai for May and September, and Hochtief AG (HOT) and DEME Group’s GeoSea unit are building a jackup capable of operating in waters 50 meters deep.

“All of those vessels are coming on stream now in 2012, 2013 and 2014,” according to Make Consulting’s Karst. “From 2012 and forward, there will actually be excess vessel capacity days.”

The U.K. has more than 2 gigawatts of wind turbines installed at sea, representing more than half of the European total, and targets 18 gigawatts by 2020. Germany plans to build 10 gigawatts, the equivalent of nine atomic plants, as it phases out nuclear following Japan’s Fukushima disaster in 2011. Such plans are dependent on a reduction in costs, according to Repsol YPF SA (REP), which has stakes in three wind projects off Britain.

“We really need to see some significant cost reductions in the sector before we’re going to see the build-out at scale,” Ronnie Bonnar, managing director of Repsol’s Nuevas Energias U.K. unit, said in an interview. That includes the costs of vessels, turbines and foundations, he said.

 

 

India and Qatar ink oil and gas pact amid Iran pressure

India and Qatar have signed a pact to increase cooperation in the field of oil and gas exploration.

The deal comes as India looks for more sources of oil and gas to meet its growing energy demands.

India has also been facing pressure to reduce its imports of Iranian oil amid nuclear sanctions against Tehran.

Qatar has sixth-largest oil reserves in the Middle East and the world’s third-largest natural gas reserves after Russia and Iran.

India is heavily dependent on Iranian oil imports, but the US and its western partners have been targeting Tehran’s oil exports to try to force it to abandon its nuclear programme.

The US plans to implement a round of sanctions, starting on 28 June, on banks based in countries that do not cut their oil imports from Iran.

Along with the oil and gas pact, Indian Prime Minister Manmohan Singh signed five other agreements with the Emir of Qatar, Sheikh Hamad bin Khalifa al-Thani, to boost trade and investment ties.

 

 

Facebook buys Instagram photo sharing network for $1bn

Facebook has announced it is to buy Instagram – the popular photo-sharing smartphone app.

Facebook is paying $1bn (£629m) in cash and stock for the takeover.

Instagram was only launched in October 2010 – initially just for the iPhone before being offered as an Android app last week.

Facebook’s chief executive Mark Zuckerberg has pledged to continue to develop Instagram as a separate brand, allowing it to post to rival networks.

The app is free and allows users to apply 17 filters to the pictures they take – changing the colour balance to give the images a different feel – before they are uploaded.

It has proven hugely popular. The firm says that it has more than 30 million users uploading more than 5 million new pictures every day.

Paul Kedrosky, a tech investor and author of the Infectious Greed blog, told the BBC: “I understand Instagram has 13 employees – so at $77m a head that makes it the most expensive business deal in history that I can think of.”
‘Important milestone’

Mr Zuckerberg wrote on his Facebook page: “We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience.

“We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook.”

He added: “This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users. We don’t plan on doing many more of these, if any at all.”

Mr Kedrosky said the speed of the deal was unusual.

“I’m told it also came together very quickly, like a lightning strike.

“After launching on Android last week and adding one million users a day, it became obvious that this wasn’t just a photo sharing app – it was a competitive social network, and the concern may have been that there would be rival bids.

“That’s the only reason to think Facebook would have done this in the quiet period ahead of its flotation.”

Instagram’s FAQ says it had previously raised $7.5m in funding from three venture capital firms and “a small group of angel investors”.

The deal marks the second time in four months that Facebook has taken on staff from another social network.

In December, it announced it was hiring the co-founders of the location-based check-in service Gowalla. The network closed down shortly afterwards.

The moves come ahead of Facebook’s planned flotation later this year. The firm reportedly plans to issue $5bn worth of stock on the New York-based Nasdaq exchange in May or June. The deal could value the firm as being worth as much as $100bn.

 

 

New buyer interest edged up in March, says Rics

Interest in the UK housing market edged up in March according to a new survey.

The Royal Institution of Chartered Surveyors (Rics) said that, during the month, 9% more surveyors reported a rise in inquiries from potential buyers than those reporting a fall.

Rics said the warmer weather encouraged some potential buyers, while others wanted to snap up properties before a holiday from stamp duty ended.

But prices in all regions except London continued to fall.

Overall, 10% more surveyors reported falling house prices in March than those reporting a rise. However, this was the least negative reading since June 2010.

The declines in prices were modest, Rics said, with surveyors reporting price falls of up to 2%.

Northern Ireland saw the biggest increase in the proportion of surveyors reporting falling prices.

“There has been a gentle increase in activity across the market in the early part of the year but it remains to be seen whether this can continue, given the changes in the Budget and ongoing problems affecting the economy,” said Rics’ chief economist Simon Rubinsohn.

“London continues to outperform the rest of the UK in terms of prices but, interestingly, the North West did see an increase in activity in March.”

The Rics survey covers the UK, but it collects most of its data from England and Wales.

Some buyers were keen to make a purchase before 24 March, the deadline for first-time buyers wanting to take advantage of a holiday from 1% stamp duty on houses costing less than £250,000.

The stamp duty tax band is being reintroduced because Chancellor George Osborne believes the holiday has not been effective in encouraging more people to buy a home.

Instead, the government is introducing other incentives to persuade lenders to offer loans to potential buyers. This includes the NewBuy scheme in England which is aimed at helping first-time buyers, who can only offer a small deposit, to buy a newly-built home.

Mr Rubinsohn said there had been signs of a pick-up since the start of the year, but he expected a “pause” in activity in April owing to the stamp duty holiday having expired.

 

 

Action urged on carbon emissions from ships and flights

Greenhouse gas emissions from international flights and shipping should be included in the UK’s carbon budgets, the Committee of Climate Change has advised.

The government’s independent advisory group says aviation and shipping were major sources of pollution.

Therefore the carbon budgets up to 2027 should be increased to allow for those emissions.

The government must decide by the end of 2012 on whether to include them.

Under the Climate Change Act, the UK is committed to cutting all its climate-changing emissions by 80%, based on 1990 levels, by 2050.

However, international flights and shipping are not included in the targets.
Future risk

If the government agrees to the CCC’s recommendation, it will mean tighter targets for other sectors such as motoring and electricity generation.

The committee has recommended – and the government has already adopted – a series of carbon budgets setting down the maximum scale of greenhouse gas emissions that the UK can emit over successive five-year periods.

These have been agreed up to 2027, and assume that aviation and shipping will be included.

The committee’s chief executive David Kennedy said there was a “risk” the current – or future – government would not continue to make that assumption and the goals for cutting overall emissions would become less ambitious.

Mr Kennedy said: “There’s a risk this government or a future government will not continue to act in the way we have done up until now.

“At the moment there’s uncertainty over how aviation or shipping emissions will be treated in the future.

“There isn’t any valid reason why the government should reject the advice we’re giving, and if they were to do so, that would be a rolling back in terms of commitments on building a low-carbon economy.”
‘No draconian policies’

He also said the UK should not try to unilaterally reduce emissions from the two international sectors, which could hit its competitiveness.

“If you have draconian policies, people will take a short-haul flight to Holland, France or Germany and get on their long-haul flight.

“There wouldn’t be a very well-connected economy and will you get inward investment from international companies?” he said.

The latest report from the committee also confirms that it is possible to achieve the 2050 target, including aviation and shipping, at the expected cost of 1%-2% of GDP.

 

 

Struggling Yahoo to axe 2,000

WEB portal giant YAHOO is to cut 2,000 staff, it confirmed yesterday.

The California-based firm said the cull — 14 per cent of its workforce — would make it “more profitable”.

Yahoo has 700 million users but has failed to keep up with rival GOOGLE.

And its popular webmail service has been overtaken by social media such as FACEBOOK and TWITTER.

It expects to save £236million a year — and chief executive Scott Thompson “heralded a bold, new Yahoo”.

 

 

House prices in 2.2 per cent jump

First-timers drive sales, say Halifax

HOUSE prices jumped 2.2 per cent last month as first-time buyers scrambled to grab a property before the end of a stamp-duty holiday, HALIFAX figures show.

The average price is now £163,803 — an increase of £3,475 on the previous month.

The market is now “broadly stable” following fluctuations in the last year, Halifax said yesterday.

Yet despite the rise, average prices are still 0.6 per cent lower than they were a year ago — and way below their pre-recession peak of nearly £200,000 Halifax’s optimistic analysis also contrasts with NATIONWIDE figures, which suggest prices DROPPED by 1 per cent last month.

Martin Ellis, the Halifax’s housing economist, said: “The underlying trend indicates broad stability in UK house prices.

“Efforts by first-time buyers to beat the expiry of the stamp duty holiday at the end of March have probably increased sales in recent months and may have helped to support prices.

“We continue to expect little overall movement in prices this year, provided that the UK economy does not suffer a pronounced weakening.”

The stamp duty exemption for properties worth up to £250,000 came to an end last month following a two-year break.

The number of completed house sales rose to its highest level since late 2009, according to the Halifax figures. Total house sales in January and February were 14 per cent up on the same period in 2011.

But experts warned the house price figures could be skewed by the still relatively small number of properties changing hands.

Howard Archer, chief economist at IHS GLOBAL INSIGHT, predicts a 3 per cent price FALL by the end of the year. He said: “While we are surprised by the 2.2 per cent jump in March, it does not fundamentally change our view. That is that house prices are likely to drift down modestly lower over the coming months.”

Estate agents said the rise had been driven by sales in the South — particularly in the capital.

Russell Quirk, director of EMOOV.CO.UK, said: “The decline in northern house prices is looking ever more relentless, while in London the market is verging on the buoyant.

“Seen against Britain’s bleak economic backdrop, even mild growth in house prices is an encouraging sign.”

 

 

UK ‘To Dodge’ Recession As Industries Pick Up

The UK’s service sector showed surprisingly strong growth in March, fuelling hopes that Britain may avoid slipping back into recession.

The Purchasing Managers Index (PMI) for the industry rose to 55.3 last month, up from 53.8 in February, according to the latest data from Markit and CIPS.

Last month’s increase in business activity helped boost growth in the service sector over the first three months of the year to its highest level since the second quarter of 2010.

Service industries ranging from banks and telecommunication firms to restaurants, pubs and hairdressers make up almost three quarters of the UK economy.

The sector shrank slightly in the final quarter of 2011, but returned to growth in January.

The rebound in activity in Britain’s dominant industry, combined with recent strong data in the manufacturing and construction sectors, suggested the UK economy grew by as much as 0.5% in the first quarter of 2012, the authors of the keenly-watched survey said.

That would mean the UK would miss a double-dip recession, with the economy bouncing back more strongly than many economists had predicted.

Chris Williamson, chief economist at Markit, said: “Faster growth of services activity in March indicates that the economy is on the up again, skirting recession as business continues to bounce back from the lull seen late last year.”

The overall contraction of the UK economy at the end of last year in the wake of an escalation in the eurozone debt crisis had triggered fears of a renewed recession.

Last week, the Organisation for Economic Co-operation and Development warned that it thought the UK had gone back into recession in the first quarter of 2012.

But other data has been more optimistic and official GDP figures will be published later this month.

Ross Walker, UK economist at the Royal Bank of Scotland, told Sky News that the latest uplift in the services sector indicated the economy was picking up, but added that “there are still grounds for caution”.

The PMI data also showed service firms’ confidence about the year ahead stayed near February’s level, which was the highest in a year.

Mr Williamson said: “What’s particularly encouraging is that this revival of business confidence is encouraging firms to take on more staff.

“However, this is no runaway recovery. Although on the rise, job creation and inflows of new business continue to run well below rates generally seen in the years prior to the financial crisis.”

 

 

March weather third warmest on record, says Met Office

Last month was the third warmest March on record – outshone only by 1938 and 1957 – the Met Office has said.

It had an average temperature of 7.7C, compared with March 1938, which had an average of 8C. It was also the fifth driest and third sunniest March.

March saw a total precipitation of 36.4mm of rain and 156.5 hours of sunshine across the month.

Records for temperature and rainfall began in 1910, while the measurements for sunshine began in 1929.

Scottish records

The driest and the sunniest March both occurred in 1929, with just 17mm of rainfall and 169.5 hours of sunshine recorded.

England saw an average temperature throughout the month of 8.1C. Wales recorded 7.9C, Scotland 7C and Northern Ireland’s was 8.1C. The average temperatures are measured across every hour of the day and night.

And during the month there were 175.4 hours of sunshine in England, 158.8 in Wales, 129.7 in Scotland and 127.5 in Northern Ireland.

Rainfall in England was 26.5mm with 31.4mm in Wales, 56.8mm in Scotland and 21.4mm in Northern Ireland.

The good weather saw Scotland set a new record for its highest March temperature three days in a row.

Aboyne in Aberdeenshire recorded 23.6C on Tuesday 27 March, beating the record of 23.2C set at Cromdale, near Grantown on Spey, the previous afternoon.

And the day before that, Fyvie Castle in Aberdeenshire recorded 22.8C, beating a March temperature record which had stood for 55 years.
Hosepipe ban

The previous record March temperature in Scotland stood at 22.2C, recorded in 1957 at Gordon Castle, in Moray, and again at Strachan, in Kincardineshire, in 1965.

It was during March that seven water companies across southern and eastern England announced they were imposing water restrictions.

This came after the past two winters were unusually dry, leaving reservoirs, aquifers and rivers below normal levels.

With last month being the fifth driest March on record, water levels have not improved and so the hosepipe ban will begin on Thursday.

 

 

James Murdoch resigns as BSkyB chairman

James Murdoch has resigned his role as chairman of UK satellite broadcaster BSkyB, but will remain on the board.

His father Rupert founded News Corporation, which had to drop its bid for BSkyB amid the phone-hacking scandal at the News of the World.

James Murdoch stood down as chairman of the Sunday paper’s publisher, News International, last month.

He said in a statement that he did want BSkyB to be undermined by “matters outside this company”.

Sources told Robert Peston, the BBC’s business editor, that it was Mr Murdoch’s own decision to leave.

Mr Murdoch said on Tuesday: “As attention continues to be paid to past events at News International, I am determined that the interests of BSkyB should not be undermined by matters outside the scope of this company.

“I am aware that my role as chairman could become a lightning rod for BSkyB and I believe that my resignation will help to ensure that there is no false conflation with events at a separate organisation.”

News International shut down the News of the World last July due to a storm of allegations of widespread wrongdoing, including the hacking of the phone of murdered schoolgirl Milly Dowler.

Our correspondent says that Mr Murdoch has been braced for serious criticism of his stewardship of News International by the Commons Culture Media and Sport select committee.

However, he adds that his resignation has not been prompted by any advance knowledge of the report into hacking due for release soon by the committee.

The media commentator Steve Hewitt said that the resignation dented James Murdoch’s chance of eventually taking over from his father as the head of the parent company, News Corporation.

“The problem for James has always been he is either a fool or a knave. If he didn’t know [about phone hacking] and is therefore innocent – he should have done.

“Now he is no longer chairman of BSkyB the chances of him being that person is much reduced.”

It was announced last month that he had moved to New York to work on News Corp’s pay-TV businesses around the world.

There is also a review being conducted by Ofcom, the media regulator, of whether BSkyB is fit and proper to continue holding a broadcasting licence.

News Corp owns 39% of BSkyB and had wanted to buy the whole of the firm.
‘No blind eye’

James Murdoch, who is deputy chief operating officer at News Corp, has repeatedly denied knowing about phone hacking at the News of the World.

He said in a letter to the Department for Culture, Media and Sport (DCMS) Committee last month that he accepted his share of the blame for not uncovering phone hacking at the News of the World sooner but denied he had turned a “blind eye” to allegations of criminal wrongdoing.

A representative of the Hacked Off campaign group, which helps victims of phone hacking, said the change in role did not get those affected nearer to the truth about what happened.

“It’s quite clear that this is, as befits a news family, a form of news management,” said Evan Harris, a former Liberal Democrat MP and member of the group.

“But I repeat what the victims that Hacked Off seeks to represent want, is the full story to come out and not just people leaving a small fraction of their income behind as they go on to other parts of the business,” he told BBC News.

Nicholas Ferguson, who has been with the company since 2004, will take over as chairman of BSkyB.

He was the senior independent non-executive director and deputy chairman.

He is also the chairman of SVG Capital, a publicly-quoted private equity group, and of the Courtauld Institute of Art and the Institute of Philanthropy.

 

 

Huge FTSE Rally Kicks Off Q2 of 2012

Manufacturing data from the UK, the US and China helped boost investor optimism

UK markets surged on Monday, driven ahead by newly released, positive manufacturing data from domestic and international markets. The main UK benchmark–the FTSE 100–rallied by 1.85%. The FTSE 250 also rose by 1.01%. The rally marks a dramatic start to the second quarter of 2012.

New data out of the US showed that the American manufacturing sector was growing at a faster pace than expected last month, indicating that there has been expansion in the US manufacturing sector for the last 32 consecutive months. This data from the Institute for Supply Management (ISM) helped give international markets a huge boost.

“Stronger than expected US ISM manufacturing data was the catalyst to send the FTSE 100 higher in afternoon trading, helping the UK index to gain over 1%, led by higher demand for mining shares,” said Joshua Raymond, chief market strategist at City Index.

Domestic manufacturing data from Markit/CIPS showed that UK manufacturing was also growing last month.

“UK manufacturing has made a brighter than expected start to 2012,” said Rob Dobson, senior economist at Markit and author of today’s new manufacturing report. Current growth is “obviously nowhere near a strong pace, but it is at least sufficient to prevent the sector from remaining a drag on broader GDP growth,” he said.

Investors were also cheered by Chinese data that was released over the weekend showing that large factories were recently increasing their output.

However, not all market observers believe the latest Chinese data is completely reliable. In particular, Darren Sinden, a senior sales trader at SilverWind Securities, believes there is more to the story:

“The FTSE ha[s] started the new quarter in a positive fashion boosted by [manufacturing] data from China that was released over the weekend. That data surprised to the upside, posting an 11-month high with a reading of 53.1 from March up from 51 in February. However these official figures were in sharp contrast to those produced independently by HSBC which showed decline to 48.3 from Februarys 49.6. Readings below 50 indicate economic contraction whilst those above 50 signal growth. As such, the mismatch is quite significant. The HSBC data, which is said to be slanted towards smaller and medium-sized enterprises, showed a fifth successive month of contraction that paints a much less rosy picture than the official data over that time frame.”

Across the FTSE 100, nearly all shares were rallying ahead during the trading day. The main market leader on Monday was Pearson (PSON), after a research firm hiked its expectations for the company’s shares. Precious metals group, Fresnillo (FRES), also rallied based largely on the positive Chinese data. Out of the entire FTSE 100 index, only three companies posted losses for the day.

 

 

Burma sets currency exchange rate as it floats the kyat

In one of the biggest economic reforms that Burma has seen, the central bank has set the reference exchange rate for its currency.

It set a rate of 818 kyat against the US dollar on Monday, the first business day since moving to a managed float.

The previous official exchange rate was 6.4 kyat.

Prior to being floated, the kyat had an official as well as a black market rate, which analysts said deterred firms from investing in Burma.

Under a managed float system a currency’s exchange rate is determined by the market. However, the central bank publishes a daily reference exchange rate to influence the market.

There will also be occasional interventions in the market to support or depress the currency.

“Foreign investors can have now have a certainty about the security of their investments in the country,” Tony Nash, managing director of IHS Global told the BBC.
Level playing field?

There has always been a huge difference between the official exchange rate and the one in the black market over the years.

Analysts said firms that have been able to access the official rate have benefited as their import costs have been low compared with those who have had to use unofficial rates.

Sean Turnell of Macquire University said the disparity in rates had “been a most extraordinary invitation to corruption”.

However, as the authorities float the currency and set an exchange rate that is almost equivalent to the one being offered in the black market, it is likely to help provide a level playing field to all domestic companies.

“This float, which unifies the exchange rates, removes that corruption incentive,” Mr Turnell added.

 

 

UK manufacturing growth at 10-month high in March

The UK’s manufacturing sector grew at its fastest pace for 10 months in March, a survey has indicated.

The Markit/CIPS Purchasing Managers’ Index (PMI) for manufacturing rose to 52.1 last month from 51.5 in February. A reading above 50 implies growth.

The data is an encouraging sign that the UK economy grew in the first three months of 2012 and avoided a recession.

But while there was a pick-up in new orders, March output was also boosted by clearing backlogs of existing work.

Markit said that conditions in the sector remained tough, with firms facing high oil and metal prices.

But it said that both domestic and overseas demand had improved.

“UK manufacturing has made a brighter than expected start to 2012, with PMI data pointing to output growth of around 0.3% in the first quarter,” Rob Dobson, senior economist at Markit, said.

“This is obviously nowhere near a strong pace, but it is at least sufficient to prevent the sector from remaining a drag on broader GDP growth.

“Inflows of domestic and export orders also showed some improvement in March, but exporters are having to tap markets further afield as conditions in the eurozone remain lethargic.”
‘Break the cycle’

New orders rose at their quickest pace for a year in March, the data showed.

In another encouraging sign, the PMI for February was also revised upwards to 51.5 from a previously-stated 51.2.

Peter Dixon at Commerzbank said the figures indicated that the manufacturing sector performed reasonably strongly in the first quarter, “which interestingly is not being confirmed so far by the ONS’s official numbers”.

“We’ll wait and see what the services figures look like later in the week, but I still suspect that these are consistent with a GDP growth rate of somewhere in the region of 0.2%,” he said.

“It would therefore break the cycle that was represented by the sharp decline in Q4.”

The service sector PMI figures will be released on Wednesday.

The manufacturing survey indicated output growth of 0.3% in the first quarter of 2012 after a 0.7% decline in the fourth quarter of last year.

That contributed to the overall economy contracting 0.3% in the last three months of 2011.

 

 

Eurozone agrees temporary boost to rescue fund

Eurozone finance ministers agreed a temporary increase in their financial rescue capacity to prevent a new flare-up of Europe’s sovereign debt crisis, but markets may judge it too small to be convincing.

Austrian Finance Minister Maria Fekter said the 17-nation currency area would combine two rescue funds for a year to make more money available in case of emergency.

She put the total figure at some 800 billion euros (£667bn), but that appeared to include money already spent to conjure up a more impressive headline number for investors.

“Obviously markets will only have confidence in us if we agree on a strong rescue fund,” Belgian Finance Minister Steve Vanackere told reporters.

“We can’t consider that the crisis is over. We must find a good middle way between those who seek a (maximum) firewall and those who want it kept to a minimum.”

A draft statement prepared for ministers and obtained by Reuters showed that in case of need before July 2013, the euro zone could combine the firepower of its two bailout funds to provide 940bn euros rather than a planned 500bn.

Ministers would allow the temporary 440-billion-euro European Financial Stability Facility (EFSF) to continue to run for a year in parallel with the permanent 500-billion-euro European Stability Mechanism (ESM), which starts work in July.

However, EU paymaster Germany favoured a smaller increase, and those figures included some 192 billion euros already paid or committed to Greece, Ireland and Portugal, plus money that could only be raised if euro zone states were to pay in more capital faster than planned to the ESM.

 

 

LSE posts solid results ahead of key LCH vote

The London Stock Exchange reported steady trading results as the market gears up for a crucial shareholder vote next week on its takeover of LCH.Clearnet.

The exchange group said in a regulatory filing the value of share trading was down two per cent for the 11 months to the end of February while Italian equity trading was up two per cent for the same period.

The value of new listings was down 8 percent to £34.6bn as the number of initial public offerings fell 13 per cent to 144 for the period.

The exchange said net treasury income, which is the interest it charges for deposits through its clearing unit, “remained strong” in the first quarter of 2012.

The results came as the LSE faces a crucial shareholder vote on Tuesday on its planned acquisition of London-based clearing house LCH.Clearnet.

The LSE said this month it wants to take up 60 percent of LCH, offering shareholders 20 euros per share, which values LCH at 813m  euros (£679.33m).

 

 

Rio, BHP Lose Faith in Diamonds Even as Prices Rise: Commodities

Rio Tinto Group (RIO) and BHP Billiton Ltd. (BHP) are looking to exit the diamond industry even as prices head for a fourth year of gains, because they see little prospect of repeating the dominance they hold in iron ore.

Rio is considering options for its diamond mines because they may no longer fit with strategy and they don’t have the required scale, the London-based company said yesterday. BHP Billiton Ltd. has sought bids for its diamond assets.

BHP and Rio, which together accounted for about 16 percent of global diamond production by value in 2010, have failed to match the output of industry leaders De Beers and OAO Alrosa ofRussia. That contrasts with the position in iron ore, where along with Brazil’s Vale SA, they have a market share of about 63 percent, according to estimates from Bloomberg Industries.

“They can’t get the scale they want,” said Ed Sterck, an analyst at BMO Capital Markets. “Diamonds don’t really fit with the modus operandi of the big diversified majors and it’s always been a bit of an anomaly that they’ve stuck with it.”

Rough-diamond prices rose 24 percent last year after two consecutive annual gains of 32 percent as producers struggled to keep pace with consumption. That advance could be prolonged as stagnant production fails to satisfy surging demand from China and India.

The use of diamonds may grow at double the pace of supply through 2020 because of an expanding middle class in the two Asian countries, according to Bain & Co., the consulting firm.

Botswana Gems

De Beers, 45 percent-owned by London-based Anglo American Plc (AAL) and the operator of the world’s biggest diamond mine in Botswana, produced 31.3 million carats in 2011. Rio produced 11.4 million carats last year.

The review comes after Rio last month took a $344 million one-time charge for the diamond business to reflect higher costs for the $2.1 billion expansion of the Argyle mine in Australia. The company, which last year generated 78 percent of its net income from iron ore, is expanding output of the steelmaking raw material in Australia’s Pilbara region more than 50 percent by next year.

“The diamonds market outlook is very positive, with demand growing strongly and lack of new discoveries limiting supply,”Harry Kenyon-Slaney, chief executive officer of Rio’s diamonds and minerals unit, said in yesterday’s statement. “We have a valuable, high-quality diamonds business, but given its scale we are reviewing whether we can create more value through a different ownership structure.”

Canada, Zimbabwe

Rio operates the Argyle mine and has a 60 percent stake in Diavik in Canada and a 78 percent holding in Murowa in Zimbabwe. Rio unearthed a 12.76 carat pink diamond at the Argyle mine last month, the biggest ever discovered in Australia.

“Despite the admission of a strong outlook on diamond market fundamentals, it seems clear that the division is more of a distraction than material benefit,” said Cailey Barker, an analyst at Numis Securities Ltd.

BHP, based in Melbourne, announced its review in November, saying some or all of its diamond assets, including the Ekati mine in Canada, may be sold because they have limited growth and may no longer fit its strategy of investing in “large, long-life” assets.

Harry Winston Diamond Corp. (HWD) and groups led by KKR & Co. and Apollo Global Management LLC are in talks to buy the Ekati mine, two people with knowledge of the matter said this month.

‘Lacks Scale’

Diamond producers have struggled to find new large mines to replace aging assets. Production at many of the world’s biggest mines is falling as supplies of more accessible diamonds near the surface are depleted. De Beers’s Orapa mine in Botswana began output in 1971, while its Jwaneng project, the world’s largest diamond mine by production value, and Rio’s Argyle started in 1982. The last major mine to enter production was Rio’s Diavik in 2003.

The diamond business “lacks scale for Rio Tinto, requiring the company either get bigger or get out,” Deutsche Bank AG analysts told clients yesterday. “Getting big enough to be meaningful for Rio Tinto will be difficult, so divestment becomes a logical option.”

 

 

Climate Shifts Earth’s Gravity as Glaciers Melt: Today’s Pic

Sir Isaac Newton‘s law of gravity states that the pull of an object depends on its mass. This means that when the Earth’s mass shifts, so does its field of gravity.

The first accurate measurement of melting glaciers in Greenland came from gravitational readings by the twin satellites known as GRACE (Gravity Recovery and Climate Experiment), which produced this rendering of Earth’s gravity field. The satellites found that global warming reduced Greenland’s ice shield by 240 gigatons of mass each year from 2002 to 2011, corresponding to a global sea level rise of 0.7 millimeters per year.

The uneven distribution of mass both within the Earth and on its surface causes variability in gravity, reflected in the planet’s irregular shape. The rendering also shows increased gravity mounds over North America and Scandinavia, where a mile-thick ice sheet melted after the last ice age. With ice’s surface pressure gone, the Earth’s mantle shifted and the dense crust to began to rise.

 

 

U.K. Has Fuel Shortage as Drivers Fill Up Amid Strike Threat

Shortages were reported at U.K. fuel stations as car owners filled up their tanks to guard against a possible strike by fuel-truck drivers.

A race to buy gasoline and diesel has caused queues and scant supply in places, according to the AA motorists’organization. The group said the rush was unnecessary and the result of bad advice from the government.

While fuel-truck drivers voted this week to strike over working conditions, their union has yet to set a date for action and said a walkout may be averted through talks. Prime MinisterDavid Cameron’s government yesterday advised motorists to fill up tanks to ensure they can keep driving if supply is disrupted.

“We now have self-inflicted shortages due to poor advice about topping up the tank,” Edmund King, the AA’s president, said today in a statement. “This in turn has led to localized shortages, queues and some profiteering at the pumps.”

About 2,000 drivers delivering fuel to 90 percent of the U.K.’s 8,706 gas stations are involved in the dispute. Seven days’ notice must be given of a strike, a union official said today.

The U.K. has enough fuel to meet demand in the event of a strike, according to UKPIA, a petroleum industry group.

“There’s no supply problem,” Nick Vandervell, a London-based spokesman for the group, said by phone. “People need to stick to their normal fuel patterns.”

Mixed Messages

Cameron is “presiding over a shambles” as the government gives mixed messages on contingency plans, opposition Labour Party leader Ed Miliband said. Cabinet Office minister Francis Maude said yesterday that drivers would be wise to keep their cars topped up and have a spare can of fuel at home. Roads Minister Mike Penning said today that Maude’s advice was wrong.

“The prime minister needs to get a grip and calm the situation,” Miliband said in an e-mailed statement. “David Cameron and Francis Maude should apologize to the country for the way they have handled this situation.”

Unite, the U.K.’s biggest labor union, is seeking minimum standards for fuel distributors over pensions, training, health and safety, pay and hours. It has asked the government to intervene in the dispute to avoid industrial action. The Advisory, Conciliation and Arbitration Service, or Acas, is mediating.

“Acas has been in contact with Unite officials as well as all the contractors involved in the fuel-tanker drivers’dispute,” it said in a statement. “We are now in the process of receiving more detailed briefings.”

That process is expected to be concluded by April 2 and“substantive discussions” will follow, Acas said.

Sales of gasoline across the U.K. rose by 81 percent yesterday, while diesel increased by 43 percent, Brian Madderson, chairman of the Retail Motor Industry Federation, said by phone from Yorkshire.

 

 

Palladium Seen Beating Gold With Record Car Sales: Commodities

Investors are buying palladium at the fastest pace in more than a year as analysts predict rising demand and declining supply will turn this quarter’s worst-performing precious metal into the best by December.

Palladium lagged behind other metals this year on concern about slowing growth in vehicle sales in China, the world’s largest car market. Autocatalysts account for 65 percent of demand, according to Barclays Capital. Prices are poised to rise because carmakers are still using the most metal ever, with the prospect of shortages because of less supply from state reserves in Russia, the biggest producer, the bank estimates.

“I like palladium the best among precious metals, it’s relatively cheap compared to the others,” said Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto and the most accurate price forecaster tracked by Bloomberg Rankings in the eight quarters through the end of 2011. “Autocatalyst demand for palladium should grow. Russian government stocks will limit supply growth.”

Mine Production

Palladium fell 1.8 percent to $643.75 in London this year, beaten by all other precious metals for the first time since the third quarter. Gold rose 5.7 percent, silver 15 percent and platinum 16 percent. The Standard & Poor’s GSCI gauge of 24 commodities added 6.4 percent and the MSCI All-Country WorldIndex (MXWD) of equities appreciated 10 percent. Treasuries lost 1.2 percent, a Bank of America Corp. index (MXWD) shows.

The increase in palladium ETP holdings means investors now hold 58.9 metric tons, equal to more than eight months of Russian mine output and valued at about $1.2 billion, data compiled by Bloomberg show. Gold held through ETPs rose 1.4 percent to 2,389.8 tons as platinum increased 8.5 percent to 43.5 tons and silver added 2.5 percent to 17,719 tons.

Sales from Russian reserves, created during a glut in the 1970s and 1980s, will probably drop by 60 percent to 300,000 ounces this year, Barclays estimates. Supply from those stockpiles, a state secret, won’t exceed 4.5 tons (144,678 ounces) this year or next and may end in 2014, Interfax reported in October, citing an unidentified Finance Ministry official linked to Gokhran, the state-run body managing the inventory.

Scrap Metal

Declining Russian sales will combine with the smallest South African output in three years. Supply from mines and stockpiles will drop 6.9 percent to 6.91 million ounces this year, Barclays estimates. An 11 percent expansion in scrap metal to 2.43 million ounces still won’t be enough to meet demand, leaving a 215,000-ounce shortage, the bank predicts.

Sales of cars and light commercial vehicles will rise 5.3 percent to a record 79.3 million units this year, according to LMC Automotive Ltd., a research company in Oxford, England. Carmakers will use 6.24 million ounces of palladium in catalytic converters, 5.5 percent more than in 2011, Barclays estimates.

Actual consumption may be lower after an official of the China Association of Automobile Manufacturers said March 20 that volume growth would probably miss its original 2012 target of 8 percent. Car sales had their slowest start to a year since 2005 in January and February, association data show. Premier Wen Jiabao cut the country’s annual growth target for gross domestic product to 7.5 percent this month, the least since 2004.

European Manufacturing

“We think people should be leaning toward monetary assets rather than industrial,” said James Dailey, who manages $215 million at TEAM Financial Asset Management LLC in Harrisburg,Pennsylvania. “If you want to be invested in a metal choose gold. You don’t want to mess with industrial metals right now.”

At least 59 percent of platinum and palladium is used in industrial applications from electronics to autocatalysts that convert emissions into less harmful substances, Johnson Matthey Plc estimates. Fifty-three percent of silver goes into products such as solar panels and batteries, according to The Silver Institute, a Washington-based industry group. About 11 percent of gold is used in industry, World Gold Council data show.

Catalytic Converters

Shares (GMKN) of OAO GMK Norilsk Nickel, the world’s biggest palladium producer, rose 8.2 percent this year. The Moscow-based company will report a 4.2 percent decline in net income to $4.49 billion in 2012, according to the average of 12 analyst estimates compiled by Bloomberg.

Rhodium, a platinum-group metal also used in autocatalysts, was unchanged at $1,400 an ounce this year, according to London-based Johnson Matthey, which has made about one in three of the world’s catalytic converters. Ruthenium climbed 9.1 percent to $120 an ounce and iridium was unchanged at $1,085 an ounce. Both are also so-called PGMs.

Platinum is set for its best quarter in three years after workers at Impala Platinum Ltd. (IMP)’s Rustenburg mine, the world’s biggest, started a month-long strike in January. It will average $1,800 an ounce in the fourth quarter, the analysts surveyed by Bloomberg predict. The supply surplus will narrow to 37,000 ounces this year, from 364,000 ounces, according to Barclays.

Platinum now costs more than 2.5 times as much as palladium, compared with a five-year ratio of 3.6, data compiled by Bloomberg show.

Silver is headed for its best quarter in a year, and will average $36 an ounce in the final three months, the forecasts compiled by Bloomberg show. Holdings fell by more than 800 tons in 2011, according to data compiled by Bloomberg. Investors may buy 2,000 tons through ETPs this year, Morgan Stanley predicts.

Central Bank

Gold is advancing for a 12th consecutive year and will average $1,900 an ounce in the fourth quarter, the analysts predict. Prices slid more than 7 percent in the past month as signs that U.S. growth is accelerating pared investors’expectations the Federal Reserve will buy more debt. The central bank bought $2.3 trillion of debt in two rounds of quantitative easing that ended in June 2011, during which gold appreciated about 70 percent.

Fed Chairman Ben S. Bernanke said March 26 that while he’s encouraged by the decline in the unemployment rate, continued accommodative monetary policy will be needed. Gold jumped 1.7 percent. The central bank has pledged to keep interest ratesnear zero through late 2014. Precious metals generally earn returns only through price gains, diminishing their allure as interest rates rise.

U.S. consumer prices increased 2.9 percent in the 12 months ended in February, the Labor Department reported March 16. While that’s down from as much as 5.6 percent in 2008, it’s still 2.65 percentage points more than the Fed’s target rate for overnight loans between banks of zero to 0.25 percent.

“Negative real interest rates are very much a proven historic driver for the precious metals sector and we can’t see any sign of that changing any time soon,” said Charles Morris, who oversees about $2.5 billion at HSBC Global Asset Management in London. “All the factors are lined up for precious metals to have a run. The big picture is that there’s a ton of money out there and conditions are very loose around the world.”

Holdings in palladium-backed exchange-traded products rose 14 percent this year, poised for the best quarter since the end of 2010, data compiled by Bloomberg show. The metal will average $850 an ounce in the final three months of 2012, 32 percent more than now, according to the median estimate of 11 analysts surveyed by Bloomberg. They expect a gain of 15 percent for gold, 13 percent for silver and 11 percent for platinum.

 

 

Deutsche Bank No. 1 in Europe as Leverage Hits Valuation

Deutsche Bank AG (DBK), adding assets as other lenders trim their balance sheets, leapfrogged France’sBNP Paribas SA (BNP) to reclaim the title of Europe’s largest bank.

Assets at the Frankfurt-based company rose 14 percent to 2.16 trillion euros ($2.88 trillion) in 2011, making it the largest publicly traded bank in Europe for the first time in five years, according to data compiled by Bloomberg.

Chief Executive Officer Josef Ackermann, who has called proposals to limit bank size “misguided,” will leave behind a balance sheet about 40 percent larger than in 2006, and more than 80 percent as big as Germany’s economy, when he steps down in May. The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks, even after Ackermann boosted reserves and trimmed dependence on borrowed money.

“Deutsche Bank has been pretty decidedly opposed to reducing its balance sheet,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment. “It’s understandable: The higher your leverage, the higher the returns when times are good. They want to cut as little as possible to keep doing as much business as possible.”

The higher leverage also makes Deutsche Bank’s earnings more volatile and dependent on market swings. When debt markets rallied in 2009, the bank posted a return on average equity of 14.6 percent. The following year, as Europe’s sovereign-debt crisis roiled investors, that measure of profitability fell to 5.5 percent. It stood at 8.2 percent last year.

Price to Book

Shares (DBK) trade at a price-to-book ratio of 0.65, implying that investors don’t believe the bank’s assets are worth as much as the company says. Deutsche Bank’s ratio is the seventh lowest among the 50 global banks with the closest market value, data compiled by Bloomberg show.

“There’s no doubt that leverage and lack of capital are impacting Deutsche Bank’s valuation,” said Christopher Wheeler, a London-based banking analyst at Mediobanca SpA, who has an underperform rating on the stock.

Still, shares have gained 37 percent since Dec. 21, when the European Central Bank made its first round of three-year loans to stave off a credit crunch, compared with a 20 percent gain on the Bloomberg Europe Banks and Financial Services Index.

The bank is able to maintain less capital than peers and borrow more to enhance returns because clients believe the German government would never let it fail, Roehmeyer said. That may be reflected in the company’s share-price performance and cost of funding, he said. Insuring against default on Deutsche Bank’s debt with credit-default swaps is less expensive than it is for any of the 10 biggest banks except HSBC Holdings Plc (HSBA), data compiled by Bloomberg show.

Fitch Ratings in December cited Germany’s ability and propensity to support the bank as a reason for giving it a“stable outlook.”

Size Risk

Ackermann, 64, has criticized proposals to shrink banks or split them up, saying risk isn’t related to size and that global banks are important to international trade and economic growth.

“It is not size as such that is the problem but the interconnectedness of banks,” Ackermann wrote in the Financial Times in July 2009, citing the collapse of New York-based Lehman Brothers Holdings Inc. and German property lender Hypo Real Estate Holding AG, which he said weren’t big.

Size can help firms win market share as clients will work with banks able to offer a broader array of services, said Andrew Lim, an analyst at Espirito Santo Investment Bank inLondon. Still, Lim cut his rating on Deutsche Bank to sell from neutral on Feb. 8 on concern that a lower level of capital would force the bank to forgo some trades, reducing profitability.

“You can be big, but you have to have the capital backing you up,” Lim said in an interview.

Market Value

Those doubts may help explain why Deutsche Bank’s market value, at 36 billion euros, lags European competitors such as HSBC, Spain’s Banco Santander SA (SAN), BNP Paribas, Switzerland’s UBS AG (UBSN) and Royal Bank of Scotland Group Plc. (RBS)

Deutsche Bank has expanded in tandem with Germany’s economy, which grew in four of the last five years, posting its only decline in 2009 following the collapse of Lehman Brothers, data compiled by Bloomberg show. The bank’s loan book, which includes credit to companies and consumers, increased in each of those years save 2009, when it shrunk 3.7 percent, according to presentations published on the company’s website.

Increasing Assets

The bank increased assets even as the financial crisis that began in 2007 and accelerated in 2008 forced governments to rescue banks at taxpayer expense. While the firm navigated the credit crunch and Europe’s sovereign-debt crisis with smaller losses than many competitors and no direct state aid, its size worries some policy makers.

“The truth of the matter is we haven’t solved the too-big-to-fail challenge in this country,” Ralph Brinkhaus, a member of German Chancellor Angela Merkel’s Christian Democratic Union who sits on the finance committee, said in an interview. “And that problem becomes all the more a matter of concern the bigger the bank is — and in the case of Deutsche Bank, is becoming.”

Deutsche Bank’s balance sheet has been buoyed by acquisitions and its derivatives book, one of the biggest in Europe, which increases in value during periods of market volatility. The jump comes as banks across Europe have pledged to cut at least 950 billion euros of assets over the next two years to meet tougher capital standards, according to data compiled by Bloomberg News.

BNP Shrinking

BNP Paribas, the largest bank in Europe in 2010 after snapping up Fortis assets, shrank its balance sheet by 1.7 percent last year to 1.97 trillion euros, the lowest since 2007, as the Paris-based lender reduced U.S. dollar-funding needs. HSBC, the biggest bank in Europe by market value, was the second biggest by assets at the end of last year, after the London-based company’s balance sheet expanded 4 percent, and BNP Paribas was third.

Since the end of 2009, Deutsche Bank has increased its assets 44 percent, while the nine other largest European banks on average posted a 5 percent rise.

European and U.S. banks use different accounting standards, making comparisons difficult. One variance: U.S. lenders net out derivatives positions, while most European banks don’t.

Deutsche Bank, which had 2.16 trillion euros of assets at the end of 2011 under international financial reporting standards, or IFRS, had total adjusted assets after netting derivatives of 1.27 trillion euros, up about 5 percent from the previous year.

JPMorgan Chase & Co. (JPM), the largest U.S. bank, based in New York, reported assets of $2.27 trillion, or 1.7 trillion euros, up 7 percent in 2011, under generally accepted accounting principles used in the U.S. Assets at Charlotte, North Carolina-based Bank of America Corp. were $2.13 trillion, or 1.6 trillion euros, down 6 percent.

BNP’s size after netting derivatives would be about 965 billion euros, according to the company.

Bigger Balance Sheet

Deutsche Bank’s bigger balance sheet is partly the result of acquisitions aimed at lowering the company’s dependence on investment banking. In the last three years, it bought German consumer lender Deutsche Postbank AG, adding about 200 billion euros in assets, wealth manager Sal. Oppenheim Group and part of ABN Amro Holding NV. The bank’s goal is to raise pretax earnings from consumer lending, money management and transaction banking to 50 percent of the total from 29 percent in 2009. Deutsche Bank said last month it’s in talks to sell part of its asset-management business to Guggenheim Partners LLC.

Net income last year rose 79 percent to 4.13 billion euros as gains at the retail unit and asset and wealth-management businesses helped offset a decline in investment banking. Still, Deutsche Bank scrapped its forecast for operating pretax profit of 10 billion euros for 2011 in October, citing a slowdown in client business amid the sovereign-debt crisis.

Potential Damage

As the bank’s assets have grown, so has the potential damage from the firm’s collapse on counterparties, companies, retail clients and German taxpayers, said Konrad Becker, a Munich-based analyst at Merck Finck & Co.

“If a jumbo jet crashes, the damage is larger than a propeller plane, even if size doesn’t necessarily determine the likelihood of an accident,” Becker said. “More problems can arise from a bigger balance sheet, and there’s a risk of a shift from quality to quantity.”

With Ackermann’s departure, the challenge of balancing size and capital strength will fall to co-CEOs Anshu Jain, 49, who now runs the corporate and investment bank, and Juergen Fitschen, 63, head of the bank’s German business. Deutsche Bank announced this month that Chief Risk Officer Hugo Banziger and Chief Operating Officer Hermann-Josef Lamberti will leave May 31. Stuart Lewis, who will become chief risk officer, Stephan Leithner and Henry Ritchotte will join the management board.

Capital Rules

Banking consolidation “sadly” will be “one of the many potential unintended consequences of regulation,” Jain said in a Bloomberg Television interview on Jan. 26. When asked about the systemic risks posed by bigger banks, Jain said that “you have the tradeoffs of too-big-to-fail on the one side and the benefits of diversification on the other.”

Lehman’s bankruptcy, which led to more than $2 trillion in losses and taxpayer bailouts worldwide, spurred regulators to introduce stricter capital rules for financial firms.

Deutsche Bank increased its core Tier 1 capital ratio, a measure of financial strength that takes into account risk-weightings assigned to various assets, to 10.8 percent by the end of 2011 from 7 percent at the end of 2008.

Risk-Weightings

Risk-weighted assets at Deutsche Bank will rise to 499 billion euros at the beginning of 2013 from 381 billion euros at the end of 2011 as new rules from the Basel Committee on Banking Supervision, known as Basel III, increase the value of the assets by 105 billion euros, according to a simulation included in a Feb. 2 company presentation.

The amount would be higher if it excluded mitigation plans, which Deutsche Bank hasn’t broken down. The firm previously reduced risk-weighted assets by selling securitized products, allowing assets to expire and engaging in hedging.

The new rules assign higher risk-weightings to force banks to increase the amount of capital they hold against assets and boost their ability to withstand shocks in financial markets.

Deutsche Bank’s ratio of common equity to risk-weighted assets using Basel III standards would be 7.4 percent by the end of this year compared with 9.9 percent at Morgan Stanley, 9.7 percent at Goldman Sachs Group Inc. (GS) and 8.5 percent at Citigroup Inc., JPMorgan analysts Kian Abouhossein and Amit Ranjan estimated in a Jan. 24 note.

Banks worldwide will be required to hold common equity of at least 7 percent of risk-weighted assets by 2019 when the rules take effect, and firms deemed systemically important, such as Deutsche Bank, will need more.

Leverage Ratio

Deutsche Bank is focusing on reining in assets weighted according to risk instead of its total balance sheet to boost capital levels, said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets.

Total assets exceeded Tier 1 capital by 44 times as of Dec. 31, making the German lender the second-most leveraged among the 10 biggest European banks, behind France’s Credit Agricole SA (ACA) at 46 times, data compiled by Bloomberg show.

Deutsche Bank’s leverage is down from 68 times at the end of 2007, when the U.S. subprime crisis was claiming its first casualties.

The bank says its leverage ratio, as calculated under an in-house “target definition” that makes it more comparable to U.S. peers, is 21, higher than JPMorgan’s, which is about 15.

“Leverage alone is not a good risk measure as it ignores balance-sheet composition,” said Christian Streckert, a spokesman for Deutsche Bank. “For example, our growth in cash and liquid assets improved the bank’s risk position and at the same time resulted in an increased leverage.”

Counterparty Risk

Deutsche Bank in the fourth quarter also cut its trading risk at the corporate and investment-banking unit to the lowest since at least 2003, according to company filings on average value at risk, or VaR, a measure of how much it could lose in trading in one day.

The bank will increase its VaR because the fourth-quarter level isn’t sustainable, Chief Financial Officer Stefan Krausesaid in February.

The German lender has one of the biggest derivatives books in Europe because it’s the largest trader of fixed income, currencies and commodities, Kepler’s Becker said. The notional value of those contracts increased last year because of higher market volatility and the appreciation of the dollar against the euro, he said.

“The larger your derivatives book, the more counterparty and price risks you have,” Kepler’s Becker said. “Deutsche Bank managed risk extremely well under Banziger. The question is whether it will work as well under the new risk chief.”

‘Can Go Wrong’

Derivatives are a type of security whose price is dependent upon or derived from underlying assets such as stocks, bonds, commodities and currencies. The contracts between two or more parties are often used to hedge risk.

“Derivatives used properly can reduce risk, but things can go wrong, especially if there’s too much concentration in your book,” said Matthew Czepliewicz, a London-based analyst at Canaccord Genuity Corp. who has a hold rating on the bank’s shares. “From an analytical perspective, my primary focus is rarely total size, but it does attract regulatory and media attention.”

Beyond Basel

Global regulators have tried to address issues of too-big-to-fail with measures that go beyond Basel rules.

The Financial Stability Board, a body set up by the Group of 20 nations that includes regulators and central bankers, in November published a provisional list of 29 systemically important lenders that must hold additional capital. Deutsche Bank and Barclays Plc (BARC) may get the second-highest surcharge of 2 percentage points, while banks including JPMorgan and BNP Paribas may face the top charge of 2.5 percentage points, according to a copy of a second list obtained by Bloomberg News.

Germany has introduced a law aimed at helping the government restructure lenders and avoid bailouts. Beginning in 2011, the Federal Agency for Financial Market Stabilization began to oversee a restructuring fund and collect a bank levy that will enable it to reorganize lenders and protect systemically relevant parts of struggling firms.

Germany’s governing coalition of Christian Democrats and Free Democrats is considering copying the U.K. by introducing a legal separation of lenders’ investment-banking and consumer arms, and the Finance Ministry is drawing up a feasibility study, lawmakers have said.

‘A Juggernaut’

“We have introduced multilevel checks and balances globally as well as in Germany that show we’ve learned from the crisis,” Bjoern Saenger, a Free Democrat member of the finance committee, said in an interview. “Clearly Deutsche Bank has become a juggernaut, and it makes good political sense to be aware of that development. But I don’t see a problem. Most in Germany would say having a global player is a good thing.”

Germany and France led efforts in 2009 to weaken capital regulations proposed by the Basel committee for lenders worldwide. The group softened its original proposals for how much capital banks will be required to have in proportion to assets weighted according to their perceived risk, while the plan to limit banks’ gross assets in comparison to capital is still under review.

That contrasts with Switzerland and Sweden, which are requiring lenders to boost capital beyond Basel requirements and sell securities that become equity in times of market turmoil.

UBS Losses

The danger of balance-sheet expansion came to light during the last credit crisis. Before global credit markets froze in 2007, UBS added assets to boost earnings and shareholder returns. Profit at the Zurich-based bank doubled between 1999 and 2006 as its balance sheet more than doubled.

Once the crisis hit, the bank found itself with losses and writedowns of more than $57 billion from securities such as super-senior tranches of collateralized debt obligations, which often had top ratings and were perceived to be risk-free. The near collapse of the firm, which was rescued by the Swiss government, illustrated how high leverage can translate into greater risk and unforeseen losses.

A more recent example of assets once seen as almost risk-free turning sour is sovereign debt. Long-term Greek government bonds were rated A-, six levels below the top rating by Standard& Poor’s and Fitch Ratings, until December 2009. Moody’s Investors Service kept an equivalent rating until June 2010.

The Greek government this month carried out the biggest sovereign-debt restructuring in history after banks, insurers and other investors backed a plan to forgive more than half of the 206 billion euros in debt held by private investors.

Systemically Important

Deutsche Bank cut its net exposure to the sovereign debt of Greece, Ireland, Italy, Portugal and Spain to 3.67 billion euros at the end of last year from 12.1 billion euros in 2010, helped by hedging, writedowns and maturing bonds. The lender has been praised by investors and analysts for holding fewer U.S. subprime mortgages and less sovereign debt than many peers.

At the end of 2010, Deutsche Bank was ranked the world’s most systemically important financial institution by Japan’s Financial Services Agency and central bank, based on estimates about the impact a failure would have on the global financial system, according to Mainichi newspaper.

“On the one hand, it made us proud, but on the other hand, of course, we’re aware of the responsibility,” Ackermann said at an earnings press conference in February 2011 when asked about being deemed the world’s most systemically important bank.

By the end of May, the Swiss native will no longer carry that weight on his shoulders. After the shareholders meeting, he’ll pass the baton to Jain and Fitschen.

The co-CEOs may sleep comfortably, knowing they’ve got German taxpayers behind them, Merck Finck’s Becker said.

“No government in this world would let a bank with comparable significance to Deutsche Bank go bust,” he said.

 

 

CaixaBank becomes Spain’s biggest bank by assets

Spain’s biggest bank in terms of
assets has been created after CaixaBank bought Banca Civica for 977m euros
($1.3bn, £817m).

The government has amended laws to encourage mergers between banks, many of
which collapsed following the bursting of the property bubble.

Banca Civica itself was formed by combining four troubled “cajas”, or
regional savings banks.

The merged bank will have 14 million customers.

CaixaBank will have 342bn euros in combined assets, deposits of 179bn euros
and loans totalling 231bn euros, the
bank said.

The CaixaBank deal will be completed by the third quarter and will generate
cost savings and other benefits of 540m euros by 2014.

‘Restructuring’

Following the merger, CaixaBank will be the market leader in the regions of
Catalonia, Andalusia, Navarra, the Balearic Islands and the Canary Islands.

The Barcelona-based bank La Caixa, which has a majority stake in CaixaBank,
will retain 61%.

“The merger will help to consolidate the restructuring of the Spanish banking
sector, by creating a leading bank in the Spanish financial system with an
extensive regional presence, which will help support the country’s economic
development,” the bank said.

On Friday, the government of Prime Minister Mariano Rajoy will announce its
2012 budget, which must set out how Spain will cut the public deficit to 5.3% of
its output this year from 8.51% last year.

Many are unhappy with the deep austerity cuts enacted so far, and unions have
called a national strike for Thursday to protest labour reforms that make it
cheaper to sack workers.

The country’s jobless rate is 23%, the highest in Europe, and the Spanish
economy is expected to contract by 1% this year.

But the European Commission has warned that if its government brought in
further budget cuts to meet its targets, the economy would contract by more than
that.

 

 

UK in talks to sell part of RBS stake to Abu Dhabi

The UK government is in advanced
talks to sell a significant stake in the Royal Bank of Scotland (RBS) to Abu
Dhabi, the BBC has learned.

The government, which controls 82% of RBS, has for months been negotiating
with Abu Dhabi sovereign wealth funds.

It could sell up to a third of its stake to Abu Dhabi, one of the seven
states of the United Arab Emirates.

This is likely to to be a loss-making sale, as RBS shares trade at much less
than the UK government paid in 2008.

In 2008-9, the UK government invested £45.5bn of taxpayers’ money in RBS, to
prevent the bank from collapsing. RBS was close to running out of money after
its near ruinous takeover of ABN Amro.

The Treasury bought the RBS shares at an average of 50p each, almost double
the current share price.

Long term plan

The news that it is in serious talks with Abu Dhabi to sell a sizeable
portion of the bank at a loss will come in for vocal criticism – not least of
all at a time of austerity.

The deal could see at least 10% and up to one third of the government’s stake
sold. At current prices, it would mean that taxpayers could potentially suffer
losses of £1bn for every £1bn paid by the government.

However, the selling of part of the bank could stoke further private sector
interest in RBS and push up its share price towards break-even point.

It would also send a clear signal to both the markets and RBS staff that the
government does not want to be a long-term owner of a major bank.

A Treasury spokesperson told that the BBC that the government’s aim was “to
repair and return RBS to full health so that it is able to support the UK
economy in the future, and the current strategy is working to achieve that.”

“The Government’s policy has always been to return RBS to the private sector,
but only when it delivers value for money for the taxpayer,” the spokesperson
said.

Deal by Christmas?

Another advantage of a deal for the government is that it could deflect
political pressure in the run up to the next contentious bonus season. The
government could then argue that major decisions such as executive pay were no
longer just up to the Treasury and UK Financial Investments (UKFI), which manages taxpayers’ stakes in
financial institutions including RBS, Lloyds Banking Group and Northern Rock
Asset Management.

While no deal is imminent, the government hopes that one can be agreed before
Christmas.

The news comes a fortnight after Jim O’Neil from UKFI told MPs on the
Treasury Select Committee that it would consider selling a portion of RBS at a
loss.

RBS has so far declined to comment, but senior managers are likely to welcome
the government selling a stake.

The bank has been subject to intense public and political pressure over pay
and bonus levels of its senior management. Its chief executive Stephen Hester
turned down a share bonus worth almost £1m after a public campaign and the
threat of a House of Commons vote on the issue.

And RBS bosses are also likely to be keen on the idea as most of their
remuneration is in shares, which have remained in the doldrums since the near
collapse of the bank in 2008.

A spokesperson for RBS said any possible sale of the government’s stake was
“a matter for UKFI and the board of whatever company is thinking of buying
shares in RBS”.

Backlash

Finalising the deal could take at least six months, because of concerns on
the government’s side.

The coalition knows that it will face a furious backlash from many quarters,
not least of all from Labour, for selling a sizeable part of the bank at a loss.

Add this to the sale, also at a loss, of Northern Rock to Virgin Money and
the coalition will be open to the charge of giving away the family silver.

And then there is the plan floated by Business Secretary Vince Cable to break
up RBS and turn part of it into a dedicated business bank, lending to those
small and medium-sized enterprises (SMEs) that struggle to get credit from other
lenders.

If the sale of a sizeable stake to a sovereign wealth fund proceeds, Mr
Cable’s idea is less likely to ever materialise.

Abu Dhabi has the largest sovereign wealth fund in the world. According to an
estimate of the Economist it is worth an estimated £550bn ($875bn).

Between its various investment funds, Abu Dhabi has bought stakes in a number
of companies including Daimler, Virgin Galactic and the Mercedes F1 team. Sheikh
Mansour, a member of the ruling royal family in the UAE, owns the football club
Manchester City.

In late 2008, Abu Dhabi invested £1.2bn in Barclays when the British bank,
like so many others, was on the verge of collapse. It doubled its investment as
Barclays recovered and has since sold most of its stake at a profit.

More recently the investment company Aarbar, controlled by the Abu Dhabi
government, took a notable stake in the struggling Italian bank Unicredit at the
start of the year, which has jumped by a third since then.

Abu Dhabi has a good reputation for corporate governance in those businesses
in which it has invested, is not known for meddling in the day-to-day running of
those companies and has yet to have a high profile clash with managements or
boards.

 

 

Germany’s Ifo business confidence index rises in March

German business confidence rose for
the fifth month in a row, according to a closely watched survey.

The Ifo business climate index, which is based on a survey of 7,000
executives, edged higher to 109.8 in March, up from 109.6 in February.

The euro strengthened after the report to $1.3262.

Recent data on the German economy has been mixed. Last week, a report showed
that German manufacturing activity contracted in March.

Carsten Brzeski, an economist at ING Bank, said: “Today’s Ifo index
illustrates once again the sound economic fundamentals.

“Even at a slower pace, the German economy should remain the eurozone growth
showcase of this year.

“It might not be Champions League quality any more, but with today’s Ifo
index, it should probably be enough to win the Europa League.”

Another economist noted that the March increase in the Ifo index was very
narrow.

“This month’s rise was the smallest in the past five months, suggesting that
maybe the run of optimism regarding the German economy is coming to an end,”
said Jennifer McKeown from Capital Economics.

“While exports are faring relatively well, cautious German consumers are
still not really spending, despite the resilience of the labour market.”

Germany’s economy shrank 0.2% in the final three months of last year, but
economists expect growth to pick up this year.

Last week, European Central Bank president Mario Draghi said the worst of the
eurozone crisis was over.

In an interview with Germany’s Bild newspaper, he said the situation in
Europe was “stabilising”.

Mr Draghi also said that some economic data, including inflation and budget
deficits, showed that Europe was doing better than the US.

 

 

Fuel strike tactics government meeting is planned

The government is preparing for a
meeting with fuel delivery companies and supermarkets to plan tactics if a
tanker drivers’ strike goes ahead.

The meeting is due to take place shortly, “somewhere in government”, the BBC
has been told.

News of the meeting comes as the result of a ballot of tanker drivers by the
Unite union is due.

The Unite union says there have been “unrelenting attacks” on drivers’ terms
and conditions.

Army drivers are being trained to deliver fuel to petrol stations in case of
a possible strike by tanker drivers.

Cabinet Office minister Francis Maude said the government had “learnt the
lessons” of the past and stood “ready to act” in case of a walkout.

Unite said the government should be putting pressure on oil companies.

Len McCluskey, Unite’s general secretary, said: “For over a year we’ve been
desperately trying to bring about some stability in the sector and urging
government ministers to persuade contractors and oil companies to engage in
meaningful discussions with us.”

Contingency  plans

The Unite vote closed earlier on Monday and any agreed strike could be held
next month.

This means any industrial action could possibly be over the Easter weekend.

The 2,000 drivers being balloted account for 90% of those supplying petrol to
UK forecourts.

Ministers say the training of army drivers will begin next week as part of
contingency plans being drawn up to avoid major disruption to fuel supplies.

Mr Maude said that the government had learnt lessons from the fuel blockades
of 2000 – which caused chaos and almost brought the country to a standstill.

“We are calling on the trade union Unite and the employers involved to work
together to reach an agreement that will avert industrial action,” he said.

“Widespread strike action affecting fuel supply at our supermarkets, garages
and airports could cause disruption across the country.

“The general public should not and must not suffer from this dispute, and
strike action is manifestly not the answer.”

 

 

Coutts fined for failings in money laundering controls

Private bank Coutts has been fined
£8.75m by the Financial Services Authority (FSA) for not taking adequate
measures to prevent money laundering.

The FSA said the failings “resulted in an unacceptable risk of Coutts
handling the proceeds of crime”.

The findings related to high-risk people, especially those whose political
positions meant they were vulnerable to corruption.

Coutts clients include the Queen, pop stars and sports personalities.

It is owned by Royal Bank of Scotland.

Coutts agreed to settle at an early stage in the process. It said it was
confident that its anti-money laundering processes were now robust.

“Since the FSA first raised its concerns, we have implemented a number of
improvements to prevent any recurrence of these failings,” said Rory Tapner,
chief executive of the wealth division of Royal Bank of Scotland.

“We remain committed to ensuring that our systems and controls are robust and
counter the risk of financial crime in all the markets in which we operate.”

The fine followed the FSA’s visit to Coutts in October 2010 as part of its
review into how banks were managing situations in which there was a high risk of
money laundering.

The regulator said that Coutts had failed to check the source of funds when
prospective new clients tried to open accounts.

It also failed to check up on any intelligence about its existing or
prospective clients and had not kept information on those clients up to
date.

The FSA said there had been deficiencies in nearly three quarters of
high-risk customers’ files.

“Coutts’ failings were significant, widespread and unacceptable,” said Tracey
McDermott, the FSA’s acting director of enforcement and financial crime.

“Its conduct fell well below the standards we expect and the size of the
financial penalty demonstrates how seriously we view its failures.”

 

 

Game Group goes into administration

Britain’s biggest video game
retailer, Game Group, has gone into administration.

The group employs about 10,000 staff at its 1,300 stores, 609 of which are in
the UK and Ireland.

The administrators from PricewaterhouseCoopers said that the retailer had
suffered from high fixed costs and an ambitious international expansion.

Its business has been hit by competition from online-only retailers.

“Despite these challenges, we believe that there is room for a specialist
game retailer in the territories in which it operates, including its biggest
one, the UK,” said one of the administrators, Mike Jervis.

“As a result, we are hopeful that a going concern sale of the business is
achievable.”

Game Group employs 385 staff at its headquarters in
Basingstoke in Hampshire, and about 5,100 in its stores in the UK and
Ireland.

About another 5,000 staff are employed at Game’s other stores, which are
located in France, Spain, Portugal, the Czech Republic, Scandinavia and
Australia.

“This decision is taken after careful consideration and ceaseless
interrogation of every possible alternative,” Game Group said.

The stores operate under the Game brand, as well as Gamestation.

The company asked for its shares to be suspended last Wednesday and announced
it was planning to call in administrators.

It followed confirmation that some suppliers had stopped doing business with
the retailer.

 

 

UPDATE 1: UK’s CO2 floor price to raise additional £1.4 bln: investor

21 Mar 2012 16:14 Last updated: 21 Mar 2012 17:52

The UK’s levy on fossil fuels will raise 4.6
billion pounds for government coffers over 2013-2016, almost a third more than
the 3.2 billion pounds initially planned, according to UK fund manager Climate
Change Capital.

 

 

SocGen ups year-end carbon price outlook by 10 pct

20 Mar 2012 13:29

Societe Generale has lifted its year-end price
forecast for European Union carbon permits by 10%, citing an increased
probability that the EU will agree to withhold some of the carbon market’s
excess supply, the French bank said.

 

 

Australia passes controversial mining tax into law

The Australian Senate has pushed
through into law a 30% tax on iron ore and coal mining companies.

The tax will raise A$10.6bn ($11.2bn, £7bn) over three years from major
companies including BHP Billiton, Rio Tinto and Xtrata.

Strong demand for raw materials from China and India has lead to a resource
boom in Australia.

The mining tax is aimed at distributing the benefits of that revenue to other
segments of the economy.

It comes into effect on 1 July.

Opposing
views

“This important reform will provide a revenue stream to ensure that
businesses in particular that are not in the fast lane of the resources boom get
some tax relief,” Treasurer Wayne Swan told Parliament.

The government wants to use the funds, amongst other things, to reduce
Australia’s company tax rate from 30% to 29%.

The measure passed through the upper house Senate with backing the ruling
Labor party and the Greens party, in a success for Prime Minister Julia
Gillard.

However, the conservative opposition coalition is against the mining tax,
saying it will drive investment overseas and cost thousands of jobs in
Australia.

Political upset

The Australian government originally announced a 40% mining tax in May 2010,
but that set-off intense opposition from the mining companies.

That opposition was central to the Labor party’s decision in June to replace
Kevin Rudd as prime minister with Ms Gillard.

She then negotiated a 30% tax with the mining giants.

The government also won support for the tax by promising A$6bn in spending on
infrastructure such as roads, rail and ports.

It also agreed to raise the amount paid to people’s retirement savings to 12%
of their salary by 2020, up from the current 9%.

 

 

Some ‘buoyancy’ in housing market, lenders say

The UK housing market is showing some
signs of “buoyancy” despite mortgage lending remaining static in February,
lenders have said.

Gross mortgage lending stood at an estimated total of £10.7bn in February,
the Council of Mortgage Lenders (CML) said.

This was virtually unchanged from the previous month, but up 14% on the same
month a year earlier.

It marked the seventh month in a row of higher year-on-year lending.

“Property sales remain fundamentally weak, but have shown strong year-on-year
increases since the closing months of 2011,” said CML chief economist Bob
Pannell.

“Allowing for the seasonal factors that depress activity over the winter
months, the underlying picture for house purchase activity continues to show
some buoyancy.”

Gross mortgage lending remains lower than during last summer, although
activity does traditionally pick up as the weather improves.

However, a recent pick-up in activity from first-time buyers is expected to
fizzle out after a 1% stamp duty rate for homes of between £125,000 and £250,000
is reintroduced on 24 March for those buying for the first time.

“We expect the number of first-time buyers to drop back after March as
would-be buyers adopt a wait and see attitude,” said Mark Harris, chief
executive of mortgage broker SPF Private Clients.

“Weak consumer confidence and a shortage of homes coming to market are set to
continue, although we do not expect interest rates to rise for three to five
years, which will support the market to an extent. Mortgage rates, however, will
continue to rise on the back of higher funding costs.”

The Council of Mortgage Lenders’ members are banks, building societies and
other lenders who deliver 95% of all residential mortgage lending in the UK.

 

 

Apple to pay dividend from $98bn cash pile

Apple chief executive Tim Cook has fulfilled a longstanding desire of investors by initiating a quarterly dividend and share buyback that will pay out $45bn (£28bn) over three years.

The world’s most valuable technology company will start paying its first dividends since 1995 – a regular quarterly payout of $2.65 a share – in July, and buy back up to $10bn of its stock beginning in the next fiscal year.

The $10 billion annual dividend program, which Cook said will be reviewed periodically, ranks among the largest current U.S. corporate cash payouts.

But he told analysts on Monday that “making great products” remained Apple’s top priority, echoing the sentiments of his former boss Steve Jobs, who died in October after a years-long battle with cancer.

“We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure,” Cook said. “You’ll see more of all of these in the future.”

 

 

Lloyds and RBS have ratings affirmed

March 19 (Reuters) – LONDON,

 

 

Oakmount and Partners – Internal Board Expansion

Dear All,

We trust that you are keeping well and looking forward to
the weekend ahead.

We write to inform you of the current progression taking
place within the company and the expansion of our board.

As an organisation we are thrilled to announce that we have
two directors that have joined the Oakmount Group.

Mr Steve Pierce comes to Oakmount with a wealth of
experience within the property sector and has been in the Police force for over
9 years.

Steve’s knowledge stems primarily within the residential
sector of the UK property markets but has moved into the commodity sector in
addition over the last 3 years, trading in the precious metal markets.

Mr Nick Colley comes to Oakmount with extensive experience
within the metal markets and property sector where he has built up a diverse
investment portfolio within key areas of the markets.

Both Steve and Nick will be working with the entire board to
focus on the expansion of our Property and
Commodity Divisions ensuring that we source only the most elite and sought
after options within the markets.

This will enable us to continue to serve each of our clients
and associates with the upmost professionalism and integrity.

Oakmount and Partners will build the foundations to enable
our clients to create a strong asset base and successful portfolio within the
key destination of the markets that we cover.

We look forward to speaking with you individually however should you require further information please contact one of the team directly on 0207 718 0127.

Best Wishes,

Oakmount and Partners Ltd.

 

 

London is top city for investment, KPMG report says

London remains the top city in the
world for foreign investment, according to a report that reflects the rise of
emerging economies.

The next two cities are Shanghai and Hong Kong, China’s financial capitals,
consulting firm KPMG and Greater Paris Investment Agency said.

Brazil’s Sao Paulo had the biggest leap, to fourth, increasing investment by
160% over the past two years.

Other cities in the Bric group of nations also rose strongly.

Brazil, Russia, India and China are all growing at a blistering pace, while
Europe has been in a slump and Europe hard-hit by a sovereign debt crisis.

It comes as Brazil recently became the sixth-biggest economy in the world,
overtaking the UK. Its total output is worth $2.5tn (£1.6tn) and its financial
capital is Sao Paulo.

This is often seen as part of a symbolic transition of power from the
West.

In 2011, China officially overtook Japan as the world’s second-biggest
economy.

China and India together now constitute 25% of investments, KMPG said.

And Moscow has received a 60% jump in investment in the past two years,
landing itself in eight place.

The five cities at the top – including New York – took 50% of the the total
investment to the biggest 22 cities, KPMG said in its latest Global Cities
Investment Monitor.

 

 

EU carbon rises 3.6 pct on stronger energy

European carbon on Wednesday, rose 3.6 percent on the back of gains in power and gas markets.

 

 

Apple Spurs Record $1.24 Trillion Company Cash, Moody’s Says

Apple Inc. (AAPL), the world’s most valuable business, led U.S. corporations in amassing a record $1.24 trillion of cash last year as memories of the 2008 credit crisis linger, according to Moody’s Investors Service.

“Treasurers have distinct memories of capital markets closing very quickly, and I think companies in general are more focused on controlling their fate from a funding standpoint and part of that means being able to internally fund your investment needs,” Lane said in a telephone interview. Still, “there’s a large and growing use of the cash that these companies generated over the last handful of years.”

The biggest U.S. nonfinancial corporations maintained fortress balance sheets last year as the U.S. economic recovery wavered and European policy makers struggled to contain the sovereign-debt crisis. Companies increased capital expenditures, dividend payments, share buybacks and acquisition spending, even after posting record revenue of $10.4 trillion and cash flowfrom operations of $1.3 trillion, according to Moody’s.

Record-Low Costs

Companies, including financial borrowers, sold $1.1 trillion of U.S. dollar-denominated debt last year, enticed by record-low borrowing costs spurred by the Federal Reserveleaving interest rates in a target range of zero to 0.25 percent, according to data compiled by Bloomberg.

“Companies have availed themselves of the low interest rates this year or last year to either refinance debt or bring debt into their capital structure for the first time,” Lane said. “Taken together with the economic environment modest as it was, even with increasing levels of cash outlays for research and development, capex, dividends, buybacks and acquisitions, it still resulted in companies growing aggregate levels of cash.”

Moody’s, which tracked those figures through the third quarter of 2011, excluded Cupertino, California-based Apple,Qualcomm Inc. (QCOM) and EMC Corp. from the cash flow data and net debt figures because they don’t rate the companies, Lane said.

Dividend Payments

Capital expenditures, or funds used for activities from repairing a roof to building a new factory, rose to $714 billion, the highest since 2008, accounting for the biggest use of cash from operations, the analysts said in the report. Acquisition spending followed with $329 billion, while dividend payments rose to $284 billion and share buybacks increased to $194 billion.

Spending is likely to be about the same this year, as Moody’s anticipates growth of 2.9 percent in G-20 economies from 3.1 percent last year, according to the report.

Moody’s estimates that companies hold almost $700 billion of the cash, or 57 percent, overseas and are unlikely to pay hefty taxes to repatriate it.

The increased liquidity on company balance sheets is good for credit, because it protects corporations if capital marketsare disrupted, according to the report.

Investment-grade corporate bonds have returned 10.2 percent since the end of 2010 as cash holdings have increased, according to Bank of America Merrill Lynch index data. Speculative-grade bonds have gained 9.8 percent in that time.

Excluding Apple, with $97.6 billion of cash and no outstanding debt, the figure was relatively unchanged at $1.15 trillion, even as revenue and cash flow from operations rose to a record, Moody’s analysts led by Richard Lane said in a report yesterday. Investment-grade companies graded A3 or higher by Moody’s hold $594.3 billion, or 54 percent, Moody’s said in the report, which tracked cash and liquid investments for non-financials.

 

 

Gold Seen Heading for 12th Annual Advance on Investor Hoarding

Gold is poised for a 21 percent gain in 2012, extending its bull market to 12 consecutive years, as investors hoard record amounts and central banks expand reserves for the first time in a generation.

Bullion may rise to $1,897 an ounce in New York by Dec. 31 from $1,566.80 at the end of 2011, based on the average of 14 respondents in a survey at the Bloomberg Link Precious Metals Conference yesterday in New York. The rally that began in 2001 is the longest since at least 1920 in London, including a 10 percent gain last year.

Demand has strengthened as Europe seeks to contain its debt crisis, China’s economic expansion slows, and governments from the U.S. to the U.K. keep interest rates at all-time lows to shore up growth. Central banks have been net buyers for three straight years, the longest stretch since 1973, World Gold Council data show. Holdings (.GLDTONS) in exchange-traded funds backed by the metal reached a record 2,410.2 metric tons yesterday, data compiled by Bloomberg show.

“There are significant shifts going on in the world,”said Martin Murenbeeld, the 67-year-old chief economist at Toronto-based DundeeWealth Inc., which manages about $100 billion in the Dynamic Mutual Funds. “Gold has become an investment, an asset class, and over time, we are only going to be building it up. The central banks are holding gold because they are not sure if the euro will remain five years later.”

Gold futures already rallied 5.8 percent this year to $1,657.30 on the Comex in New York. That compares with a 9.7 percent jump in the Standard & Poor’s GSCI Spot Index of 24 commodities, and a 12 percent appreciation in the MSCI All-Country World Index of equities. Treasuries lost 0.9 percent, a Bank of America Corp. index shows.

Low Rates

The Federal Reserve has kept U.S. borrowing costs at a record low near zero percent and conducted two rounds of asset purchases, or so-called quantitative easing, in a bid to boost growth, fueling demand for gold as a hedge against inflation and a drop in the value of the dollar. Yesterday, the Fed said in a statement that the labor market was improving.

Portugal is raising taxes and cutting spending to meet the terms of its 78 billion-euro ($102 billion) aid plan from the European Union and the International Monetary Fund after it followed Ireland and Greece in seeking a bailout last year. Last week, Greece pushed through the biggest sovereign restructuring in history.

“Gold is the ultimate downside protection,” Rachel Benepe, who helps manage $3.5 billion, including 17 percent in gold bullion, at the First Eagle Gold Fund in New York, said at the conference. “The future is uncertain, and we have no idea how we’re going to get through with this situation. That’s why we own gold.”

Monetary Policy

Part of the metal’s rally has been fueled by expectations that central banks will take additional steps to spur economic growth. Francisco Blanch, the head of commodity research at Bank of America Merrill Lynch Global Research, said at the conference that gold would reach $2,000 this year as the Fed seeks to add an additional $800 billion of monetary stimulus.

Later in the day, the U.S. central bank raised its assessment of the economy, eroding prospects for more stimulus. Prices fell as much as 2.2 percent.

“People buy gold for benefits of diversification and hope it does not do well,” Jeffrey Nichols, a senior economic adviser to Rosland Capital LLC, said at the conference.

Gold futures for April delivery declined 0.3 percent yesterday, falling for the second straight session. Prices fell 3.2 percent this month, while the dollar jumped 1.9 percent. The precious metal remains below its record of $1,923.70, reached on Sept. 6.

Institutional Holders

The rate of growth in gold holdings by institutional and private investors has declined in the last few months, according to Christoph Eibl, a founding partner of Zug, Switzerland-based Tiberius Asset Management AG.

“It is not a messiah,” Eibl said. “Be opportunistic and invest in gold. Eventually, trust will come over to the fiat currency.”

Shares of mining companies including Greenwood Village, Colorado-based Newmont Mining Corp. and Toronto-based Barrick Gold Corp., have lagged the price of gold. The Philadelphia Gold& Silver Index (XAU) of 16 producers is up 1.6 percent this year through yesterday, compared with an 11 percent gain in the broader S&P 500 Index. The gauge of gold producers slumped 20 percent last year.

“The only way to protect wealth is to buy gold because it is probably the only money that is relatively indestructible,”Michael Pento, the president of Pento Portfolio Strategies in Holmdel, New Jersey, said at the conference. Pento, who correctly predicted the annual high for prices in the past three years, forecast a record $2,150 by the end of 2012.

 

 

Brent oil dips on supply build outlook

LONDON, March 14 (Reuters) – Brent crude oil dipped slightly on Wednesday as expectations for a build in U.S. crude inventories and a stronger dollar offset support from improving economic sentiment, though supply worries helped keep it near 11-month highs.

Brent crude fell 12 cents to $126.10 a barrel by 1138 GMT, after settling at its highest close since last April at $126.22 on Tuesday. U.S. crude eased 10 cents to $106.61.

Brent has been contained in a range between around $124 and $126 for a week, and traders said supply worries were keeping it at these elevated levels.

‘The market is pinned in a sideways range,’ said Christopher Bellew at Jefferies Bache. ‘Without Iran, Syria and maybe Sudan, we would be lower. But without more newsflow on Iran we don’t go higher either.’

Emphasizing the fact that supply worries are a major concern for market players, the International Energy Agency (IEA) said oil supply from non-Opec countries will grow less than expected.

‘I would expect a break to the upside at some point as supply worries, low stock cover and good growth in Far East outweigh Europe’s travails,’ Bellew said.

Attention will turn to data from the U.S. government’s Energy Information Administration at 1430 GMT, which is expected to report a fourth straight rise in weekly crude oil inventories.

U.S. commercial crude oil stockpiles were forecast to have climbed 1.7 million barrels, according to a Reuters survey of analysts. Gasoline stocks were expected to be down 1.0 million barrels, with distillates to have fallen 1.3 million.

The industry group American Petroleum Industry on Tuesday estimated U.S. crude inventories rose 2.8 million barrels in the week to March 9.

DOLLAR GAINS

A strengthening U.S. dollar also pressured Brent crude oil prices. Gains in the dollar can pressure dollar-denominated commodities by making them more expensive to consumers using other currencies.

In euro terms Brent crude oil was just below all-time highs set the previous session, piling pressure on a fragile economic recovery in Europe, which is lagging the United States and Asia.

The dollar hit an 11-month high against the yen and a one-month high on the euro on Wednesday, extending its gains after a modest brightening of the Federal Reserve’s economic forecasts.

‘We would argue that downside risks for oil prices are currently limited as economic stabilisation suggests that demand growth might have troughed,’ said Tobias Merath, head of global commodity research at Credit Suisse Private Banking.

The U.S. central bank slightly upgraded its economic outlook on Tuesday, saying it expected ‘moderate’ growth over coming quarters and a gradual decline in the unemployment rate, although it said the jobless rate ‘remains elevated’.

Exporter Saudi Arabia and other Gulf producers warned oil prices could spike higher if tensions between the West and Iran do not subside. The Saudi oil minister said oil markets were generally balanced but stood ready to fill any supply shortfalls.

A majority of Americans would support U.S. military action against Iran if there were evidence that Tehran was building nuclear weapons, even if such action led to higher gasoline prices, a Reuters/Ipsos poll showed on Tuesday.

 

 

German Investor Confidence Rises on Signs of Sovereign-Debt Crisis Easing

German investor confidence jumped to a 21-month high in March after the European Central Bankflooded financial markets with cash and the sovereign debt crisis showed signs of abating.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, advanced to 22.3 from 5.4 in February. That’s the fourth straight increase and the highest reading since June 2010. Economists forecast a gain to 10, according to the median of 36 estimates in a Bloomberg News survey.

Germany’s benchmark DAX share index is up 17 percent this year, outperforming its main European counterparts as investors bet the region’s largest economy will return to growth after shrinking in the fourth quarter of 2011. The ECB’s injection of more than 1 trillion euros ($1.3 trillion) of three-year loans into the banking system in an attempt to unlock credit for companies and households is also helping to fuel a rally on European bond markets.

“The ECB’s longer-term loans have definitely helped to calm markets and boost confidence,” said Alexander Koch, an economist at Unicredit Group in Munich. “The outlook for the German economy and company profitability is also very solid.”

Current Situation

ZEW’s gauge of the current economic situation eased to 37.6 from 40.3 in February. The euro declined after the release to $1.3129 at 11:15 a.m. in Frankfurt from $1.3145 beforehand.

ECB President Mario Draghi said March 9 that the outlook for the 17-nation euro area, Germany’s largest export market,“has improved enormously” and there are “many signs of returning confidence in the euro.”

Greece last week pushed through the biggest sovereign restructuring in history, cajoling private investors to forgive more than 100 billion euros of debt.

Euro-region finance ministers subsequently agreed Greecehas met the conditions for a second rescue package worth 130 billion euros that’s designed to prevent a collapse of the Greek economy and contain the debt crisis.

The Bundesbank said on Feb. 20 the outlook for Europe’s largest economy has “improved perceptibly,” even though“risks relating to the sovereign-debt crisis remain.” It forecast in December that economic growth will slow to 0.6 percent this year from 3 percent in 2011 before accelerating to 1.8 percent in 2013.

Inflation Risks

Audi AG, the world’s second-largest maker of luxury vehicles, said on March 1 it is targeting 2012 profit “on par”with last year’s record results as higher sales offset increased spending on new models and factories.

Still, austerity measures across Europe are curbing foreign sales and clouding growth prospects. The euro-area economy will shrink 0.3 percent this year, driven by contractions of 1.3 percent in Italy and 1 percent in Spain, the European Commission said Feb. 23.

A 40 percent jump in oil prices over the last five months is also threatening to damp the recovery by pushing up inflation and eating into household spending, said Thomas Costerg, an economist at Standard Chartered Bank in London. Still, the German economy should outperform most of its European peers this year, he said.

 

 

Euro zone economy prospects show flicker of hope -OECD

PARIS, March 12 (Reuters) – The euro zone is showing tentative signs of improvement, the latest monthly readout from the Organisation for Economic Co-operation and Development (OECD) showed on Monday.

The OECD’s leading indicator, a measure that seeks to flag turning points in economic activity, rose for the euro zone area in January and also turned positive in Britain, adding 0.2 percentage points in the common currency bloc and 0.1 percentage points in Britain.

Improvements detected in previous months in the United States and Japan continued, with rises respectively of 0.7 and 0.5 percentage points in January, the Paris-based economic think tank said in a statement.

‘The United States and Japan continue to drive the overall position but stronger, albeit tentative, signals are beginning to emerge within all other major OECD economies and the Euro area as a whole,’ it said.

Brazil and China, however, still showed signs of weakening, said the OECD, which reported a 0.6-point drop for China and 0.2-point drop for Brazil in January.

The OECD grouping of more than 30 mostly industrialised nations said its measure rose for a third straight month in January, this time by 0.4 points, marginally more than the rises of the previous months.

 

 

Greece and Spain top agenda at Eurogroup meeting

Finance ministers from eurozone
nations are to meet on Monday to discuss giving Greece’s second bailout final
approval.

The Eurogroup, which includes eurozone finance ministers, the president of
the European Central Bank and European Commission chiefs, meets in Brussels.

Spain’s financial status is also likely to be on the agenda.

Earlier this month Spain said it would miss a deficit target of 4.4% of GDP
for 2012 agreed with Brussels. It now expects the deficit to be 5.8%.

However, Spain is not expecting any punishment from the European Union for
breaking the agreement.

In an interview with a Spanish newspaper, Economy Minister Luis De Guindos
said he was sure that fellow finance ministers would acknowledge the huge
efforts that Spain was making to cut its budget.

Spain is planning 30bn euros ($39bn; £25bn) of spending cuts this year, at a
time when the economy is contracting.

The government is also under political pressure at home. Over the weekend
hundreds of thousands of people protested against government labour reforms.

Under the new rules, severance pay will be slashed and it will be easier for
firms to opt-out of national pay agreements negotiated by unions.

Debt swap

Finance ministers are also expected to give Greece their approval for a
second bailout.

Greece took an important step towards that goal on
Friday after it managed to win a crucial debt swap.

The Greek deal with banks and other lenders is the largest restructuring of
government debt in history, and it clears the way for the country to receive a
bailout worth 130bn euros.

In a statement on Friday, Jean-Claude Juncker, president of the 17-nation
Eurogroup, said “the necessary conditions are in place to launch the relevant
national procedures required for the final approval” of its bailout.

IMF head Christine Lagarde said it was “an important step that will
dramatically reduce Greece’s medium-term financing needs and contribute to debt
sustainability”.

The IMF will meet on 15 March to decide what it will contribute to the
eurozone bailout.

Under the debt swap, banks and other financial institutions have agreed to
exchange their existing Greek government debt for new bonds, which are worth
much less and pay a lower rate of interest.

The deal involves 172bn euros worth of bonds, according to the Greek
government website, with investors taking a total loss of up to 74%.

Some lenders who lost money as a result of the deal will be compensated.

That is after the International Swaps and Derivatives Association classified
the deal as a “credit event”, triggering insurance payments.

Some investors bought a type of insurance against that happening. Those
payouts could be worth in total up to $3.2bn, only a small fraction of the 105bn
euros wiped-off Greece’s debt burden.

 

 

Mortgage scheme offers buyers help up the property ladder

People in England are being offered
help to climb onto or up the housing ladder as the government’s mortgage
indemnity scheme launches.

He said: “We’re rebooting the right-to-buy scheme to
increase discounts for two million tenants in social housing in England. And
we’re delivering on our promise to offer affordable mortgages to buyers who
might otherwise not be able to raise the money to buy a newly built home.”

He added: “It’s no good hoping people will climb the property ladder if the
bottom rung is missing.”

NewBuy is backed by the Home Builders’ Federation (HBF) and the Council of
Mortgage Lenders and seven construction firms.

The scheme is available on flats and houses up to a maximum value of £500,000
in England only.

The Department of Communities and Local Government says
the NewBuy scheme will enable banks or building societies to lend up to 95%
of the sale price – meaning buyers might only have to provide a £10,000 deposit
on a newly built £200,000 home.

Housing Minister Grant Shapps said the average age of first-time buyers had
risen dramatically as people could not afford deposits.

“I’m not prepared to stand by, and nor is the government, to watch an entire
generation of people be locked out of the housing market when they can afford
proper mortgages,” he said.

Stewart Baseley, executive chairman of the HBF, said: “NewBuy will help
thousands of people to meet their aspirations to buy a new home, freeing up the
housing market and helping first-time buyers and those unable to take the next
step on the ladder.

“The scheme will also provide a vital kick-start for house builders large and
small who will be able to build the homes and create the jobs that the country
desperately needs.”

Building firms and taxpayers will be co-guarantors on new homes bought by
existing or first-time buyers.

The government hopes the NewBuy scheme – supported by Barclays, NatWest and
Nationwide – will help people to borrow up to 95% of the value of new homes.

Critics argue the scheme is just a ruse to help the construction
industry.

Under NewBuy, the builder pays 3.5% of the sale price into a special account
held by the lending bank for seven years.

Taxpayers will provide additional guarantees of 5.5% but that money will be
called upon only in the event of a major property crash.

The scheme is being unveiled on the same day Prime Minister David Cameron
confirmed the extension of the right-to-buy discount to up to £75,000 for social
housing tenants.

‘Scheme re-boot’

Under that scheme, those who have had five years in a council house could
receive a 35% discount, with an extra 1% for each added year up to a maximum of
£75,000.

Tenants in flats will get 50% off after five years, with 2% added yearly. The
government says the cash raised from the sales will be put towards new
“affordable homes for rent”.

Mr Cameron said of both schemes: “Strong families and stable communities are
built from good homes. That’s why I want us to build more homes and I want more
people to have the chance to own their own home.”

The construction industry hopes the plan will lead to an
extra 100,000 properties being built, which it says would create 500,000
jobs.

For Labour, shadow housing minister Jack Dromey said: “There are questions to
answer about this scheme. Why has the number of major lenders participating in
the scheme fallen from seven to three and the number of builders from 25 to
seven compared with when this scheme was originally announced?

“Reports have also suggested that few, if any, mortgage products will be
available straight away and that the interest rates might not be attractive to
would-be buyers.

“It would be absolutely wrong for the government to raise the expectations of
families and young couples only for them to find little choice and that they’re
unaffordable.”

Other criticisms levelled at NewBuy are that it is just a ruse to help the
construction industry and that the government is artificially meddling in the
housing market and postponing a future fall in house prices.

And Shelter’s chief executive Campbell Robb said: “This strategy also does
almost nothing to help the growing number of families living in insecure private
rented housing with hardly any protection from rogue landlords or unexpected
rises in rent.”

Earlier this month the HBF said the number of new homes getting planning
permission in England had fallen to a five-year low.

A Council of Mortgage Lenders spokesman said: “There is lender support and
interest in the scheme. This is part of a wider approach to stimulating demand
in the economy and it is part of a growth package and a series of measures.”

One of Britain’s biggest housebuilders, Barratt Homes, said 20,000 people had
already registered for more information about the scheme.

 

 

 

U.N. seeks role as ‘glue’ for global carbon markets:

 

 

California Governor Arnold Schwarzenegger.

 

 

China set to become biggest gold market

 

 

UPDATE

Dear Clients,

We trust you are all well.

It has been brought to our attention that there are a number
of defamatory statements being written by a 3^rd party organisation
and or individual about Oakmount.

We are currently monitoring this very closely and we will
obtain the relevant information – IP addresses and clearance data in order for
our Legal Representatives Speechly Bircham LLP to take further action against
those responsible.

It is unfortunate that we live in a world whereby some
people clearly try to bring others down through nothing less than their own
envy and jealousy.

As an organisation we work in a clear and concise way with
each of the clients and associates we serve.

We are committed to attracting and building long term
relationships with all those that we work with in order to build a secure asset
base in the areas of the global markets that we cover.

For the clients we work with we will as mentioned be
monitoring activity very closely so that we can take the necessary legal action
against those responsible for these derogatory and untrue statements.

On a lighter note we wish you all a fantastic weekend ahead.

 

 

Climex seeks 40,000 VERs for unnamed buyer

Dutch emissions bourse Climex will host a tender for 40,000 voluntary carbon credits on April 5 on behalf of an unidentified international organisation.

 

 

U.N. seeks role as ‘glue’ for global carbon markets

Countries must work together under the umbrella of the U.N. to establish a global carbon market capable of channeling billions of dollars in climate finance to the world’s poorest countries, a UNFCCC official said Tuesday.

 

 

EU carbon price could double this year-Espirito

The price of European Union emissions permits could rally to double their current value by the end of the year if a plan to withhold permits is passed, Portuguese Espirito Santo Investment Bank said on Friday.

 

 

Paddy Power profits boosted by mobile phone bets

A big rise in online betting via mobile phones has helped Paddy Power to reported a 16% rise annual profits.

The bookmaker, which makes most of its profits in the UK, said pre-tax profits for the year to 31 December 2011 rose to 121.2m euros ($159.5m; £100.9m).

Paddy Power expanded its High Street network, opening 41 outlets in the UK last year to bring its total to 165.

Online revenue increased by 26%, driven by a 225% rise in turnover from betting on mobile phones to 366m euros.

The company said that last month 49% of its online sports betting customers used their mobile phone to place bets.

Online betting accounts for 79% of Paddy Power’s profits and the company said it had increased the number of UK online customers by 50% to 710,043.

“Our class leading mobile product, married to the strength of our brand and strong value offering has driven acquisition and retention, leading to 1.1 million active customers online,” said chief executive Patrick Kennedy.

UK shops

Paddy Power has also seen a big rise in the number of UK betting shops.

The company now has 165 shops in the UK and says it plans to open a further 35 to 40 each year.

In its results, the firm criticised the government-commissioned Portas review of the High Street which may make it more difficult to open new betting shops.

“We would be disappointed if job creation on the High Street would be hampered by the introduction of anti-competitive policies without a proper body of evidence,” it said.

 

 

Tesco plans to create 20,000 UK jobs over two years

Tesco is to create 20,000 jobs in the UK over two years by improving stores and opening new ones, it has announced.

The firm said the new jobs would include full and part-time positions, and some apprenticeship placements for new employees.

Tesco is the country’s largest private sector employer with more than 290,000 staff – a quarter under the age of 25.

Prime Minister David Cameron said the news was a “massive confidence boost for the UK economy”.

“Their commitment to creating jobs and opportunities for young people at what is a difficult time for the economy is fantastic news for the UK as a whole and for those people they will help into work,” he said.

Economy ‘on way back’

Tesco UK chief executive Richard Brasher told the BBC the extra jobs would not be offset by job losses elsewhere in the business.

“This is net job creation, although we will continue to run our business as efficiently as we can, this is a determination for this to be net new jobs,” he said.

But he admitted the supermarket had found it difficult to predict job numbers the past.

“I think it would be fair to say in 2007 it was very difficult to estimate looking forward what the economy would bring us, I think we are a lot clearer now, I think we are on the way back rather than on the way down,” he added.

In its statement, the company said the new staff would be used to improve service to customers.

“In unprecedented economic conditions like these, major businesses have a big responsibility to step forward, invest and create jobs,” said Mr Brasher.

“We will invest in more staff on the sales floor at busy times, greater expertise and help in the crucial areas of fresh food, and enhanced quality and service across our stores at all times.”

A Tesco spokeswoman said she could not say exactly how many of the 20,000 jobs were full-time or part-time positions, or apprenticeship placements for new starters.

However, she said there was a total of 10,000 apprenticeship placements for new and existing staff.

Last month, Tesco was targeted by Right to Work activists over one of the government’s work experience scheme.

The pressure group occupied a Tesco branch near the Houses of Parliament – leading to its temporary closure – after a job advert for night-shift workers offered Jobseeker’s Allowance plus expenses.

Tesco said the advert had been a mistake caused by an IT error and said the impression it was seeking to replace full-time workers had been mistaken.

In January, the supermarket giant had £5bn wiped off its stock market value in a single day after it revealed poor Christmas trading.

Tesco reported a 2.3% decline in like-for-like sales excluding VAT and petrol in the six weeks to 7 January, falling below its own expectations.

Work experience

More than one million 16-24 year-olds are unemployed.

Last week, the government announced changes to its work experience scheme so that youngsters would not lose their benefits if they left placements early, following criticism of the sanctions attached to the programme.

Youngsters on the scheme are not paid wages but still receive their benefits.

Ministers say it has been a success, with around half those on work experience coming off benefits.

But the Right to Work campaign is continuing to hold protests against firms taking part, warning it will target restaurant chain McDonald’s later this week.

 

 

Middle East to diversify?

Oil-rich Gulf nations are seeking to diversify away from fossil fuel production and toward green-energy projects as they look to longer-term sustainable development of their economies. Higher international crude prices also encourage the countries to sell more of their oil abroad. Prices have risen 10 percent in 2012, after more than doubling in the previous three years.

 

 

EU Parliamentary committee agrees set-aside measures

A senior parliamentary committee of MEPs on Tuesday agreed controversial measures to let the EU Commission cut supply of carbon permits in the bloc’s Emissions Trading Scheme in a bid to prop up CO2 prices.

 

 

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For further information regarding our property stock list please call one of our specialists today on: 0207 718 0127

Alternatively please send in your registration for further information and our 2012 corporate literature.

 

 

Bovis Homes in sharp annual profits jump

UK housebuilder Bovis Homes has reported a steep jump in profits for 2011 and says average sales prices rose 5% to £180,100.

Pre-tax profits for the year to December 2011 were £32.1m, a gain of 74% on the year before.

The Kent-based group said in January it expected sharply higher profits.

It sold more than 2000 homes last year, 8% more than in the year before and said sales prices to date were ahead of expectations.

Bovis Homes said in a statement that it had performed well in a difficult market.

“The group has delivered a strong improvement in profits in 2011 against a challenging but stable market environment,” it said.

And it added that it was expecting to see continued improvement in profits.

“Significant progress has also been made in positioning the group for continued improved returns,” the firm said.

 

 

Carbon soars 6 pct on euro, energy ahead of EU vote

 

 

EUAs hit 10-week high as gas lends support

EU carbon prices were in positive territory on Monday, as strong gas prices drove the energy complex higher, adding to positive sentiment the ahead of a much-anticipated parliamentary vote on whether to withdraw permits.

 

 

NZ carbon soars 12 pct as EU lawmakers mull supply cut

 

 

RBS doubles annual loss in 2011, fourth since bailout

The Royal Bank of Scotland has reported its fourth year of losses since the bank’s bailout in 2008.

The bank posted an attributable loss of £2bn in 2011, up from a loss of £1.1bn in 2010.

In reaction to the annual results, Chancellor George Osborne said RBS is “cleaning up the mess after the biggest bank bailout in history”.

Last month chief executive Stephen Hester turned down his bonus of nearly £1m following political pressure.

On a pre-tax basis, last year’s loss was £766m compared with £399m in 2010.

Last year, the company’s share price fell 48% and now stands at around 27 pence.

“We all understand that a company that is making losses at the bottom line tests the patience of those who depend on it,” Mister Hester said in the results.

RBS is 82% owned by the state after its £45.5bn bailout in late 2008 at the height of the financial crisis, when it posted the biggest annual loss in UK corporate history.

Pay row

For 2011, RBS said its investment bankers will share a bonus pool of £390m, less than half the amount awarded last year.

But while bonuses have halved, basic pay has risen sharply.

The BBC’s business editor Robert Peston said that investment bankers account for 12% of RBS’ total staff – of 146,800 – and their bonuses were £5,347 on average.

He tweeted: “The bonus element on average investment banking pay of £144,000 at RBS was £22,941, down from £50,114. So average basic pay up 29%.”

“I understand people’s anger and anxiety about inequalities in pay at a time when the economy is weak and many people are finding things tough,” Mr Hester said.

“RBS alone cannot fix these wider issues if we are to achieve what is asked of us commercially. But we have led the way in changing how we pay our people.

The chancellor supported the bank’s action on pay.

“We have made clear that RBS should be a backmarker in the industry when it comes to pay, so it’s right that bonuses at the investment bank are less than half what they were last year and less than a third of what they were in 2009,” said Mr Osborne.

RBS reports several figures for profit and losses. Some include one off charges and other items.

Two big costs contributed to last year’s loss.

RBS had to set aside £850m to compensate people who bought payment protection insurance they didn’t need.

It also had to take a loss of £1.1bn on its investments on Greek government debt amid the ongoing eurozone debt crisis.

Without those charges and adjustments for bad debt, the so-called core bank, which includes NatWest, made a profit of £6bn – which was down almost 18% on 2010.

RBS has been selling off its “non-core assets” to revive its profitability.

The balance sheet has been reduced by more than £700bn from the peak of the crisis, it said.

The bank also said it had given more than 40 pence in every £1 lent to UK small and medium-sized businesses, which is more than was demanded by government targets, and provided 4,000 business loans each week on average.

Mr Hester was appointed chief executive at the end of 2008 to replace Fred Goodwin, who was recently stripped of his knighthood over the collapse of the bank.

RBS’ chairman, Sir Philip Hampton, also gave up £1.4m worth of shares he was due next month.

 

 

Denmark urged to do more to meet 2020 GHG cap

The International Energy Agency (IEA) on Tuesday urged Denmark to step up its emission reduction efforts to meet its 2020 goal to cut emissions, a move that could lead to greater demand for carbon credits.

 

 

EUAs up 1.9 pct, extend gains on stronger energy prices

EU carbon rose 1.9 percent on Wednesday extending gains made in the previous two sessions, as stronger gas and power prices, fuelled by positive macroeconomic sentiment, provided support.

 

 

Barratt Developments bounces back into profit

Housebuilder Barratt Developments has returned to profit after a loss for the same period last year and says it expects to recover further.

The company said it made a profit of £21.6m for the six months to December, after a loss of £4.6m for the same period last year.

It said the number of properties reserved so far into the second half was almost 22% higher than for the same period a year ago.

The average selling price was £181,200.

That was 3.1% higher than last year.

The growth came largely from the South East of England, where the majority of its 382 sites are based.

Barratt’s chief executive, Mark Clare, said the business was doing well despite the weak economic climate: “Over the last six months, we have continued to improve the performance of the business, despite the wider economic uncertainty.”

House builders are apprehensive about the ending of stamp duty exemption for first-time buyers of homes worth less than £250,000.

Such buyers will be obliged to pay stamp duty next month.

The trade hopes that the government’s mortgage indemnity scheme, which guarantees to underwrite losses on newly built properties in England to help first-time buyers borrow up to 95% of the value of their home, will boost sales.

Many banks still demand deposits of 20% before granting a mortgage, something which is out of reach for many potential buyers.

 

 

Gold Imports by India Seen Falling on Prices

Gold imports by India (INMOGOLD) are poised to decline for the first time in three years as rising prices deter jewelry buyers and investors, potentially allowing China to overtake the country as the world’s largest consumer.

Purchases may drop 7 percent to 900 metric tons this year, according to the median estimate in a Bloomberg News survey of eight analysts, brokers and jewelers including Rajesh Exports Ltd. (RJEX), the biggest gold-jewelry exporter. India bought a record 969 tons in 2011, according to the World Gold Council.

Bullion is climbing for the 12th year as investors seek a store of wealth amid volatility in stock markets, depreciating currencies and the threat of inflation. China’s consumption may surpass India this year after surging 20 percent to 769.8 tons in 2011, the council says. Use in India fell 7 percent to 933.4 tons last year as the currency slumped to a record low, cooling purchases for festivals and marriages.

“With the prices of gold going up, nothing fits into the budget of the customer,” Ramesh Pahlajani, partner at Mumbai- based Bherumal Shamandas Jewellers, said in an interview. “Demand for gold has been quite subdued.”

Imports plunged 44 percent in the fourth quarter to 157 tons as jewelry and investment demand declined, the council said on Feb. 16. Bullion futures in India rallied 32 percent last year, exceeding the 10 percent advance in global prices.

Bridal Trousseau

In India, gold is traditionally bought during the festival season and for weddings as part of the bridal trousseau. The number of days this year considered to be auspicious for marriages will be the fewest since 2004, potentially trimming demand, Ajay Mitra, managing director, Middle East and India at the council, said on Feb. 16.

“The amount of gold I buy has been reduced and we have to budget our expenses,” said Khushboo Jain, 24, while shopping in Zaveri Bazaar, Mumbai’s main jewelry market, ahead of her April wedding. “I am buying for my marriage and in the future it will be an investment for me in times of financial crisis.”

Gold for immediate delivery climbed 0.4 percent to $1,742.02 an ounce at 2:46 p.m. in Mumbai today. The metal reached a record $1,921.15 an ounce in September.

“Gold is still something that every household believes in owning,” said S. Subramaniam, chief financial officer at Titan Industries Ltd. (TTAN), India’s biggest retailer of gold jewelry. “Gold is not just about an ornament or adornment, it’s about investment as well.”

Gold holdings in exchange-traded products were 2,388.683 tons on Feb. 17, near the record 2,392.976 tons reached Dec. 13, according to data tracked by Bloomberg. In India, investors held a record 96.14 billion rupees in funds backed by gold as of Jan. 31, according to the Association of Mutual Funds in India data.

“Demand in India has been slow as expenses have been rising because of inflation,” Rakesh Jain, owner of Mohanlal Otarmal Jewellers in Mumbai, said in an interview at his store in Zaveri Bazaar. “People do not have much savings to spend on gold. The buying capacity of people has gone down.”

 

 

Santander fined £1.5m by FSA over investment cover

Santander has been fined £1.5m for being too slow to explain to customers whether investments were covered by a financial safety net.

The Financial Services Compensation Scheme (FSCS) guarantees the safety of some savings if a financial institution goes bust.

Customers began to query at the end of 2008 whether some of Santander’s investment products were covered.

But Santander did not tell them until 2010 that FSCS cover was limited.

During that time, Santander sold £2.7bn of these products – known as structured products.

The Financial Services Authority (FSA) said that the bank was not quick enough to confirm whether these were covered, especially at a time of financial uncertainty.

However, investors had not suffered any financial loss as a result of this lack of clarity, the FSA said.

‘Informed decisions’

The return from a structured product is generally linked to the performance of an underlying asset or index.

Specifically, Santander had concluded in June 2009 that two of its products – Guaranteed Capital Plus and the Guaranteed Growth Plan – only had limited cover from the FSCS safety net.

However, new customers were not told about this until January 2010. Some £1.2bn of these products had been sold during the two dates.

“When firms provide customers with literature about products, the information has to be correct and unambiguous. After all, it is there to help people make informed decisions about whether to invest,” Tracey McDermott, acting director of enforcement and financial crime at the FSA.

The bank said it was unhappy with the FSA’s decision. It claimed that the wording was consistent with the market at the time and that it had been back in touch with all the relevant customers.

“Santander is disappointed with the outcome and has registered its opposition to the FSA’s findings,” a spokeswoman for the bank said.

“The FSA’s final notice acknowledges that there is no evidence that the products were sold to customers for whom they were not suitable, and that no customers have suffered a financial loss.

“In order to conclude a lengthy investigation process, Santander has decided, in the circumstances, that we will not challenge further the decision, nor the fine.”

 

 

European shares edge lower after Greece bailout agreed

Europe’s financial markets have given a muted reaction to the announcement of a second bailout deal for Greece.

The euro was little changed from Monday’s closing price, while leading European stock markets edged lower in early trading.

London’s FTSE, the Paris Cac and Frankfurt’s Dax index were all down between 0.1% and 0.2%.

Shares across Europe rose on Monday in anticipation of a deal being reached, with bank shares doing well.

Europe’s banking industry has been bolstered by support from the European Central Bank.

In the latest bailout deal, Greece is to receive loans worth more than 130bn euros (£110bn; $170bn).

In return, it will undertake to reduce its debts to 120.5% of its GDP by 2020 and accept an “enhanced and permanent” presence of EU monitors to oversee economic management.

Greece needs the funds to avoid bankruptcy on 20 March, when maturing loans must be repaid.

‘Problems remain’

“Effectively Europe’s banks have been given almost half-a-trillion euros at 1%, very cheap money that has sort of ring-fenced the banks from the crisis. The thinking is that banks will not go bust if Greece fails,” said Louise Cooper, market analyst at BGC Partners.

But she said few in the markets thought the latest bailout was the answer.

“This just puts off the inevitable. It’s the second deal in two years. You’re talking almost 20,000 euros per person [in Greece] in total bailout funds and even that amount has not solved Greece’s problems. That suggests the money has not been well spent,” she added.

“It [the deal] probably avoids a messy and chaotic default on 20 March, there are still a lot of steps to go through before then, but does it solve any of its problems? No.”

 

 

EU carbon prices soar 9 pct on set-aside deal

 16 Feb 2012 03:35 PM

EU Allowances soared 9% to an eight-week high  on Thursday on news that European lawmakers on a key parliamentary committee had agreed to support a move to bolster carbon prices.

 

 

Indian News: CERC issues tariff guidelines for renewable energy

The Central Electricity Regulatory Commission (CERC) has issued the norms for determining tariffs of electricity generated from various renewable energy sources. These norms apply for the five-year-period beginning 2012-13.

Solar energy

An interesting part of the notification, issued on Friday, is the assumption of module cost for solar photo voltaic – at 85 cents a watt, linked to an exchange rate of Rs 53 to a US dollar. Accordingly, the Commission has fixed the normative capital cost at Rs 10 crore a MW, capacity utilisation of 19 per cent and operation and maintenance expenses of Rs 11 lakh a MW in the first year, and increasing 5.72 per cent thereafter.

“Current trend reveals that the prices of crystalline and thin film module available in India are in the range of 0.7 to 1 dollar a watt and is expected to decline in future,” according to the notification.

For solar thermal, the reference capital costs are Rs 13 crore a MW, capacity utilisation 23 per cent and O&M expenses of Rs 15 lakh a MW, with annual escalation of 5.72 per cent.

Wind energy

The capital cost for wind energy projects has been fixed at Rs 5.75 crore a MW for 2012-13, with an annual escalation according to a specified formula for the next four years. For capacity utilisation, CERC has come up with a range of norms, from 20 per cent to 32 per cent, depending on wind density. O&M expenses are Rs 9 lakh a MW, with 5.72 per cent annual escalation.

Small hydro projects

For small hydro projects, CERC has prescribed a matrix of norms, with different values for projects below 5 MW, above 5 MW and below 25 MW as well as for projects set up in Himachal Pradesh, Uttarakhand and the North Eastern states and for those elsewhere.

Biomass

The capital cost will be Rs 4.45 crore in the first year, with annual escalation, 10 per cent auxiliary consumption, station heat rate of 4,000 Kcal a unit and O&M of Rs 24 lakh a MW with a 5.72 per cent annual increase. In addition, CERC has fixed norms for biomass gassifier plants, debt-equity ratio, normative interest and depreciation charges and a formula for sharing benefits from carbon credits between the generating company and other stakeholders.

These guidelines are for the various state electricity regulatory commissions to follow, but are not binding on them.

 

 

UK retail sales rise 0.9% in January

Retail sales rose 0.9% in January compared with December, according to the latest figures from the Office for National Statistics.

The figure was much stronger than forecast as many economists had expected sales volumes to fall.

The report showed particularly strong sales of furniture and sports goods as shoppers were tempted by steep discounts.

It builds on solid December sales when volumes rose by 0.6%

 

 

Malaga to Develop 20-Megawatt Hydroelectric Plant for Peru Mine

Malaga Inc. (MLG), the Canadian mining company, will build a hydroelectric plant with 20 megawatts of capacity at its Pasto Bueno tungsten mine in northern Peru.

Malaga may start building the project in the first quarter of next year, the Montreal-based company said today in an e- mailed statement.

The project, which may be expanded to 38 megawatts, will be developed with Hidropesac, a joint venture between Malaga and Swiss companies Emerging Power Developers and Stucky SA, according to the statement.

 

 

GM Earns Record $9.19B Profit; Opel Posts Loss

General Motors Co. (GM), which regained the global auto sales lead, earned $9.19 billion last year, the largest profit in its 103-year-history, while its European business again lost money.

Fourth-quarter net income attributable to stockholders slid 48 percent to $725 million, the lowest in two years. GM had earned more than $2 billion in each of the three previous quarters. Profit in the fourth quarter fell 25 percent to 39 cents a share, trailing the 41-cent average estimate of 17 analysts surveyed by Bloomberg.

GM North America earnings before interest and taxes more than tripled for the year to $7.19 billion on improved U.S. sales. The automaker’s Europe business, including the Opel brand, lost $747 million for the year. While that’s better than Europe’s restated $1.95 billion loss in 2010, it’s not break- even as GM had planned until November.

“GM’s results in Europe certainly dampen the positive results in the U.S. but you have to still say they had a really good year,” Rebecca Lindland, an industry analyst with IHS Automotive, said before the results were released. Before a government-backed bankruptcy in 2009, “they were making record losses, so they’ve made a tremendous amount of progress.”

GM global sales rose 7.6 percent last year to 9.03 million to outsell Toyota Motor Corp. (7203) as the world’s top-selling automaker. GM lost the sales crown in 2008 to Toyota. The shares rose 4.1 percent to $25.95 at 10:18 a.m. New York time.

‘Growth Story’

GM’s full-year profit in 2010 of $6.17 billion had been the automaker’s largest annual income since its predecessor earned $6.7 billion in 1997, excluding profit in 2009 to account for its post-bankruptcy recapitalization.

“This in my mind for the next couple years is a true growth story with some hiccups along the way in Europe, but tell me anyone who’s not facing issues in Europe,” Sarat Sethi, a New York-based portfolio manager at Douglas C. Lane & Associates, said in a Bloomberg Television interview.

“We clearly have work to do in Europe,” Chief Financial Officer Dan Ammann told reporters at GM’s headquarters in Detroit. “We have work to do in the South America business. Frankly we have work to do all around the company in terms of cost opportunities.”

Profit Sharing

GM announced it will pay profit-sharing bonuses of as much as $7,000 to 47,500 eligible UAW members under a formula negotiated last year as part of a four-year labor contract. A year ago, the automaker paid a record $4,300 on average to U.S. union workers. U.S. salaried workers’ bonus payout will decrease to 86 percent of the target for 2011 from 145 percent a year earlier, Katie McBride, a GM spokeswoman, said in a telephone interview.

Chief Executive Officer Dan Akerson wants to reduce costs to improve GM’s EBIT margin, which lags behind that of Ford Motor Co. (F), Volkswagen AG (VOW) and Hyundai Motor Co.

Revenue in the fourth quarter increased to $38 billion from $36.9 billion a year earlier, the company said. For 2011, revenue increased to $150.3 billion from $135.6 billion.

GM boosted U.S. sales last year by 13 percent while reducing incentive spending per vehicle by 5.1 percent to $3,223, according to researcher Autodata Corp., based in Woodcliff Lake, New Jersey.

Problems in Europe

“You’ve got a great turnaround going on in the United States that’ll continue to get better, especially in 2013,” David Whiston, an analyst with Morningstar Inc. in Chicago, said. “I’ve been telling clients 2012, still think of it as a transition year for the new GM to get totally up to speed, because they still have holes in their product lineup, most notably full-size pickups.”

In Europe, where GM hasn’t recorded an annual profit for more than a decade, the average of the industry analysts’ estimates was for the fourth-quarter loss to increase to $358 million from a deficit of $292 million in the third quarter.

GM Europe lost $562 million in the fourth quarter, little changed from a loss of $568 million a year earlier. Last quarter’s loss included about $200 million in restructuring costs that weren’t reflected in the estimates.

“The industry is over capacity,” Ammann said of Europe. GM is working on “the pieces of our business that we can control, working with all of our partners to get to the right answer overall.”

‘Drives Me Crazy’

GM, to improve capacity utilization in Europe, should reconsider plans to import Opel and Vauxhall vehicles to the region, Wolfgang Schaefer-Klug, chairman of the German Group Works Council, said today in a statement.

“The expansion and refreshment of the Opel product line up offers a good starting point,” Schaefer-Klug said.

Ammann declined to say whether Europe will break even this year.

“The thing about Europe that drives me crazy is I just don’t see it getting better anytime soon,” Whiston said. “You either need sales to pick up really, really strong. Or you need to fire a lot of people and close plants.”

GM’s international operations, which include China, earned $373 million in the fourth quarter while the South America business lost $225 million, the company said.

While GM shares have risen 23 percent this year through yesterday, they remain below the $33 level of the automaker’s 2010 initial public offering. With a market capitalization of $39 billion through yesterday, GM traded at 6.13 times earnings, less than half the 14 times earnings that investors pay for the S&P 500 Index.

Uncertainty Ahead

The U.S. Treasury Department sold 28 percent of GM in the IPO, and it still holds 32 percent of the Detroit automaker’s shares, acquired as part of the Obama administration’s $50 billion bailout. The U.S. wants to sell for at least the IPO price, people familiar with the matter have said.

“GM is caught between what they don’t know and what they should not promise,” Adam Jonas, an industry analyst with Morgan Stanley, wrote in a note to investors yesterday.

While Ford is targeting a little changed profit for this year with improvements in North America, he said, “GM would have a difficult time promising the same given the restructuring efforts in Europe, the disruption of the truck changeover and pension headwinds.”

GM’s global pension plans were underfunded by $24.5 billion, an increase from $22.2 billion at the end of 2010, the company said today.

Pension Changes

The company decreased the discount rate it uses to calculate the present value of future cash flows, which hurt the funded status by $8.4 billion.

The pension plans achieved 11 percent asset returns, exceeding the company’s 8 percent target. Pension expense in 2012 will be “unfavorable” because GM is lowering its expectation for returns to 6.2 percent as it allocates more assets to fixed-income investments, Ammann told reporters.

Cindy Brinkley, GM vice president for global human resources, yesterday said 19,000 U.S. salaried workers who were hired prior to 2001 were being moved from defined benefit pension plans to defined contribution 401(k)s on Oct. 1.

Those workers will stop accruing fixed retirement benefits on Sept. 30 and begin receiving defined contributions to 401(k) programs, she said.

U.S. salaried workers won’t get across-the-board salary increases this year while the automaker will offer bonuses, Brinkley said in a conference call with reporters. GM’s U.S. salaried workers haven’t had an across the board pay increase since February 2010.

GM is considering initiatives beyond the changes it made to salaried workers’ pension plans to improve the funded status, Ammann said today.

 

 

Power sector, financials key to China ETS success

China’s pilot emissions trading schemes would have a good chance of being successful if power generators are included and the market attracts the financial services sector, according to industry lobby group IETA.

With less than a year to go until the world’s biggest greenhouse gas emitting nation launches CO2 markets in seven cities and provinces, the government has still to decide which industries will be covered or how the markets will work.

The National Development and Reform Commission plans to use the experience from the pilot schemes to roll out a national carbon market, possibly as early as 2015.

Few expect the early stages of the pilot markets to drive huge liquidity, but experts at the International Emissions Trading Association (IETA) said involving the power sector and financial players would strengthen the market.

“If the power sector is involved, China is off to a very good start,” Jeff Swartz, IETA’s director of international policy, told Point Carbon News in an interview.

The China Electricity Council has estimated that power generation accounts for approximately half of China’s CO2 emissions.

That would take the sector’s total CO2 output to more than 4 billion tonnes per year, according to BP estimates that forecast China pumped out 8.33 billion tonnes of CO2 in 2010.

POWER COSTS

Swartz, currently visiting China, said he was positively surprised about the degree to which the power sector participates in the policy process, given that most of the media talk has been about other sectors, such as manufacturers.

Under the EU Emissions Trading Scheme, power producers were hit with the biggest costs as they were deemed to be able to pass on the cost of buying the permits.

However, bringing the sector into a Chinese ETS is problematic as the government has capped the price at which power companies can sell electricity to consumers in a bid to lift hundreds of millions of people out of poverty.

But Swartz said this could be worked around:

“Pressures from carbon prices on electricity price regulation are well-precedented elsewhere, and could be part of a gradual liberalisation approach,” he said.

FINANCIAL MUSCLE

Jeff Huang, chair of IETA’s China and Taiwan working group, stressed the importance of attracting banks and other financials to the market.

“The trading part of cap-and-trade must involve the financial services sector,” he said.

Banks and trading houses can normally add liquidity to commodity markets, but there is uncertainty as to whether the Chinese pilot carbon markets will provide opportunity for investors as regulations remain unfinished.

“The carbon market is quite politicised in China, so there will be a lot of caution,” said Swartz.

“That might mean there won’t be as much liquidity as is needed, at least not from the start,” he said.

Huang said that if big financials, both Chinese and foreign, were involved in the market, that could play a critical role in price discovery.

But while electricity generators and banks are key sectors, Swartz said a wider-reaching scheme is needed to have any impact on limit China’s emissions.

“Any emissions trading market in China must stringently include major emitters including the oil and gas, power, cement, and iron and steel sectors in order for emissions to be at a scale enough for real reductions to take place,” he said.

The seven pilot regions are Guangdong and Hubei provinces, and the cities of Beijing, Chongqing, Shanghai, Shenzhen and Tianjin.

 

 

POLL: Set-aside could double EUA prices by 2014

Withdrawing carbon permits from the EU Emissions Trading Scheme could cause European carbon prices to double by the end of next year, a poll of analysts showed Wednesday.

European Parliamentarians are mulling a proposal to support carbon prices near record lows by withdrawing supply of up to 1.4 billion allowances from the EU scheme, a move aimed at displacing the market’s current surplus.

Withdrawing the full 1.4 billion permits from the bloc’s phase three (2013-2020) auction quotas could cause front-year EU Allowances to soar to 17.60 euros by the end of 2013, more than double the current price of 8.25 euros, the poll found.

Setting aside 500-800 million EUAs, a range floated by the EU Commission early last year in an unpublished draft of its 2050 low-carbon roadmap, would have a markedly smaller effect.

In this scenario 2013 year-end prices would be, on average, between 13.50 and 14.90 euros, depending on the exact volume to be plucked from the market, the six analysts predicted.

“In the case of a withdrawal of 800 million allowances or less, it may not be such a shock for the market,” said Juliusz Pres of Consus SA, a Poland-based brokerage.

Should lawmakers in the 27-nation bloc fail to agree on a set-aside proposal, EUA prices would likely climb to 11.40 euros by the end of next year, the poll found.

The European Parliament’s environment committee voted in support of the measure on Dec. 20, causing EUAs to surge nearly 30 percent that day after having fallen by about half over the previous six months due to swelling supply and the euro zone’s debt crisis.

The parliament’s industry committee is now due to vote on the plan on Feb. 28, but the bill would then need to pass the full parliament and be endorsed by ministers before becoming law.

EU policymakers said last week they want the set-aside to bump up carbon prices to at most 30 euros, but they have been unclear on exactly when the permits would be withdrawn from the market.

“The price impact of a set-aside will depend not only on the absolute volume, but also heavily on the time-distribution,” said Ingo Tschach of Tschach Solutions.

Below are the results of the poll, which includes forecasts for end-2013 EUA prices based on three scenarios.

 

 

UK unemployment continues to climb

UK unemployment rose by 48,000 to 2.67 million in the three months to December, official figures have shown.

The unemployment rate was 8.4%, the Office for National Statistics said, the highest for 16 years.

The number of young people without a job rose 22,000 to 1.04m, taking the unemployment rate for 16- to 24-year-olds to 22.2%.

The number of people claiming Jobseeker’s Allowance in January increased by 6,900 to 1.6 million.

The number of job vacancies rose to 476,000 in the three months to January.

The ONS data also showed that average earnings increased by 2% in the year to December, unchanged from the previous month.

That figure lags well below the rate of inflation and indicates a continued squeeze on spending power.

Earlier this week, official figures showed the Consumer Prices Index (CPI) measure of inflation fell to 3.6% in January, from 4.2% in December.

Vicky Redwood, economist at Capital Economics, said: “We continue to expect unemployment to rise much further in response to the weakness in the wider economy.

“At least with inflation falling, the squeeze on real pay is easing. But it won’t be for a few months yet until real pay actually starts to rise again.”

Despite the continued rise in unemployment, the proportion of the workforce in paid work also rose.

The employment rate rose by 0.1 percentage points in the three months to December to 70.3%, although this rate was still 0.2 percentage points lower than a year ago.

It means the number of people in jobs rose by 60,000 in the last three months the year to 29,130,000.

The apparent contradicton is explained by the fact that the number of people classified as economically inactive has dropped.

Their number fell by 78,000 to 9.29 million.

This included a drop in the number of people categorised as long term sick or retired who went back into the workforce.

 

 

Deutsche Bank ups EUA forecast, sees 20-25 euro price with intervention

Deutsche Bank analysts raised their forecast for average European Union carbon prices in the first half of this year by 25 percent on Monday, citing expectations the EU will find a way to reduce an oversupply of carbon permits.

It forecast benchmark EU Allowances (EUAs) to range between 6 and 9 euros a tonne in the first three months of the year, compared with forecast of 5 to 7 euros a tonne it made in late November.

The revision follows repeated analyst downgrades to price estimates since last June. Benchmark EUAs, which plunged to a record low of 6.30 euros a tonne in mid-December, were trading around 7.70 euros on Monday.

The bank revised up its price outlook because it expects an EU committee later this month to vote in favour of carbon permits being withheld from the European Union emissions trading scheme in its third trading period (2013-2020), a bank analyst said.

“There is more hope than before that something will be decided,” Deutsche Bank’s Isabelle Curien told Reuters.

The European Parliament’s industry committee is due to vote on Feb. 28 on a proposal to cut permit supply in the 2013-2020 trading phase, a move that could boost carbon prices.

The Parliament’s environment committee voted in support of the measure on Dec. 20, causing EUA prices to surge nearly 30 percent that day.

A full parliamentary ballot is expected around April, although that timing could also change, and then national EU governments must agree to changes before they can become law.

Calls for market intervention come at a time when the scheme is expected to be oversupplied with hundreds of millions of EUAs through 2020, largely because of slowing EU growth prospects and waning demand for carbon permits.

Deutsche Bank raised its accumulated surplus to 663 million EUAs out to 2020 from its previous estimate of 566 million. It also cautioned the surplus could widen further.

The EU cap-and-trade scheme, the 27-nation bloc’s main policy to fight global warming, covers around half of the EU’s carbon dioxide emissions. It caps emissions on stationary power and industrial plants as well as airlines entering EU airports.

Deutsche Bank said any political action to tighten the ETS cap next year could put EUA prices on track towards 20 to 25 euros a tonne by 2020.

“Absent a credible political narrative developing over the next six to 12 months, however, we think EUA prices will remain below 10 euros/T into 2013 and beyond,” the research note said.

The bank revised up its emissions cap estimate for the rest of the phase two (2008-2012) period by 40 million, reflecting recent increased EUA allocations to specific installations in several countries, such as Hungary, Estonia, Italy and the UK.

The adjustment will also have a knock-on effect for the phase three cap, meaning an upward revision of 56 million tonnes over the 2013-2020 period, it said, estimating the ETS cap at 1.72 billion tonnes of CO2 equivalent in 2020

 

 

EU carbon rises 2.7 pct, shrugs off euro zone downgrade fears

European carbon prices traded 2.7 percent higher on Tuesday morning, as gains in power prices offset macroeconomic concerns amid a warning by Moody’s of ratings downgrades for the UK, France and Austria.

The ICE ECX December 2012 EUA contract traded at 7.87 euros at 0845 GMT Tuesday, up 21 cents on Monday’s settlement.

The bellwether contract opened at 7.63 euros, dipping to a low of 7.58 euros in the first few minutes of trade before hitting an intraday high of 7.94 euros.

“We were expecting (carbon) prices to be lower this morning because of the downgrade speculation, but I think it’s just been a bit oversold over the last few days and has found some support,” a trader at a bank said.

Late on Monday, ratings agency Moody’s put the UK’s triple-A rating on “negative outlook” for the first time as well as issuing similar warnings to Austria and France.

Moody’s also downgraded six euro zone nations including Spain and Italy.

Traders said firmer power prices had helped carbon to shrug off concerns about the impact of any future debt downgrades .

“Power is a bit firmer and we are seeing some utility buying so volumes are pretty decent, but we cannot tell if this (higher prices) will last,” another trader said.

Around 2.8 million EUAs of all vintages had changed hands so far this morning.

Analysts at Thomson Reuters Point Carbon warned in the company’s Global Carbon Forum that carbon prices could tumble later in the day if power and gas prices start to show signs of weakness.

“As carbon is well correlated with the power and gas contracts at the moment, such a continued dip could provide some further downside to the EUA Dec-12 contract which, however, should be limited by the 7.35 euros support level,” the analysts said.

The 2013 baseload German power contract was trading at 51.05 euros/MWh on EEX, up 10 cents on the previous day’s close.

However the contract is down almost 5 percent compared with the 2012 high of 53.60 euros hit early last week.

Power prices peaked last week as freezing weather gripped most of Europe but have since fallen back due to warmer temperatures.

In the secondary market for U.N.-backed carbon credits, the December 2012 CER contract was trading at 3.77 euros this morning, up 2.5 percent from the previous day’s close

 

 

Italy, Spain Cut by Moody’s; U.K. Top Rank at Risk

Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis.

Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered.

“Policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.”

The euro reversed losses after a report showed German investor confidence rose more than economists forecast in February. Moody’s decision highlighted the risk that the European debt crisis will deepen even as the region’s finance ministers prepare to meet tomorrow to discuss a second aid package for Greece, following the country’s approval of austerity measures.

AAA Ratings

Still, recent rating reductions have done little to deter investors, who poured money into the government bonds of nations such as France and Austria even after the countries lost their AAA ratings at Standard & Poor’s last month. U.S. Treasuries returned three times as much as AAA corporate bonds since the world’s biggest economy was cut by one rank in August.

“The ratings agencies are kind of behind the curve,” said Shen Jianguang, chief economist for Greater China at Mizuho Securities Asia Ltd., who previously worked for the International Monetary Fund. “The risks have actually been falling in Europe. There may be worries that countries cutting fiscal spending may drag on their economic growth, but the concerns aren’t new and the downgrade should have minimal impact on market sentiment.”

The Stoxx Europe 600 Index rose 0.3 percent at 12 p.m. in Frankfurt, reversing earlier losses. The euro appreciated 0.2 percent, trading at $1.3205.

“The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework,” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said.

‘Weak Prospects’

Moody’s yesterday also lowered its outlook on Austria’s Aaa rating to negative. Malta’s rating was downgraded to A3 from A2, and Slovakia and Slovenia were both downgraded to A2 from A1. All three were given negative outlooks. In a statement earlier today, the ratings company affirmed its top Aaa rating for the European Financial Stability Facility.

Moody’s said Europe’s “increasingly weak macroeconomic prospects” threaten the “implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness.” It said market confidence “is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”

ECB Injection

Investors have ignored credit rating companies’ concerns about Europe and focused instead on steps taken by policy makers to end the crisis. While Standard & Poor’s on Jan. 13 cut the credit rating of nine euro-region states, yields on most governments bonds continued to edge lower since the European Central Bank on Dec. 21 allotted a record 489 billion euros ($643 billion) in three-year loans to banks.

Yields on Italian 10-year bonds have dropped more than 1 percentage point since ECB’s injection, while French 10-year yields have declined 20 basis points in that period.

In the U.K., Chancellor of the Exchequer George Osborne said his fiscal consolidation program is the only thing stopping Britain from an immediate downgrade.

“This is proof that, in the current global situation, Britain cannot waver from dealing with its debts,” Osborne said in an e-mailed statement released by the Treasury in London yesterday.

The spending cuts that helped the U.K. preserve its AAA credit rating at Standard & Poor’s last year and bolstered the pound have weighed on the currency this year as investors lose confidence that Prime Minister David Cameron will revive economic growth. Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg.

‘Relatively Weak’

The National Institute for Economic and Social Research forecasts the U.K. economy will shrink 0.1 percent this year and grow 2.3 percent in 2013, compared with previous projections in October for growth of 0.8 percent and 2.6 percent.

“The U.K.’s fiscal trends are relatively weak among top- rated countries, mainly because of the U.K.’s relatively high pre-crisis structural deficit and recent prolonged economic weakness,” Michael Saunders, chief European economist at Citigroup Inc. in London, wrote in an e-mailed note. “A negative outlook statement typically indicates there is about a one in three chance of a ratings downgrade in the next 18 months.”

Brussels Meeting

French Finance Minister Francois Baroin said the country’s AAA rating was maintained by Moody’s because of “the size of its economy” and its “increased productivity.”

Baroin’s comments were included in an e-mailed statement from the Finance Ministry after Moody’s downgraded the rating outlook to negative.

Germany and the European Commission yesterday welcomed Greek approval of the austerity steps demanded for a financial lifeline, suggesting euro finance chiefs will pull Greece back from the brink when they meet tomorrow.

The Greek parliament’s backing “is a crucial step forward toward the adoption of the second program,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels. “I’m confident that the other conditions, including for instance the identification of the concrete measures of 325 million euros, will be completed by the next meeting” of finance ministers.

Euro-area finance chiefs will convene in Brussels for their second extraordinary meeting on Greece in a week. Frustrated after two years of missed budget targets, ministers declined to ratify the 130 billion-euro package in a special session on Feb. 9, demanding that Greek officials put their verbal commitments into law.

“It’s important for now to complete this program,” German Chancellor Angela Merkel said in Berlin. “The finance ministers will meet again on Wednesday to undertake the work on this, but there can’t and there won’t be any changes to the program.”

 

 

Business groups offer mixed news on recovery hopes

The CBI has predicted the UK will avoid a double dip recession, but two other surveys suggest the economy may worsen.

The employers’ organisation, the CBI, said it expected growth of 0.9% in 2012 and 2% next year.

However, a separate survey from services firm BDO suggests company turnover continues to fall, indicating a recession is likely.

And the Chartered Institute of Personnel and Development (CIPD) found employers more likely to lay off staff.

The CBI published its predictions in its regular economic forecast.

It found companies were starting to invest in new equipment and in finding new export markets.

The lobby group believes the manufacturing sector will expand this year as exporters invest in new equipment.

It thinks the UK will avoid an official recession – two quarters of declining output in a row – by bouncing back from its 0.2% fall in the last three months of 2011 to growth of 0.2% in the first quarter of 2012.

Turnover falls

However, the BDO survey of companies’ turnover found it had fallen for the eighth month in a row.

The BDO’s output index fell to 91.2 in January from 91.4 in December, where any figure below 95 indicates contraction.

“Undoubtedly, prospects for growth continue to be fragile – as the UK has already very likely entered a technical recession and the situation in the eurozone remains difficult to predict,” said BDO partner Peter Hemington.

Unemployment

The CBI also warned that the economy would remain difficult.

“When the storm clouds are absolutely over your head, you’re looking for some sense of light on the far horizon,” CBI director general John Cridland told the BBC.

“I think the conclusion we’ve come to is that the worst part of the downturn over the winter was actually in October… I think in December and into January, there were very tentative signs of a pick-up.”

However, the organisation warned employment was unlikely to pick up as fast.

And a survey of 1,000 employers by the CIPD found the difference between the number of employers planning on bringing in new staff and those planning on cutting staff had widened to its highest level since 2009.

The survey fell to -8 from -3, with any number below zero indicating more employers laying off workers.

“Whereas employers were in wait-and-see mode three months ago, more private sector firms, particularly among private sector services firms, have decided to push the redundancy button in response to worsening economic news,” said Gerwyn Davies, public policy advisor at the CIPD.

The body warned unemployment could reach 2.85 million unless economic conditions improved.

 

 

Speculators Raise Bullish Wagers to Highest Since September: Commodities

Hedge funds increased bets on rising commodity prices to the highest since September on mounting confidence that growth in the U.S. will strengthen demand.

Money managers boosted their combined net-long positions across 18 U.S. futures and options by 13 percent to 929,199 contracts in the week ended Feb. 7, Commodity Futures Trading Commission data show. That’s the highest since Sept. 20. Bullish wagers on copper rose to a six-month high, and soybean holdings jumped by the most this year.

The Standard & Poor’s GSCI Spot Index (SPGSCI) of 24 commodities rose to a six-month high on Feb. 9, a day after the MSCI All- Country World Index (MXWD) entered a bull market, as indicators signaled accelerating growth. Fewer Americans than forecast filed claims for jobless benefits in the week to Feb. 4, and consumer confidence rose to a one-year high. Investments in commodities expanded for a seventh week, the longest streak since February 2009, data compiled by Bloomberg show.

“The improving economic data, not just in the U.S., we’ve seen better data in Europe as well, has put recession fears on the back burner,” said Anthony Valeri, a market strategist with LPL Financial in San Diego, which oversees $330 billion of assets. “That augers well for commodity demand.”

Silver Rally

The S&P GSCI gauge rose 1 percent last week. The number of futures contracts on 24 commodities from oil to copper rose 0.8 percent, extending this year’s expansion to 13 percent. The MSCI index of equities ended the week down 0.4 percent, and the yield on 10-year Treasuries rose 6.4 basis points, or 0.064 percentage point, according to Bloomberg Bond Trader prices.

Seventeen of the raw materials tracked by the S&P GSCI gained this year, led by a 20 percent advance in silver. Zinc jumped 13 percent and copper climbed 12 percent.

Prospects for the U.S. economy improved as more Americans returned to work. The unemployment rate fell to the lowest in three years last month, the government said Feb. 3. Applications for jobless benefits dropped 15,000 in the week ended Feb. 4 to 358,000, Labor Department figures showed. Economists surveyed by Bloomberg forecast 370,000 claims.

The U.S. will probably grow 2.2 percent this year, from 1.7 percent in 2011, according to the median of 89 economist estimates compiled by Bloomberg. Investors should take on more risk because the world isn’t going to “fall apart,” Laurence D. Fink, the chief executive officer of BlackRock Inc., the world’s largest money manager, said in a Feb. 8 interview in Hong Kong.

Commodity Funds

Investors added $941 million to commodity funds in the week ended Feb. 8, a second consecutive gain, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals inflows totaled $495 million, said Cameron Brandt, the director of research.

Signs of a slowdown in China, the world’s biggest consumer of everything from pork to soybeans to aluminum, may limit commodities demand. The country’s exports and imports declined last month for the first time in two years and lending increased less than forecast, reports showed Feb. 10.

The MSCI All-Country World Index (MXWD) tumbled 1.2 percent on Feb. 10, the biggest loss this year, on concern European leaders will struggle to contain the debt crisis. Greek Prime Minister Lucas Papademos won approval of a bill on austerity measures to secure a second bailout package. The parliamentary vote took place as police battled rioters in Athens protesting the measures including state jobs cuts.

Investment Officer

“The issues that we’ve had in the past regarding the debt crisis and government spending and the crisis in Europe, that hasn’t gone away,” said Stephen Hammers, the Nashville, Tennessee-based chief investment officer at Compass EMP Fund, which manages about $450 million of assets. “As soon as that comes back to the forefront, it will affect how consumers spend their money.”

Funds boosted their bullish bets on copper by 60 percent to 12,298 contracts, the CFTC data show. That’s the highest since the week ending Aug. 2. Inventories tracked by the London Metal Exchange are at a two-year low after global mine production fell by a record 200,000 metric tons in 2011, Barclays Capital estimates.

Thirteen of 25 analysts surveyed by Bloomberg expect copper to gain this week and three were neutral, the first overall bullish response in seven weeks. Chinese officials will boost support for affordable housing, the People’s Bank of China said Feb. 7. The nation is the world’s biggest copper consumer. The metal gained 1.1 percent to $8,572.25 a ton on the LME today.

Corn Prices

A measure of 11 U.S. farm goods showed speculators raised bullish bets in agricultural commodities by 16 percent to 455,628, the highest since the week ended Nov. 8. Corn wagers rose 11 percent to 210,084, the most since Jan. 10. Bets on rising soybean prices surged 55 percent to 62,856 contracts, the government said.

Goldman Sachs Group Inc. expects corn prices to advance 9.2 percent in six months to $6.90 a bushel, the bank said in a Feb. 9 report. Stockpiles of the grain in the U.S., the world’s biggest exporter, will tighten further. Soybeans may climb 5 percent to $12.90 a bushel as South American production declines, the bank’s analysts said.

Hot, dry weather is curbing oilseed crops in Brazil and Argentina, the top growers after the U.S., prompting the U.S. Department of Agriculture to lower its forecast for world soybean inventories by 5 percent on Feb. 9.

“You have pretty low inventory levels on a historic basis, which basically leaves ourselves open to supply-side shocks,” said Kelly Wiesbrock, who helps manage $1.3 billion of assets for San Francisco-based hedge fund Harvest Capital Strategies. “If we end up with a bad crop, we could end up with commodity prices jumping a lot.”

 

 

First-time buyer numbers pick up, lenders says

The number of mortgages agreed for first-time house buyers picked up at the end of 2011, the Council of Mortgage Lenders (CML) said.

There were 18,700 home loans for first-time buyers December, which was a 7% rise from November and 14% up on December 2010.

The CML said first-timers might be trying to buy before the end of the 1% stamp duty holiday in March.

Overall, the number of mortgages for home buyers fell 6% in 2011 to 509,500.

“We have been expecting a flow of first-time buyers on to the market, as the stamp duty exemption ends in March, and December’s figures appear to show this has now begun,” said Paul Smee, the CML’s director general.

“With the eurozone problems still rumbling on, however, we believe there is still a real risk that this year’s lending levels will be lower than those seen in 2011.”

The UK property market was very subdued last year, with completed sales falling by 1% to 869,000, their second-lowest since modern records began in 1978.

Lenders have been predicting for some time that lending to home buyers may fall even further this year, as mortgage rationing continues, accompanied by rising unemployment and a possible double-dip recession.

First-timers are still having to put down, on average, a deposit worth 20% of the price of the homes they are buying.

Although loans to first-time buyers may experience a brief rise in the run up to the 1% stamp duty band being reintroduced next month, loans to home movers are showing no such increase.

In December, the number of loans to home movers fell by 2% from November, although at 28,700 they were still 3% up from December 2010.

 

 

Four fifths of U.N. carbon credits head to Europe: U.N. data

European countries increased their holdings of U.N.-backed carbon credits by 80 percent in 2011 amid record supply and as secondary market prices crashed by nearly two thirds, data compiled by Point Carbon News showed.

Holding accounts at emissions registries in 28 European nations contained a total of 465.8 million Certified Emissions Reductions (CERs) and Emissions Reduction Units (ERUs) at the end of last year, up 207.6 million offsets from the 258.2 million held in late 2010.

Including 292 million carbon credits surrendered by European companies and governments between 2008 and 2011, European registries hold around 80 percent of all offsets issued by the end of last year.

Registry accounts are held by both companies and government departments, and the figures give some insight into how many credits installations covered by the EU Emissions Trading Scheme may surrender each April.

Companies can use up to 1.4 billion credits to meet carbon caps during the 2008-2012 second phase of the trading scheme and they are expected will turn in up to 1 billion of this, banking around a third of their limit for use in the 2013-2020 trading phase.

Analysts predict official EU data to be released on May 15 will show a massive uptick in the number of credits companies used to meet 2011 targets, predicting firms will have used cheap industrial credits ahead of a European ban next year.

WHO’S BUYING?

French and German accountholders were named as the top offset buyers last year, picking up 45.5 million and 39.8 million units respectively.

Germany picked up 25.7 million ERUs, the most of any EU member state and eight times what it purchased in 2010, to bring its total offset inventory up to 79.2 million units.

France was the top CER buyer, adding 38.8 million credits or 3.5 times the volume it bought in 2010, to increase its total offset holdings to 57.4 million.

Accounts in the UK, home to many of the banks that trade in the EU ETS, held 57.1 million CERs and 7.4 million ERUs at the end of last year, up from a combined reserve of 34.2 million units in 2010, the data showed.

Total CER inventory across all 28 registries was pegged at 368.5 million, up 63 percent year-on-year, while ERU holdings rose 204 percent to 97.3 million.

The U.N. issued just shy of 320 million CERs last year, an all-time high, while the institution and other governments doled out a further 91 million ERUs, also a record.

This, along with stagnant demand on the back of the euro zone debt crisis, caused offset prices to crash to historic lows below 4 euros, leading analysts to predict that companies will take advantage of glut of permits and surrender a record number in April.

JAPAN

Japan, the world’s top buyer of Kyoto emissions rights – so-called Assigned Amount Units (AAUs) – picked up another 38 million AAUs last year, the data showed, bringing its total reserve to 6.123 billion units.

The Asian nation, which is also buying project-based offsets to help it meet its emissions target under Kyoto, increased its CER inventory by 17 percent to 120.1 million while more than doubling its ERU pot to 5.1 million units.

Traders had been worried that Japan would attempt to raise cash by selling its CERs in exchange for more cheap AAUs.

RMUs

Annex I countries also held a total 56 million Kyoto Removal Units, credits issued by governments for cutting emissions by improving forest management.

This was up from zero held in 2010.

Australia and France had the bulk of the total at around 23 million units each.

Russia was listed as having just over 4 million units, meaning the figures did not include the 462 million RMUs issued by Moscow last month.

 

 

EU won’t drop aviation CO2 scheme, flexible on resolving row

The European Union will not bow to pressure to suspend a controversial scheme to charge airlines for their carbon emissions, but is willing to be flexible in finding a solution to a row that threatens to escalate into a full-blown trade war.

The introduction on Jan. 1 of the European Union’s Emissions Trading Scheme (ETS) has drawn howls of protest from airlines around the world, with China banning its carriers from taking part.

“If you think Europe will be forced to suspend, this is not the case. We must have a real global solution,” Europe’s Transport Commissioner Siim Kallas said in an interview on Monday ahead of the Singapore Airshow.

“Europe will implement its system with difficulties, with conflicts, with court cases, whatever, the system will be introduced,” he said.

But Kallas acknowledged the growing opposition, particularly from China, the United States and India.

Plane makers, too, said they were increasingly concerned at the potential fall-out on orders unless tensions are defused.

“I am very worried about the consequences of that. What started out as a solution for the environment has become a source of potential trade conflict and that should be a worry for all of us,” Airbus CEO Tom Enders told an aviation conference in Singapore.

The emissions scheme levies charges for carbon emissions from European and foreign airlines’ flights in and out of Europe. Foreign governments argue the EU is exceeding its legal jurisdiction by calculating the carbon cost over the whole flight, not just Europe.

Most pollution permits will be given for free but airlines will have to pay for a portion of their carbon emissions.

No airline will face a bill until next year, after this year’s carbon emissions have been calculated. Initially airlines will be handed allowances to cover 85 percent of their emissions. Each allowance represents a tonne of carbon pollution.

Under the scheme, airlines that do not comply may face European fines of 100 euros ($130) for each tonne of carbon dioxide emitted for which they have not surrendered allowances. In the case of persistent offenders, the EU has the right to ban airlines from its airports.

The European Commission says the scheme is needed to tackle growing aviation emissions as part of a global fight against climate change, but the escalating row threatens to hamper efforts to work out an international solution to Europe’s sovereign debt crisis.

Chinese and EU leaders hold a summit in Beijing on Tuesday, with the EU looking to China to dip into its huge foreign exchange reserves to help the eurozone tackle a debt build-up that threatens its economic stability.

Some European airlines are worried, too, that foreign governments could penalise them over the scheme.

Scandinavian air carrier SAS has said there was a risk of reprisals against EU airlines in the form of limitation to traffic rights or new taxes and charges.

The head of the airline industry’s trade group International Air Transport Association (IATA) said on Sunday the impasse between China and the EU was “intolerable”, and called for the United Nations to get involved through its International Civil Aviation Organization (ICAO) to avoid a trade war.

The ICAO has been trying to win agreement among global governments for more than a decade on a way to manage emissions from aviation, currently about 3 percent of mankind’s greenhouse gas pollution.

An analysis by Thomson Reuters Point Carbon last week shows airlines face a carbon pollution bill of 505 million euros ($670 million) for 2012 under the ETS.

A group of 26 countries opposed to the emissions trading scheme will meet in Moscow on Feb. 21 to discuss a plan of action.

“TRADE WAR MUST BE AVOIDED”

Kallas said a global solution needed ambitious targets and mechanisms to achieve or implement the accepted measures, and that time was running out.

“The conflict has become worse and worse. A trade war must be avoided, so it means a global concept is urgently needed.”

“We need certain commitments from ICAO that there is a will to find a solution. The European Union is ready to be flexible but that doesn’t mean that we simply abandon our system.

“But the flexibility means there will be a global target, global ambition to reduce CO2 emissions. And if this way is clear, then we are ready to negotiate and to accommodate other interests.”

Asked if he had seen signs of flexibility from China and other developing nations that have opposed emissions caps on aviation, Kallas said he was unaware of any shift. But he suggested the crisis could prompt a solution.

“If everybody sees there is a big conflict, that there is a big conflict in the most dynamic mode of transport which can have a very negative impact to all foreign trade, this is a good basis to work hard and find a solution.”

 

 

China’s inflation rate rises to 4.5%

China’s rate of inflation unexpectedly accelerated in January for the first time since it peaked in July, as consumers raised spending around Chinese New Year.

Consumer prices rose 4.5% from a year earlier, the National Bureau of Statistics said. That compares with 4.1% in December.

Analysts were expecting prices to rise by 4.0%.

High consumer prices have threatened to derail growth in China.

Policy decision

Inflation had been easing steadily since hitting a three-year high of 6.5% in July.

Analysts said not too much should be read into the New-Year-distorted January figures.

“January numbers are distorted by the Lunar New Year holiday and we need to wait until February numbers come out to make our conclusions,” said Shen Jianguang from Mizuho Securities Asia in Hong Kong.

“I think the policymakers will wait as well.”

Chinese authorities, who were once implementing measures to control high inflation, had recently begun easing monetary policy to spur growth as inflation eased and weak demand from Europe affected exports.

“The January inflation number will of course make policymakers wary of the risk and be more cautious in further relaxation of monetary policy,” said Mr Jianguang.

Income gap

The New Year holiday, which fell between 22 January and 28 January this year, may have boosted prices and retail sales.

It also acted to dampen trade and industrial production as factories closed down for the celebration.

The biggest contributor to the rise was pork prices, which gained 25% compared with 21.3% in December. That drove overall food inflation to rise 10.5%.

Last year’s spike in living costs spurred frustration among the public over the income gap.

Chinese leaders have been under pressure to distribute the country’s economic prosperity better to the poor.

On Wednesday, in an attempt to alleviate some of those concerns, the Cabinet said it would increase the minimum wage by at least 13% each year until 2015.

 

 

Diageo half-year profits rise 15% on emerging markets

Drinks group Diageo has reported a rise in half-year profits as demand for its global brands continues to grow in emerging markets.

Pre-tax profits were £1.86bn ($2.95bn) for the six months to 31 December, up 15% on the same period a year earlier.

Diageo, whose brands include Guinness, Smirnoff and Johnnie Walker, has had a long-term strategy of building sales and profits in fast-growing economies.

Sales in these regions now account for 40% of Diageo’s total business.

Chief executive Paul Walsh said the group saw strong growth of 18% across its emerging markets in the last six months of 2011.

That helped to offset European sales, which were depressed by poor trading in eurozone nations such as Spain, Greece and the Irish Republic.

 

 

Real Madrid still top football rich list

Real Madrid’s revenues of 480m euros (£401m) topped the Deloitte league table of the world’s richest football clubs for the seventh straight year.

Deloitte’s Football Money League, based on data for season 2010/11, says Real will match Manchester United’s eight-year record if they stay top next year.

Real’s arch-rivals Barcelona remained in second place, ahead of Manchester United, who stayed third.

Bayern Munich, Arsenal and Chelsea are fourth, fifth and sixth respectively.

Unchanged at top

The top seven clubs stayed in exactly the same positions as in the previous year.

Aston Villa fell out of the league entirely, failing to hold on to their 20th position and leaving English clubs holding six places out of the top 20.

Liverpool fell one spot to ninth place in this year’s list.

All of the 20 clubs in the list are from the “big five” European leagues, with Italy contributing five clubs, Germany four, Spain three and France down to two, from three in the previous year.

Together, the top 20 clubs earned 4.4bn euros, a rise of 3% on the previous year.

Spanish rivals

Nine of the 20 clubs saw their revenues grow in double digits in 2010/11.

Although seven of them saw a fall in revenue, the authors said that this was mostly down to weaker on-pitch performances, causing falls in ticket sales and merchandising, rather than the effect of weakness in eurozone economies.

Barcelona’s shirt sponsorship deal with the Qatar Foundation is worth about 30m euros per season, according to the report.

This, coupled with the club’s 3.5m-euro prize money for winning the Fifa World Cup, may enable the Spanish club to catch up with its arch-rival Real next year, the report suggests.

Both Spanish clubs are approaching record revenue levels of 500m euros and may top this in the next few years, says the report.

German club Schalke leapt six places to 10th after a strong performance in last year’s season, which took the club to the semi-final in the Uefa Champions League.

In next year’s report, however, Schalke will be edged out of the top 10 by Manchester City, say the report’s authors, after considering City’s heavy financial support from Abu Dhabi investors and its participation in the 2011/12 Champions League.

 

 

Credit Suisse bank falls into loss

Credit Suisse has reported a loss of 637m Swiss francs ($698m; £440m) for the last three months of 2011.

Brady Dougan, chief executive of Switzerland’s second-largest bank, described the loss as “disappointing”.

Credit Suisse has been cutting costs aggressively in order to meet new rules on the amount of capital banks must hold in reserve.

The loss compares with a 683m-franc profit that the bank reported in the fourth quarter a year ago.

In a statement, Mr Dougan said: “Our performance for the fourth quarter 2011 was disappointing.

“It reflects both the adverse market conditions during the period and the impact of the measures we have taken to swiftly adapt our business to the evolving market and regulatory requirements.”

Credit Suisse employs about 50,000 staff worldwide and manages more than $1 trillion in assets.

 

 

RBS boss Stephen Hester ‘considered resigning’

Royal Bank of Scotland chief executive Stephen Hester says he briefly considered resigning during the uproar over his bonus.

Mr Hester told the BBC that he was “not a robot” and said there had been some “deeply depressing” moments.

However, the chief executive said it would have been “indulgent” of him to resign.

Under intense political pressure, he turned down the bonus, worth almost £1m, at the end of last month.

Time bomb

Mr Hester said that he faced a huge challenge when he took control of the bank three years ago.

“I had to replace the whole senior management team at RBS,” said Mr Hester.

“Not just people to run the bank well, but to defuse the biggest time bomb in history in terms of bank balance sheets.”

Bonuses awarded in the banking industry have caused much controversy. Speaking to BBC Radio 4′s Today programme, Mr Hester agreed that bankers had been overpaid.

“One of things that happens when you have a long period of expansion is that you can get overconfidence.

“In the case of the banking industry, I think there was both overconfidence and, with the benefit of hindsight, over-rewards.”

Mr Hester was appointed chief executive at the end of 2008 to replace Fred Goodwin, after the bank had to be bailed out by the government, which now owns 82% of it.

Mr Goodwin was recently stripped of his knighthood.

Mounting losses

The BBC’s business editor, Robert Peston, highlighted Mr Hester’s comments on the rising cost of rescuing RBS.

“He used the astonishing phrase that the £45bn we as taxpayers have injected into Royal Bank of Scotland to save it had been ‘lost’,” says our business editor.

“What he meant by that is that the £45bn was never enough to cover all the costs of writing off RBS’s bad loans and investments, selling and closing bad businesses and making the bank more efficient.”

In a memo staff to staff on Tuesday, Mr Hester said the cost so far had been £38bn.

Mr Hester’s comments come after the Chancellor, George Osborne, warned that criticism of executive bonuses should not go so far that it became an attack on business itself.

“There are those who are trying to create an anti-business culture in Britain and we have to stop them,” said Mr Osborne in a speech to the Federation of Small Businesses on Tuesday.

“At stake are not pay packages for a few, but jobs and prosperity for the many.”

In response, the Labour chairman of the Treasury Select Committee, John McFall, said the government’s attitude towards excessive pay “reminds me of a boxing match with David Cameron in the ring having a real go and hitting the solar plexus, and George Osborne is in the corner as the trainer applying the antiseptic.

“But they’re interchangeable. They get in the ring and then out of the ring. What’s needed is consistency.”

 

 

ArcelorMittal books $93 mln profit from CO2 sales

down 36 pct.  

ArcelorMittal, the world’s biggest steelmaker, earned $93 million from selling CO2 allowances in 2011, down more than a third on the $140 million it earned a year earlier, the company said Tuesday. It said in its annual financial results that the proceeds from selling the carbon units, which amounted to around 1 percent of the group’s annual net profit of $10.1 billion, would be “invested in energy saving projects”. Based on average spot prices and currency rates, the company would have sold 5.1 million EU Allowances in 2011 and 7.4 million in 2010 respectively, according to Point Carbon News estimates.

 ArcelorMittal had the biggest surplus of any company covered by the EU Emissions Trading Scheme in 2010, receiving 31 million more permits than it needed to match its CO2 output, according to research firm Carbon Market Data. The 2010 surplus amounted to a cash value of around $644 million, but the large difference between the surplus generated and the profit booked suggests the company is holding on to most of its permit allocation.

STEADY YEAR ArcelorMittal’s surplus of permits is likely to shrink slightly year-on-year in 2011 due to a slight pickup in EU production, data from the company’s report indicated Tuesday.

The Luxembourg-headquartered company, which makes around 7 percent of global steel from its operations across four continents, produced 91.9 million tonnes of crude steel in 2011, 1.4 percent up on a year earlier.

The group did not give a full breakdown of data for EU steel production, but said it shipped 39.7 million tonnes of steel from its European operations in 2011, 1.2 percent up year-on-year. DIFFICULT EU OUTLOOK ArcelorMittal warned that while steel market conditions were improving in 2012, difficult economic conditions in Europe meant production levels could fall compared to 2011 levels. “We see an increase in shipments and in prices in Q1 both in Europe and the United States and so the steel market is better than in the second half of 2011,” Chief Financial Officer Aditya Mittal said on a conference call, Reuters reported.

 ”The economic situation in Europe does remain a live concern, but we are seeing an improvement in sentiment compared with the fourth quarter,” he said on a conference call. Mittal said demand for steel in Europe was expected to contract 1.3 percent in Europe in 2011, compared to 4.6 percent growth for the world as a whole. Reflecting the regional split, the company has idled nine of its 25 blast furnaces in Europe, but none in North America, Reuters reported.

 

 

UK house prices rose 0.6% in January, Halifax says

UK house prices increased by 0.6% in January, according to the latest survey from the Halifax.

The change means that the average cost of a house was £160,907 last month, the bank said.

House prices are 1.8% lower than a year ago, according to the Halifax’s measure.

The bank said prospects for the housing market over the coming months depended on whether the debt crisis in the eurozone would affect the UK economy.

“If the UK can avoid a prolonged recession, we expect broad stability in house prices in 2012,” said Martin Ellis, Halifax’s housing economist.

Static

The Halifax, now part of Lloyds Banking Group, said that the price of the average home in the UK was very similar to the average value in the middle of 2011.

This had held up owing to the low level of interest rates, the lender said.

And Tracy Kellett, managing director of UK buying agent BDI Home Finders, said: “House prices are being held artificially high by two key factors – an extreme lack of stock and historically low interest rates.

“Throughout 2012, we are likely to see a further widening of the north-south divide. Prices will be hit hardest where the economy is feeling it the hardest.”

Annual view

House prices in the three months to January fell by 0.9% when compared with the previous three months, the Halifax said. This three-month on three-month comparison is often thought to be a better measure of underlying conditions in the market.

Last week, the latest survey from the Nationwide building society valued the average home at £162,228. It said that prices fell by 0.2% in January compared with December.

The Nationwide said the annual rise in house prices in January was 0.6%, notably different to the 1.8% fall recorded by the Halifax.

However, the year-on-year comparison is calculated slightly differently by the two lenders. The Halifax compares the previous three months with the same three months a year earlier to give a smoother comparison, rather than a direct comparison of the equivalent months.

 

 

Huhne Resigns as U.K. Energy Secretary After Being Charged

Chris Huhne resigned as U.K. energy secretary after becoming the first serving Cabinet minister to be charged with a serious criminal offense in modern times.

Prosecutors have “sufficient evidence to bring criminal charges” against Huhne and his ex-wife, Vicky Pryce, of perverting the course of justice, the director of public prosecutions, Keir Starmer, said in a televised statement in London today. The charges were laid after Pryce accused Huhne of lying about a speeding ticket nine years ago.

The decision to prosecute is “deeply regrettable,” Huhne, 57, told reporters in London less than an hour after Starmer’s announcement. “I’m innocent of these charges, I intend to fight this in the courts. So as to avoid any distraction to either my official duties or my trial defense, I’m standing down and resigning as energy secretary.”

Prime Minister David Cameron promoted Business Minister Ed Davey to replace Huhne, ensuring that there will continue to be five members from the Liberal Democrats in the Cabinet. Another Lib Dem, Norman Lamb, moved to take Davey’s job.

Political historians said today’s events were unprecedented.

‘Jail If Convicted’

“I can’t think of a comparable case in British politics where a Cabinet minister is charged by the police for an offense for which they potentially face jail if convicted,” Philip Cowley, professor of politics at Nottingham University, said in a telephone interview.

David Butler, a fellow of Nuffield College at Oxford University and the author of “British Political Facts,” said he couldn’t think of a case like it “at least since 1900.”

Huhne is the third Cabinet minister to resign from Cameron’s government since it was formed in May 2010. The second, Conservative Defense Secretary Liam Fox, quit in October over his relationship with a friend and self-styled adviser, Adam Werritty.

“The essence of the charges is that between March and May 2003, Mr. Huhne, having allegedly committed a speeding offense, falsely informed the investigating authorities that Ms. Pryce had been the driver of the vehicle in question, and she falsely accepted that she was the driver,” Starmer said.

Court Date

The former energy secretary said he will continue to serve as a member of Parliament. He and his ex-wife will appear in court on Feb. 16.

After taking office in May 2010, Huhne put aside his long- standing opposition to nuclear power and promoted a new generation of atomic plants to be built by utilities led by Electricite de France SA. He also backed subsidies for renewable energy, though he spent much of the past year reining in support for solar power. Huhne won praise from the renewable-energy lobby today for his performance.

“Whatever the terms of his departure, few can deny that Chris Huhne has really shaken up the energy debate over the last two years,” Good Energy Group Plc Chief Executive Officer Juliet Davenport said in an e-mailed statement. “It is vital that his replacement keeps up the momentum behind energy reforms.”

EDF, in partnership with Centrica Plc (CNA), is one of six utilities planning to build atomic stations in Britain. The others are Germany’s RWE AG and EON AG, Iberdrola SA of Spain, and GDF Suez SA of France. Plans were given a boost by the government’s introduction of a carbon floor price, which acts as a tax on carbon emitted through power generation from coal and gas, benefitting nuclear and renewables.

Wind Power

Huhne also pushed development of offshore wind farms. In July, the Department of Energy and Climate Change targeted a five-fold increase in wind power to 31 gigawatts by 2020.

Huhne also pushed through an energy bill last year laying out what he called his “Green Deal,” measures that will allow homes and businesses to install insulation, recouping costs through savings on their heating bills.

John Sauven, the executive director of Greenpeace U.K., said in an e-mailed statement that Huhne was “a vocal advocate for the green agenda in a government whose green credentials are looking more than a little tarnished.”

Huhne also sped up a mandate for installing smart meters that provide consumers and utilities real-time data about power consumption. The government intends to have 53 million meters in place at homes and businesses by 2020.

Energy Bill

Huhne’s successor will have to oversee sweeping changes to the electricity market due in an energy bill the department aims to enact by early 2013. The measures would guarantee long-term prices for nuclear and renewable power and introduce payments to generators acting as back-up suppliers for periods when wind supplies drop.

A key aim of the Energy Department under Huhne has also been to extend competition for power supply beyond the so-called “Big Six” suppliers: EON, RWE’s Npower unit, EDF, SSE Plc, Centrica and Iberdrola’s Scottish Power division, by making the electricity market more transparent.

Huhne also pushed through a target to cut in half the U.K.’s greenhouse-gas output from 1990 levels by 2027, while pushing for the 27-nation European Union to adopt a goal of reducing emissions by 30 percent by 2020. He set up a so-called Green Bank that aims to spur renewable-energy projects.

Leadership Bids

Huhne left Pryce, a senior managing director at FTI Consulting Inc., in June 2010 for a former aide, Carina Trimingham. He has twice bid to become leader of the Liberal Democrats, coming second in battles in 2006 and again in 2007. In the second contest, Huhne lost to Clegg by 511 votes out of the 41,465 cast by party members.

Davey, 46, is a former management consultant with Omega Partners whose expertise on postal services came in useful when he was appointed to the Department for Business, Innovation and Skills with responsibility for Royal Mail Group Ltd. He has been in Parliament since 1997, winning a seat in southwest London by just 56 votes. In 2001, he turned that into one of the safest Liberal Democrat districts in the country, winning 60 percent of the vote.

“Ed Davey has previously stated the importance of immediate action on climate change,” David Symons, a director at WSP Environment & Energy in London, said in an e-mailed statement. “These beliefs, coupled with his experience in BIS on consumer choice, bode well for DECC’s key policies, such as Green Deal.”

 

 

Zuckerberg Tops Google Founders With $28.4B Haul

Facebook Inc. (FB)’s initial public offering may value Mark Zuckerberg’s stake at $28.4 billion, making him richer than Google Inc. (GOOG)’s co-founders and almost on par with Larry Ellison, who started Oracle Corp. (ORCL) 35 years ago.

The 27-year-old founder and chief executive officer of Facebook is the company’s top stakeholder as it prepares to go public, with 533.8 million shares, or 28.4 percent, according to a regulatory filing yesterday. Investment firms Accel Partners and Digital Sky Technologies own a combined 16.8 percent.

Facebook said in its prospectus that it plans to raise as much as $5 billion in an IPO. The Menlo Park, California-based company is discussing a valuation of $75 billion to $100 billion, two people familiar with the matter said last week. At the top end of that range, Zuckerberg will own stock worth $28.4 billion. His command of the company goes beyond stock — he controls 56.9 percent of the voting power.

“It looks from this as if Zuckerberg is maintaining a lot of control,” said Rebecca Lieb, an analyst at Altimeter Group in New York. “He’s shown a great deal of wisdom and maturity in bringing the company to this level of stability and profitability before going public.”

By comparison, Google’s Sergey Brin and Larry Page are each worth more than $15 billion based on their ownership of that company’s shares. Ellison, 67, owns stock worth about $31 billion in Oracle, the software company he founded in 1977.

Lockup Period

While Facebook shareholders are poised for riches, they won’t be able to start selling until the expiration of the so- called lockup period, in some cases six months after the shares begin trading. Zuckerberg may sell stock as part of the IPO, the company said in the filing.

Excluding Zuckerberg’s ownership, the combined value of Facebook stock held by everyone else is $71.6 billion, based on a $100 billion valuation.

Facebook co-founder Dustin Moskovitz, whose work on the company was depicted in the 2010 film “The Social Network,” owns 133.8 million shares, or 7.6 percent. Moskovitz was Zuckerberg’s roommate at Harvard University.

Eduardo Saverin, another co-founder and Harvard classmate who sued Zuckerberg over ownership of the company, isn’t mentioned in yesterday’s filing. Neither are Tyler and Cameron Winklevoss, the brothers whose legal battles with Zuckerberg over Facebook also were dramatized in the Oscar-winning film. Napster co-founder Sean Parker, played by Justin Timberlake in the movie, is mentioned as a shareholder, though the amount of his ownership isn’t included.

Facebook Executives

Facebook Chief Operating Officer Sheryl Sandberg owns 1.9 million shares, or 0.1 percent. She also holds 39.3 million restricted stock units of the company’s total of about 380 million units outstanding. The shares underlying the units will be delivered to owners six months after the IPO.

Facebook Chief Financial Officer David Ebersman owns 7.5 million restricted units in addition to 2.2 million shares. Michael Schroepfer, vice president of engineering, owns 2.2 million shares and 6.1 million restricted stock units.

The biggest winner among venture backers is Accel Partners, the Palo Alto, California-based firm that invested $12.2 million in 2005. At the time, the site known as Thefacebook had 2.8 million users, all on college campuses. That number has risen to 845 million worldwide, according to the filing.

Even after selling 17 percent of its stake last year, Accel still owns as much as $11.4 billion in Facebook stock, more than twice the combined gains of Sequoia Capital and Kleiner Perkins Caufield & Byers in Google’s 2004 IPO.

Accel’s Investment

Accel’s bet on Facebook came less than six months after the venture firm struggled to raise a $440 million fund. That wager alone is now worth more than 25 times the amount raised for the fund.

Russia’s Digital Sky made its first investment four years after Accel, buying $200 million in preferred Facebook stock for a 1.96 percent stake. Through subsequent purchases, the firm, founded by Yuri Milner and Gregory Finger, amassed 94.6 million shares, or 5.5 percent of Facebook.

Peter Thiel, who provided a seed investment for Zuckerberg in 2004, owns 44.7 million shares, or 2.5 percent of the company. Marc Andreessen, co-founder of Netscape Communications Corp. and a Facebook board member, owns 3.6 million shares, or 0.2 percent, as well as 5.2 million restricted units.

Yesterday’s filing only includes the holdings of investors who own at least 5 percent of stock and the stakes owned by board members and officers.

Other firms that own Facebook shares, including Greylock Partners, Elevation Partners and Meritech Capital Partners, aren’t noted in the table of biggest holders.

Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen’s venture capital firm, Andreessen Horowitz.

 

 

Croatia’s biggest emitters to join EU ETS in Jan 2013

The Croatian government has selected 73 installations that will need to join the EU cap-and-trade scheme on 1 January 2013, six months before the country becomes an EU member state, the environment ministry said Wednesday.

The biggest polluters in the former Yugoslavian nation will join more than 11,000 installations and airlines to trade carbon dioxide (CO2) permits in the third phase of the EU Emissions Trading Scheme (ETS), said Kata Govevic, a spokeswoman with the ministry.

“The procedure (for companies to participate in the scheme) will be the same as in any other member state,” she told Point Carbon News in an email.

Croatia will become the 31st country to join the world’s biggest carbon market, which includes the 27 EU member states as well as Iceland, Lichtenstein and Norway.

The 2013 entry date means that the first time Croatian companies will be required to surrender EUAs and offsets in line with their emissions is by April 2014.

The spokeswoman refused to estimate how much of the countries annual 21-24 million tonnes of CO2 output will be covered by the ETS over the 2013-2020 trading period and how many free allowances industrial installations can expect.

She said the government is collecting verified emissions data for the 2005-2011 period from the companies and exact numbers will only be available later this year.

According to a Zagreb-based emissions-trading consultant speaking on condition of anonymity, the Croatian ETS sector will emit around 10 million tonnes of CO2 per year over the next decade, around the same as Estonia’s emission output.

Installations with the largest emissions belong to state-owned utility Hrvatska Elektroprivreda (HEP), the consultant said.

HEP, along with other power producers, will not be entitled to free EUAs – in contrast to 10 EU member states that joined the bloc since 2004, he added.

In countries such as Poland and Cyprus utilities expect their governments to continue giving them some free EUAs in a bid to prevent power prices rising due to carbon costs. 

Croatia’s EU accession will also mean the country will be required to limit emissions in sectors not covered by the ETS, such as transport and agriculture, to 11 percent above 2005 levels by 2020, the consultant added

 

 

Renewable Energy Deals Buck Uncertainty to Rise 40%, PWC Says

Renewable energy mergers and acquisitions rose 40 percent in value last year, bucking the uncertainty caused by the European Union debt crisis, the global consultant PwC said today.

About $53.5 billion of wind, solar, biofuels, energy efficiency, geothermal, biomass and hydro deals were completed, up from $38.2 billion in 2010, PwC said in an e-mailed report. It’s the highest in the four years that PwC has conducted the survey. The overall number of deals dropped to 570 from 606.

The uptick in money spent on mergers and acquisitions against a backdrop of European governments cutting spending to balance budgets and “challenging” debt markets shows how the renewables industry has matured, Ronan O’Regan, director of energy in London at PwC, said in a phone interview.

“Total deal value was up, and there’s been a trend toward larger-size deals, which reflects increasing maturity in wind and solar,” O’Regan said. It’s a surprise as “the negative drivers seem to outweigh the positives,” he said of EU government efforts to cut deficits.

Wind and solar each had more than $15 billion of deals while $10 billion of transactions were completed in energy efficiency. European bidders accounted for 48 percent of the total, North America 24 percent. The value of deals with Asian bidders almost doubled to $9.4 billion, or 18 percent of the total, up from 12 percent last year, the consultant said.

“We expect to see this activity strengthen with interest from acquirers from Korea and Singapore featuring alongside Chinese and Japanese bidders,” PwC said in the report, without naming potential acquirers.

The year’s biggest deal was CPFL Energia SA (CPFE3) of Brazil’s $2.9 billion purchase of ERSA Energias Renovaveis SA, according to PwC. It classified Iberdrola SA (IBE)’s acquisition of part of its clean energy unit Iberdrola Renovables SA as a share repurchase.

It will be “difficult” to predict what volume of deal activity will be this year because of the “rolling uncertainty” regarding European economies, O’Regan said.

“On balance, it’ll be another difficult year and I’d be surprised if deal value increases by as much in 2012 as in 2011,” he said.

 

 

Shell buys 322,000 CERs from Ugandan scheme

The trading arm of Royal Dutch Shell has signed a forward contract to buy 322,000 U.N.-backed carbon credits from a Clean Development Mechanism (CDM) project in Uganda at an undisclosed price.

The project will generate about 46,000 Certified Emission Reductions (CERs) per year by collecting and using biogas from a wastewater treatment plant owned by the Sugar Corporation of Uganda, according to press release from broker ecosur afrique.

The project is expected to start later this year and has a seven-year crediting period.

Companies covered by the EU Emissions Trading Scheme, including Shell, will be able to use the credits to offset emissions in the third phase of the scheme, which starts next year.

Roon Osman, Head of Origination at Shell Trading, said: “Africa, especially African LDC, is a region of strong interest to us to ensure a sourcing of compliant CERs for post-2012 emissions trading schemes.”

In a bid to funnel climate finance to the world’s poorest nations, the EU in 2008 banned its companies from using CERs to meet targets after 2012 from all newly-registered projects unless they are located in Least Developed Countries.

Separately, Sweden-headquartered utility Vattenfall has also agreed to buy CERs through 2020 from landfill projects in Ghana and Nigeria, Israel’s Blue Sphere Corporation, the installations’ developers, said in a press release on Monday.

“Vattenfall will also advance the costs for the registration expenses of the company’s landfill gas programme of activities (PoA) and the inclusion of up to nine individual landfill sites in Ghana and Nigeria,” it added.

Neither the quantity of CERs nor the terms of the deal were announced.

Ghana and Nigeria are not considered LDCs, meaning these projects would have to be registered before the end of the year for their offsets to be eligible for use in the third phase of the EU ETS.

 

 

Clegg: Raise tax threshold further and faster

Nick Clegg has urged the coalition government to go “further and faster” in raising the level at which people start paying income tax to £10,000 a year.

The deputy prime minister is also arguing many families are at financial “boiling point” and need more relief.

The coalition has promised to raise the income tax threshold to £10,000 by the next election, set for 2015.

Labour said Mr Clegg had “a cheek preaching about fairness and tax”.

Mr Clegg’s speech to the Resolution Foundation in London follows official figures showing the economy shrank by 0.2% in the final quarter of 2011.

It also comes ahead of the Budget on 21 March, increasing speculation that changes to tax thresholds could be announced.

Left vs right

Mr Clegg will aim to set out a distinctive Liberal Democrat fiscal position by highlighting differences with the party’s Conservative coalition partners.

Ahead of the speech, he told BBC One’s Breakfast: “Because things are very tough, because utility bills were much higher last year than many people hoped, because the period of kind of austerity is going to take longer than we originally hoped, I believe we should do this [raise the tax threshold] further and faster.

“I can’t tell you exactly what’s going to be in the Budget, because it hasn’t been decided yet, but this is very much what I think should be in it.”

Mr Clegg discussed the matter with Chancellor George Osborne on Wednesday and Prime Minister David Cameron on Tuesday.

In his speech, the deputy prime minister will say that those on the right in politics place “less of an emphasis on using the tax system to create greater equality”.

He will also attack Labour by saying the “traditional left” supports a “penal rate on the highest earners, simply because it makes them poorer”.

At the last election, the Lib Dems pledged to raise the income tax threshold to £10,000 a year and the coalition agreed to implement this policy over the course of this Parliament.

The income tax threshold was raised by £1,000 to £7,475 in the 2010 Budget, and the government plans to increase it further to £8,105 this year.

But Mr Clegg is expected to say: “Today I want to make clear that I want the coalition to go further and faster in delivering the full £10,000 allowance, because the pressure on family finances is reaching boiling point.

“These families have seen their earnings in relative decline for a decade, compared to those at the top. That has accelerated since 2008, with lower real wages and fewer hours at work.”

He will argue that the coalition has raised capital gains tax and reduced tax breaks on pension funds “for the very rich”, while “clamping down” on tax avoiders to raise an extra £7bn a year.

‘Fair tax cuts’

Mr Clegg will also reiterate his commitment to the coalition’s aim of ending the UK’s deficit, but will promise to do so “in a way that is fair”.

“People look to the Liberal Democrats to keep this coalition anchored in the centre ground. They want economic competence, but they want compassion too.

“It is our job to make sure this government delivers both.”

Owen Smith, Labour’s shadow Exchequer secretary, said: “This is the man who campaigned against a rise in VAT and then introduced it just after he got elected. And his government’s Autumn Statement took three times more from families with children than from the banks.

“For the last year Labour has been arguing for fair tax cuts, such as a temporary cut in VAT, to help hard-pressed families and pensioners and kickstart our stalled economy. And we want to see a tax on bank bonuses at the top to fund 100,000 jobs for young people.

“Now that the economy has gone into reverse, these measures should be part of a real plan for jobs and growth in the next Budget.”

 

 

National Savings cuts rate on Direct Saver account

The government savings body, National Savings & Investments (NS&I), has cut the interest rate on its main savings account, the Direct Saver.

From 25 January, the annual interest rate will drop to 1.5% from 1.75%.

NS&I said the move was deliberately designed to make its account less attractive.

The body said that it had a government target to raise £2bn from savers this financial year, but it has already raised £4.8bn.

Jane Platt, the chief executive of NS&I, said it was necessary to stem the excessive inflow of funds from savers, and she expected the end-of-year figure to have fallen back to a surplus of £4.5bn.

“Since November we have seen an increase in customer deposits,” she said.

“This has been driven by a relatively small number of savers depositing large amounts of money, particularly into our Direct Saver account.

“We have also seen a decrease in the number of customers withdrawing their money from products across our range,” she added.

‘Unfair advantage’

NS&I said it thought that instability in global financial markets since last autumn had persuaded some of its customers to see it as a safe haven and put substantially more into their accounts, while also refraining from moving existing money out.

As of March 2011, the Direct Saver had only 19,874 customers but they had saved an average of £85,000 each, amounting to £1.7bn in the accounts.

That has now gone up substantially, though NS&I could not put a precise figure on the sums involved.

The interest rate cut was warmly welcomed by Adrian Coles of the Building Societies Association (BSA).

Since the onset of the banking crisis in 2007, thr BSA it has been complaining that NS&I has had an unfair advantage over building societies in attracting savers’ funds.

NS&I has been the destination for more than 10% of all fresh savings in UK deposit accounts, which has hindered the ability of building societies to raise the funds they need to then lend to mortgage borrowers.

“It has been obvious that NS&I has been exceeding its target and would have to reduce its interest rates,” said Mr Coles.

“It has unique advantages because it can offer a 100% state-backed guarantee and building societies have been losing funds to NS&I.”

Revamped range

Last September, NS&I stopped opening new accounts of its index-linked bond – which gave savers protection against inflation.

The latest version had been on offer for only four months, but the lure of inflation-proofed savings with a government guarantee proved so tempting that 500,000 index-linked bonds were opened in that time.

NS&I has meanwhile been rationalising its portfolio of accounts.

In November, it decided to stop selling its Investment and Easy Access accounts.

The Investment account will be available again from May to new savers, but by post only, while the existing Easy Access accounts will be closed completely in July.

Along with its most well known investment, Premium Bonds, the various accounts are offered so that the government can borrow cheaply from the public.

The main lure is that the government offers NS&I the absolute guarantee that it will never go bust.

 

 

Solar Cheaper Than Diesel Making India’s Mittal Believer: Energy

India is producing power from solar cells more cheaply than by burning diesel for the first time, spurring billionaire Sunil Mittal and Coca-Cola Co. (KO)’s mango supplier to jettison the fuel in favor of photovoltaic panels.

The cost of solar energy in India declined by 28 percent since December 2010, according to Bloomberg New Energy Finance. The cause was a 51 percent drop in panel prices last year as the world’s 10 largest manufacturers, led by China’s Suntech Power Holdings Co. (STP), doubled output capacity.

“Solar is going mainstream in India, helped by Chinese pricing,” said Ardeshir Contractor, founder of developer Kiran Energy Solar Power Pvt. Kiran, whose investors include Bessemer Venture Partners, an early financier of Skype Technologies SA, won one of the largest projects auctioned by India last month.

India joins pockets of Italy, Spain and Hawaii where rising fuel costs and lower panel prices make solar pay for itself without state subsidies, New Energy Finance data show. Factories and homes in the Asian nation switch on emergency diesel-fired generators during chronic blackouts and to bridge gaps in the power-delivery grid as the government prepares a $400 billion program through 2017 to curb the shortfall and spur growth.

“If they had the foresight, these factories would be replacing their diesel generators now or at least getting what they can from solar,” said Lalit Jain, chief executive officer of Moser Baer Clean Energy Ltd., which owns 100 megawatts of operating solar plants in India, Italy, the U.K. and Germany.

Power Deficit

Electricity demand exceeds supply in India by about 14 percent during peak hours, and about 400 million people have no access to power, according to the United Nations.

While European governments have cut preferential rates paid to solar-plant operators amid an escalating debt crisis, India is driving down its costs by forcing utilities and developers to compete on price.

Winners of India’s national solar-capacity auction in December agreed to supply power for an average rate of 8.78 rupees (17 cents) a kilowatt-hour by early 2013.

In comparison, electricity from burning state-subsidized diesel costs generators about 17 rupees, according to Charanjit Singh, an energy analyst at HSBC Holdings Plc. The cheapest power comes from burning coal, which is about 4 rupees a kilowatt-hour, though users must be connected to the grid.

Bharti, Jain

Mittal’s Bharti Airtel Ltd. (BHARTI), India’s largest mobile-phone operator, and Jain Irrigation Systems Ltd. (JI), the world’s biggest mango-puree producer and supplier to Coca-Cola, are among companies swapping diesel generators for photovoltaic modules.

While Airtel’s Bharti Infratel unit typically runs its phone towers on the cheapest, grid-delivered power, it estimates that electricity from diesel costs about four times as much.

The company upgraded 1,646 out of about 22,000 rural sites that get little or no grid-connected power to run on solar and other renewable sources, it said in an e-mail.

The government’s Telecom Regulatory Authority recommended this month that at least 75 percent of rural mobile towers and 33 percent of urban towers run on a combination of solar, wind and diesel by 2020. India’s 300,000 mobile towers account for about 4 percent of diesel use, according to HSBC’s Singh.

Jain Irrigation will complete an 8.5-megawatt solar project in March to replace diesel-fired output at its processing plant in Jalgaon, Maharashtra, CEO Anil Jain said Jan. 3. The company estimates it could recoup the cost in as little as five years.

Solar Target

India, the third-biggest energy user behind China and the U.S., has a goal to have installed 20,000 megawatts of solar- energy capacity by 2022, about equal to 18 new nuclear reactors.

That target is 10 percent of today’s total generating capacity including all energy sources. Less than 1 percent of that current power base is solar.

India’s solar industry has benefited from tax breaks and a guaranteed government buyer of its cleaner power. Diesel generation has been helped by state subsidies that make the fuel cost less than the market price to cap inflation.

The diesel price set for the capital Delhi was at 32 percent below the market rate as of Jan. 16, according to market data published by the nation’s Oil Ministry.

Factories burn diesel during blackouts to maintain a constant power source. Their “huge” warehouses and empty rooftops make them a “prime candidate” for solar power, said Hari Manoharan, an analyst at Energy Alternatives India. Indian manufacturers are losing more than 432 billion rupees a year as a result of power failures, Manoharan said in a December report.

GTL, Acme

GTL Infrastructure Ltd. (GTLI), a Mumbai-based owner of 32,000 phone towers, said it’s saving 56,000 liters of diesel a year after installing solar panels. Acme Telepower Ltd., a Gurgaon- based company converting sites for Viom Networks Ltd. and Bharti, estimates the panels can cut the diesel running time of a rural tower to eight hours a day from 22, it said Jan. 10.

India charges the highest power prices to industrial and commercial consumers such as factories, mines and malls, and gives away free power to farmers for irrigation pumps. As the cost of solar falls, more businesses are deciding it makes sense, said Akhilesh Magal, an analyst at Bridge to India.

“Things that weren’t feasible have suddenly opened up,” Magal said. “As prices drop, you suddenly see huge segments of the market open up.”

 

 

Can solar power help shipping go green?

From a distance, the yellow-and-blue ferry docking at the pier resembles the scores of other vessels that hop between Hong Kong’s outlying islands and the peninsula every day.

But a closer look as passengers disembark, reveals a grid of gleaming solar panels on the ferry’s roof and, instead of the usual throbbing engine noise, there is a barely audible buzz.

The Solar Eagle and three similar vessels shuttle golfers to tee off on an 18-hole island course. Together they form the world’s first hybrid powered ferry fleet and a commercial proving ground for technology that could transform the future of marine travel.

The technology, similar to that used in hybrid cars, has been developed by an Australian company called Solar Sailor.

Electricity created by the solar panels and stored in a battery powers the engine while the vessel comes in and out of the harbour. Once out in the open ocean and a faster clip is required, the diesel kicks in.

One of the fleet, the Solar Albatross, sports two sails covered in solar panels that can be raised to harness both the sun and the wind to further reduce reliance on fossil fuel.

Robert Dane, Solar Sailor’s founder, says that the technology offers ship owners huge fuel savings and has the potential to be used on all types of vessels from humble ferries and luxury super-yachts to bulk carriers shipping iron ore and navy patrol ships.

“I think in 50 to 100 years, all ships will have solar sails,” he says.

“It just makes so much sense. You’re out there on the water and there’s so much light bouncing around and there’s a lot more energy in the wind than in the sun.”

Teething problems

Three of the ferries began operation in 2010 and the Solar Albatross began carrying passengers last year. The solar-sail technology is also in use in two ferries in Shanghai and Sydney.

The Hong Kong Jockey Club, which runs the golf course on Kau Sai Chau island, says its has seen “significant fuel savings” but was still monitoring the overall performance of the ferries.

Mr Dane says that on the golf course-run, the hybrid technology saves 8% or 17% on the fuel bill, depending on the route taken. However, repair and maintenance costs have been more than anticipated.

“The Jockey Club is a new operator so there’s a learning curve for them and the new technology,” he says.

Despite the teething problems, Mr Dane is confident of future sales.

He says he is in the “early stages” of discussions with the operators of Hong Kong’s iconic star ferry, which has been shuttling across Victoria Harbour since 1880, about fitting solar panels on one of their vessels.

And in Australia, he hopes to clinch deals this year with the operator of a river ferry and install the technology on two ocean research vessels.

There are other solar-powered ships in operation such as the catamaran Turanor PlanetSolar, which is circumnavigating the globe exclusively by harnessing the power of the sun. However, Mr Dane says the technology developed by his company is the most commercially tested.

More ambitiously, Mr Dane says the company will soon announce a trial with an Australian mining company to attach a 40m (130ft) tall solar sail to a newly built bulk carrier that will ship iron ore and other raw materials to China.

He likens the sail to a “giant windmill blade” that would be covered in solar panels and fold down into the vessel when it is docking and transferring cargo.

By harnessing the wind, the company estimates that the giant sail could shave 20% to 40%, or around A$3m (£2m; $3.1m), off a ship’s annual fuel bill when travelling at 16 knots (18mph), with the solar panels contributing an extra 3% to 6% saving.

“The systems were are installing are worth around A$6 million and therefore the return of investment would be a couple of years at the current oil price,” he says.

“It’s not a matter of if we’re going to do it, it’s a matter of how – right now we are working out the details.”

Green oceans

If, as Mr Dane hopes, the technology is adopted more widely, it also has the potential to clean up the shipping industry, which environmental campaigners claim emits more greenhouse gases than commercial aviation.

Roughly 50,000 ships carry 90% of the world’s trade cargo, and these ships tend to burn a heavily polluting oil known as bunker fuel.

“It’s like tar, you have to heat it up to make it liquid so it will flow,” says Mr Dane.

“These incredibly powerful engines run on incredibly cheap but dirty fuel so what we can do in the short-term is to ensure they use less fuel.”

The industry has proved hard for governments to regulate as it does not fall into one jurisdiction, however the United Nations International Maritime Organization has recently introduced new regulations on fuel efficiency and sulphur emissions that could drive demand for Solar Sailor’s technology.

Mr Dane is optimistic about the company’s future even though after more than a decade of doing business it has yet to turn a profit.

He says the company will in future focus on areas less affected the global economic downturn such as defence, with plans afoot to use the technology in unmanned ocean vehicles that could replace navy patrol boats.

“We know (our technology) works. We know the return on investment but there’s been factors outside our control like the economic environment that have inhibited what we are doing,” Mr Dane says.

“We think we’re at a very exciting point with regards to profitability and one of the projects (we’re working on) will make us incredibly profitable in 2012.”

 

 

Government borrowing falls to £13.7bn in December

for the fourth month in a row.

Official figures show a drop of £2.2bn from a year earlier to £13.7bn, which was a bigger fall than expected.

The extra borrowing has taken total government net debt above £1tn for the first time, against £883bn a year ago.

However, Chancellor George Osborne is still on course to hit his borrowing target for the year of £127bn. The total for the year so far stands at £103.3bn.

The Office for National Statistics said government tax receipts had been boosted by the bank levy imposed on financial institutions to recoup some of the costs of the financial crisis.

The tax take was also boosted by last January’s VAT increase from 17.5% to 20%.

Meanwhile, central government spending fell by 0.9% as debt reduction measures took effect,

The current net debt total of £1.004tn represents 64.2% of UK gross domestic product.

 

 

Mortgage outlook is uncertain, says CML

The state of the UK mortgage market in the coming year is “difficult to call”, according to a lenders’ group.

The Council of Mortgage Lenders (CML) said the eurozone crisis had created uncertainty, although householders’ real incomes could stabilise.

The latest CML figures showed that UK gross mortgage lending stood at £11.7bn in December.

This was down 12% on November, but up 12% compared with December 2010, the CML said.

‘Glimmer of light’

The figures wrap up a year in which mortgage lending has remained at low levels, in a market that has proved difficult for first-time buyers to access unless they could raise a large deposit.

The CML said that lending totalled £140bn in 2011 as a whole, up 3% compared with 2010, when the market was similarly stunted.

Some £37.3bn of lending in the final three months of the year was slightly lower than the previous quarter, but 11% up on the last three months of 2010.

“The closing months of 2011 saw stronger mortgage lending activity and housing transactions, despite the fact that short-term economic prospects are challenging,” said CML chief economist Bob Pannell.

“There is a glimmer of light ahead for households in that real incomes could stabilise and perhaps even start rising by the end of the year.

“But, continuing eurozone problems mean that mortgage funding prospects are uncertain, so overall UK mortgage market conditions for the year ahead remain difficult to call.”

 

 

Economic gap between UK cities ‘widening’

The gap between the relative economic performances of towns and cities across the UK is widening, a report has said.

The difference between the number of people claiming Jobseeker’s Allowance in Hull and in Cambridge has nearly doubled since the start of 2008.

Six times as many are claiming in some parts of Rochdale as in Cambridge.

Research group Centre for Cities said the private sector’s struggle to create enough jobs to aid growth was “playing out very differently across UK cities”.

The gap in the claimant count rate between Hull and Cambridge had increased from 3.2% in February 2008 to 6.1% in November 2011, the report said.

Meanwhile, the area of Rochdale with the highest number of claimants had 30.3% of people on the benefit, while the area of Cambridge with the highest rate was 5.0%.

The report said that towns and cities with less dynamic private sectors, such as Hull, Doncaster and Newport, would find it more challenging to offset the weak national economy and the ongoing shrinkage of the public sector.

‘Tailored policy’

It said cities that had performed well, such as Edinburgh, Cambridge and London, all had strong private sectors, and high numbers of skilled residents and “knowledge workers” – those who work in professions such as law, accountancy and finance.

It highlighted Milton Keynes and Aberdeen as well placed to drive the national economic recovery, as they had seen a large number of business start-ups and were highly innovative, with significant numbers of patents registered.

Last week, official figures showed the UK’s unemployment rate had risen to the highest level for 16 years.

“The gap between cities is widening,” said Alexandra Jones, chief executive of Centre for Cities.

“This makes it vital that government policy is tailored to meet the needs of each city rather than one-size-fits-all. What is right for Brighton and Reading will not be right for Dundee and Middlesbrough.”

The Local Government Association (LGA) said the report highlighted the differences in how towns and cities were dealing with the tough economic climate.

“Councils strongly support the premise that government policy must be tailored to meet the needs of each individual city,” said Peter Box, chairman of the LGA’s economy and transport board.

 

 

Clean-Energy Investment Rises to $260B

Renewable energy investment rose 5 percent to a record $260 billion last year driven by a surge in solar developments and increased spending in the U.S., Bloomberg New Energy Finance said.

New spending on solar energy jumped 36 percent to $136.6 billion in 2011, outpacing the $74.9 billion put into wind power, the London-based research company said today in a statement. Spending in the U.S. rose by a third to $55.9 billion, surpassing the 1 percent gain in China to $47.4 billion.

A jump in photovoltaic installations in the U.S. and Europe overcame a 50 percent decline the price of modules during 2011, said Michael Liebreich, chief executive of New Energy Finance. Falling prices made more developments possible and is bringing closer the date when wind and solar can rival fossil fuels without subsidies, he said.

“For every equipment company operating at thin or negative margins, there is an installer who is getting a good deal,” Liebreich said in the statement. “Rumors of the death of clean energy have been greatly exaggerated.”

Last year’s growth was the slowest since 2009, when the financial crisis curbed lending to companies of all kinds and investment in renewable energy grew 1 percent. Spending bounced back in 2010, expanding 31 percent to $247 billion, New Energy Finance said.

 

 

UK interest rates kept on hold at record low of 0.5%

UK interest rates have been held at their record low of 0.5% by the Bank of England’s Monetary Policy Committee.

Interest rates have been kept at 0.5% since March 2009.

The Bank did not announce any increase in its policy of quantitative easing. In October, the Bank said it would pump another £75bn into the economy.

The decisions were widely expected, and come amid concerns over the economy’s strength due to weak consumer spending and the eurozone crisis.

Data released by the Office for National Statistics on Thursday pointed to a surprisingly sharp downturn in industrial output – including the manufacturing sector – in November last year.

Eurozone interest rates have also been left unchanged – at 1% – by the European Central Bank.

Meanwhile, retailers continue to report disappointing Christmas sales, with Tesco – the UK’s biggest retailer – reporting a drop in festive sales in the UK.

However, a series of closely-watched surveys released last week suggested conditions had improved in December.

The latest purchasing managers’ indexes indicated that the service sector had seen growth pick up in December, while the manufacturing sector contracted at a slower pace than the month before.

“The PMI business surveys showed the pace of economic growth picked up to a five-month high in December,” noted economist Chris Williamson at Markit, the firm that produces the PMI surveys.

“Importantly, historical comparisons with the PMI and policy decisions suggest that the survey data have moved closer towards a neutral policy stance.”

More QE?

Close attention is likely to be paid to the Bank’s minutes from Thursday’s MPC meeting, which will be published in two weeks.

They may provide a hint of plans for further quantitative easing (QE) – creating new money to buy up government debt and other financial investments from markets.

The Bank had already pumped £200bn of cash into the economy via QE between March 2009 and February 2010.

The Bank hinted last year that it would take until February to administer the latest £75bn expansion in its QE programme.

However, many economists expect a further £50bn-plus of QE once the current programme is complete.

The Bank may also be mulling other new policies to boost the economy. It is already cooperating with the government’s “credit easing” plan to funnel loans to small and medium-sized businesses.

“Since the challenges facing the UK economy will increase in the first quarter of 2012, a further £50bn increase in QE to £325bn would be welcomed by hard-pressed businesses,” said David Kern, chief economist at the British Chambers of Commerce.

“QE will only achieve its full potential to support growth if it is supplemented by effective measures aimed at improving the flow of credit to viable businesses.”

The Bank had a tough time during 2011 justifying its continued loose monetary policy in the face of rising inflation.

However, consumer prices inflation peaked in September at 5.2% – more than double the Bank’s 2% target – and has since fallen to 4.8% in November.

The figure is expected to fall sharply in January data, when the effect of last year’s rise in VAT drops out of the calculations, adding further support to a possible February decision to extend QE.

 

 

Governments Get EU Warning on Delays in Carbon Allocation Plans

The European Parliament is likely to decide in a “clear-cut” vote at the end of March whether to back a draft amendment urging a temporary cut in the supply of carbon allowances, according to a member of the Parliament.

The Parliament’s committee on industry, known as ITRE, will vote February 28 on amendments to the European Union energy efficiency law, said Claude Turmes, who is in charge of drawing up a report on the directive in the committee. Deputies from the Parliament’s environment committee last month recommended ITRE support their amendment calling on the EU to propose withholding a “significant amount” of allowances from the bloc’s emissions-trading system as of 2013 to shore up prices.

“It’s a very controversial question, the amendment will go to vote in ITRE and most likely in the plenary later,” Turmes said in a phone interview from Brussels. “It’s difficult to foresee what the outcome will be.”

Carbon permits rose as much as 32 percent on Dec. 20, the day of the environment committee vote, amid speculation that it raised the likelihood of the EU curbing oversupply and supporting prices in its emissions-trading system. Concern that the new energy-savings law will further cut demand for pollution rights at a time of economic slowdown helped knock allowance prices to a four-year low in December.

‘Political Message’

The EU emissions-trading system, known as the ETS, is the world’s largest and was valued at $120 billion last year. Analysts at Bloomberg New Energy Finance predict that the ETS will be oversupplied by 997 million metric tons, or 9.6 percent, from 2008 to 2012. This surplus may be transferred into the second phase from 2013 to 2020, in which New Energy Finance predicts a net shortfall of 749 million tons.

“The vote in the environment committee sent a strong political message to the commission and also to member states on the issue of a set-aside,” Turmes said. “This is of course a political process. The ball has been rolling since the ENVI vote and will continue to be played.”

Under the same amendment, the environment committee, known as ENVI, voted to add in a non-binding part of the directive a clause that would require the commission to set the number of permits to be withheld at such a level that wouldn’t push carbon prices above 30 euros ($38.36).

Support by ITRE, whose report will include recommendations to the full parliament in the next stage of the legislation process, would boost chances of the set-aside draft rule winning approval in the plenary vote. In order to become a law, it would also need backing from member states in a parallel procedure.

Separate Process

A subsequent proposal by the European Commission to set aside permits would require consent from national governments in a separate regulatory process.

“It won’t be possible to have any compromise amendments on this, so it will be a clear-cut vote, which will be either won or lost,” Turmes said.

The European Commission, the bloc’s regulatory arm, first came up in 2010 with the idea of setting aside allowances in the next phase of the emissions program starting in 2013 and also included a reference to such a tool in a March 2011 policy paper, known as the low-carbon 2050 road map.

It has suggested that a set-aside could be gradually created from the pool of permits to be sold to companies by countries starting in 2013. This would require amending the auctioning regulation by the so-called comitology procedure, under which a measure requires backing from representatives of member states in the Climate Change Committee and then is subject to a three-month scrutiny period by the parliament and national governments.

States Divided

Member states remain divided on whether to raise the stringency of the EU’s climate policies. While western European countries have voiced support for tighter pollution caps on companies, eastern nations have in previous years tended to favor a more cautious approach.

The emissions trading system is the cornerstone of the EU policy to cut greenhouse gases blamed for climate change. It imposes pollution limits on more than 11,000 utilities and manufacturers, leading to a cap in 2020 that will be 21 percent less than 2005 discharges.

Turmes said that the reason for the postponement of the ITRE vote was to have more time to negotiate among deputies the around 1,800 amendments that have been proposed to the energy efficiency law. The law is one of priorities for Denmark, which took over the rotating six-month EU presidency this month.

“It’s more constructive and productive to have four more weeks to settle out more details and the voting list,” Turmes said. “The time for the vote is making it possible to find the first reading agreement during the Danish presidency.”

 

 

EU Carbon Permit Set-Aside to Be Decided in Clear-Cut March Vote

The European Parliament is likely to decide in a “clear-cut” vote at the end of March whether to back a draft amendment urging a temporary cut in the supply of carbon allowances, according to a member of the Parliament.

The Parliament’s committee on industry, known as ITRE, will vote February 28 on amendments to the European Union energy efficiency law, said Claude Turmes, who is in charge of drawing up a report on the directive in the committee. Deputies from the Parliament’s environment committee last month recommended ITRE support their amendment calling on the EU to propose withholding a “significant amount” of allowances from the bloc’s emissions-trading system as of 2013 to shore up prices.

“It’s a very controversial question, the amendment will go to vote in ITRE and most likely in the plenary later,” Turmes said in a phone interview from Brussels. “It’s difficult to foresee what the outcome will be.”

Carbon permits rose as much as 32 percent on Dec. 20, the day of the environment committee vote, amid speculation that it raised the likelihood of the EU curbing oversupply and supporting prices in its emissions-trading system. Concern that the new energy-savings law will further cut demand for pollution rights at a time of economic slowdown helped knock allowance prices to a four-year low in December.

‘Political Message’

The EU emissions-trading system, known as the ETS, is the world’s largest and was valued at $120 billion last year. Analysts at Bloomberg New Energy Finance predict that the ETS will be oversupplied by 997 million metric tons, or 9.6 percent, from 2008 to 2012. This surplus may be transferred into the second phase from 2013 to 2020, in which New Energy Finance predicts a net shortfall of 749 million tons.

“The vote in the environment committee sent a strong political message to the commission and also to member states on the issue of a set-aside,” Turmes said. “This is of course a political process. The ball has been rolling since the ENVI vote and will continue to be played.”

Under the same amendment, the environment committee, known as ENVI, voted to add in a non-binding part of the directive a clause that would require the commission to set the number of permits to be withheld at such a level that wouldn’t push carbon prices above 30 euros ($38.36).

Support by ITRE, whose report will include recommendations to the full parliament in the next stage of the legislation process, would boost chances of the set-aside draft rule winning approval in the plenary vote. In order to become a law, it would also need backing from member states in a parallel procedure.

Separate Process

A subsequent proposal by the European Commission to set aside permits would require consent from national governments in a separate regulatory process.

“It won’t be possible to have any compromise amendments on this, so it will be a clear-cut vote, which will be either won or lost,” Turmes said.

The European Commission, the bloc’s regulatory arm, first came up in 2010 with the idea of setting aside allowances in the next phase of the emissions program starting in 2013 and also included a reference to such a tool in a March 2011 policy paper, known as the low-carbon 2050 road map.

It has suggested that a set-aside could be gradually created from the pool of permits to be sold to companies by countries starting in 2013. This would require amending the auctioning regulation by the so-called comitology procedure, under which a measure requires backing from representatives of member states in the Climate Change Committee and then is subject to a three-month scrutiny period by the parliament and national governments.

States Divided

Member states remain divided on whether to raise the stringency of the EU’s climate policies. While western European countries have voiced support for tighter pollution caps on companies, eastern nations have in previous years tended to favor a more cautious approach.

The emissions trading system is the cornerstone of the EU policy to cut greenhouse gases blamed for climate change. It imposes pollution limits on more than 11,000 utilities and manufacturers, leading to a cap in 2020 that will be 21 percent less than 2005 discharges.

Turmes said that the reason for the postponement of the ITRE vote was to have more time to negotiate among deputies the around 1,800 amendments that have been proposed to the energy efficiency law. The law is one of priorities for Denmark, which took over the rotating six-month EU presidency this month.

“It’s more constructive and productive to have four more weeks to settle out more details and the voting list,” Turmes said. “The time for the vote is making it possible to find the first reading agreement during the Danish presidency.”

 

 

U.K. Solar Capacity Surges 10-Fold

Britain’s solar capacity shot up more than 10-fold last year as installers targeted home rooftops to reap incentives the government is working to restrain, making a deeper cut in the subsidy more likely.

Solar panels with at least 761.9 megawatts in capacity were installed by the end of last year, compared with 76.8 megawatts at the end of 2010, according to figures on the website of energy regulator Ofgem. About two-thirds of the capacity and more than 95 percent of the projects were developed on homes.

Support in the form of feed-in tariffs guaranteeing premium rates for electricity from solar power came into force in April 2010, when prices for panels were more than twice as high as they are today. Companies including EON AG (EOAN), Tesco Plc (TSCO) and Carillion Plc (CLLN)’s Eaga rushed to tap the market, supported by fund managers such as Foresight Group LLP and Octopus Investments Ltd.

“It’s been a very busy and successful year for the solar industry,” Howard Johns, chairman of the Solar Trade Association and managing director of installer Southern Solar Ltd., said by e-mail today. “But now most of the industry is at a standstill with the uncertainty caused by the government.”

Twice last year, government ministers moved to reduce feed- in tariffs. The second effort prompted a lawsuit from the industry, which the government is appealing on Jan. 13.

Prices and Subsidies

Plunging prices for solar panels made more developments economical, leading to a surge in installations. Ministers responded in March with an emergency review of its support measures that cut rates as much as 71 percent for commercial- scale plants. Developers then turned their attention to smaller rooftop projects, prompting the government in October propose cuts those facilities too.

The boom outpaced the government’s forecast. More than 230,000 solar plants with 761.9 megawatts have registered to qualify for tariffs since the program started, according to Ofgem. Half of this capacity was registered in November and December alone, the latest weekly data show.

These figures compare with the Department of Energy and Climate Change’s projections for 284 megawatts by April 2013 and 832 megawatts by April 2015.

As much as 1.1 gigawatts might have already been installed in the U.K. because of a lag in registering completed projects, which would cost about 373 million pounds ($572 million) a year in subsidies, according to Bloomberg New Energy Finance figures.

‘Embarrassing’

“The cost of the PV installations could easily exceed DECC’s spending cap,” said Jenny Chase, lead solar analyst at the London-based research firm. This is “somewhat embarrassing” for an austerity-focused government, even if the costs are passed on to the consumer rather than being on any fixed budget, she said.

The program, which also includes other low-carbon technologies for projects with 5 megawatts or less, has a spending limit of 867 million pounds by April 2015. In December, DECC said that a further 197 million pounds from the renewable obligation system that supports renewable projects of all sizes was also available for the tariffs.

‘Funded by Consumers’

“The current high tariffs for solar PV are not sustainable, and changes need to be made in order to protect the budget, which is funded by consumers through their energy bills,” Climate Change Minister Greg Barker said in a statement on Dec. 22.

European countries such as Italy and France reduced tariffs last year before schedule to adapt incentives to crashing panel prices. Meanwhile, Germany marched ahead without any spending cap to install a record 7,500 megawatts last year, or about 10 times British levels. Italy has a spending cap of 6 billion euros to 7 billion euros a year.

The surge in installations, coupled with continued declines in panel prices, led the government to propose in October a halving of the rates for small projects as of Dec. 12, four months before scheduled, throwing the market into disarray.

A court deemed the decision to cut rates before a consultation on the matter was completed “unlawful” and ordered a judicial review. A government appeal is likely to be heard on Jan. 13, so it’s unclear when the subsidy reductions will take effect.

The U.K. solar industry, which employs about 25,000, is now in the dark, waiting to learn the new tariff levels and the date when they will come into force.

“The situation is still far from clear, and industry players would be wise to sit tight until a new reference date is set,” said Clare King, a London-based renewable energy lawyer at the law firm Osborne Clarke. “The lack of certainty is going to make it difficult for solar companies, homeowners and investors to plan for the future.”

 

 

European CO2 trade values jump 24.5% during 2011

Exchange – traded volumes in europe’s emissions market rose 24.5% in 2011. A total of 7.6 billion units changed hands putting the EU scheme’s strong annual growth back on track after trading volumes grew just 2% in 2010.

Trade in secondary CERs climbed 45% to 1.4 billion units worth an 18% share of the total market.

 

 

UN bans Lituania from carbon trade.

The UN panel on Wednesday suspended lituaania from transferring Kyoto permits due to a breach of reporting rules. A vedict that will prevent the country from selling emission rights and issuing carbon credits.

 

 

Oakmount and Partners – United Nations in Durban.

The United Nations Climate Change Conference, Durban 2011, brought together representatives of the world’s governments, international organizations and civil society.

The discussions seek to advance, in a balanced fashion, the implementation of the Convention and the Kyoto Protocol, as well as the Bali Action Plan, agreed at COP 13 in 2007, and the Cancun Agreements, reached at COP 16 last December.

On December 11th, Secretary-General Ban Ki-moon welcomed the set of decisions reached by countries at the UNCCC, saying they represent a significant agreement that will define how the international community will address climate change in the coming years.

After extended negotiations over the weekend, the 194 parties to the UN Framework Convention on Climate Change (UNFCCC) agreed on a package of decisions, known as the Durban Platform, which include the launch of a protocol or legal instrument that would apply to all members, a second commitment period for the existing Kyoto Protocol and the launch of the Green Climate Fund.

“The outcomes of Durban provide a welcome boost for global climate action. They reflect the growing and in some quarters unexpected, determination of countries to act collectively,” said UNEP Executive Director, Achim Steiner.

Although the conference still left the world with serious and urgent challenges to overcome, Durban has kept the door open for the world to respond to climate change.
(source: un.org)

Green Sustainability News.

The billionaire investor Warren Buffett has agreed to buy a solar power farm in California worth $2bn (£1.3bn). Buffett’s

MidAmerican Energy Holdings will take over Topaz Solar Farm, which is expected to produce enough power to run 160,000 homes when it is up and running in 2015. The farm, halfway between Los Angeles and San Francisco, is the world’s second-largest photovoltaic plant under construction and is expected to generate 550-megawatts of electricity or about half the power of a nuclear reactor. (source: click green)

China cranks up 2015 solar target. China National Radio said that the 2015 target for solar energy capacity has been increased by 50 per cent to 15GW.. It also confirmed the existing target to deliver 100GW of wind power capacity by 2015 will remain the same, and revealed that 5GW of this capacity will be provided by a new generation of offshore wind farms. (source: business green)

Global carbon emissions reach record 10 billion tonnes, an increase of almost 50% in the last 2 decades, according to the team at the University of East Anglia.
(source: telegraph)

Environment Agency confirms UK’s largest hydropower scheme has been installed in the River Thames near Windsor Castle.

The 40-tonne devices were installed in the Romney Weir this week as part of a £1.7m project developed by Southeast Power Engineering and financed by Summit Asset Management. (source: business green)

 

 

Oakmount and Partners – Property Division

Oakmount and Partners is the definitive property sourcing organisation – expertly managing every step of your property purchase to ensure a clear and concise investment process.

Our expert knowledge, extensive market experience and dedication to personal service make us one of London’s preferred property specialists. We are a discreet, bespoke consultancy who pride ourselves on building strong, trusted and lasting relationships with our clients.

Whether our clients are looking for their first UK property or additions to existing portfolios, Oakmount and Partners provide a comprehensive and tailored package to make the purchase hassle-free and enjoyable. By being an independent company, we provide wholly impartial advice and always work in the best interests of our clients. Through our professional management capabilities and track record in making considerable savings, we endeavour to source the finest properties on the most favourable terms on behalf of our clients.

Our Vision

Oakmount and Partners was established in 2009 with the vision and belief that our clients were in need of a discreet, confidential, independent property end to end service. Our aim is for clients to receive truly impartial advice and unrivalled personal commitment when searching for either a home purchase or investment property. With access to both residential and commercial units we can assist clients in meeting their goals and aspirations in building a strong asset base within the property sector.

As we have grown as a company our vision has remained the same, we pride ourselves in building trust and close relationships with you and delivering the highest quality of service. Our work ethic is to always go beyond our clients’ expectations.

Oakmount and Partners treats all clients as strategic partners and we have four key principles that we introduce in every transaction:

Knowledge – Commitment – Nurture – Growth

Investment Property

Market knowledge is a key component when investing in any asset, especially into property due to its heterogeneous nature. As an asset class, a major strength of property is it can provide long-term security and stability especially when building an investment portfolio or buy-to-let properties. Our company principles ensure that our clients benefit from our consultancy and connections within the property industry making sure that the right opportunities are identified and investment returns maximised.

Our property investment service encompasses the following:

Step 1: Understand and Define

We understand and Define what your investment requirements are and from this we build a working mandate.

Step 2: Market Research

We identify the most suitable investment properties by undertaking extensive market Research. We preview a selection of suitable properties and after a thorough appraisal produce a shortlist of options that suit your requirements.

Step 3: Property Overview

We will advise you on projected yields and any strategies that could enhance income streams and capital appreciation to tie in with the successful expansion of your portfolio.

Step 4: Appraise and Negotiate

Once a suitable investment has been identified, we will appraise the property by obtaining rental quotes in order for you to make an informed decision. Our specialist partners will then Negotiate the best price and on the most favourable terms.

Step 5: Oversee

Our strategically placed partners will oversee the whole purchase on your behalf by recommending lawyers, coordinating with bankers and if the property is vacant, Oversee finding a suitable tenant for the property. Our partners will help you to appoint the most appropriate letting and management agent for the area and negotiate their terms, saving you time and money.

The complete sourcing solution

Oakmount and Partners are an independent property search and acquisition company offering a bespoke service to private clients who are looking to purchase properties in Central London and the Southern Counties.

We are able to save valuable time, stress and money by assisting our clients through the whole property purchase ensuring that their needs are met in an efficient and timely manner.

Our Client Bond

Our promise goes far beyond finding a property. When appointing Oakmount and Partners you will be assigned a dedicated consultant who will guide you through the entire buying process. As we are independent and solely represent your interests, not only is our dedication to personal service unrivalled but also the advice given by us is completely impartial.

Our Contact Base

By being active in the London property market and having extensive buying experience, Oakmount and Partners has built a strong contact base and reputation within an array of key sectors. As a result we are able to access properties and investment opportunities often before they come to the open market.

We pride ourselves on working with our clients beyond completion to ensure that their needs and requirements are looked after at all times. Whether it is finding a new tenant for an investment purchase or assisting you in creating a substantial asset base. We are always here to help.

Negotiating For You

Our service does not stop at finding you the right property; we provide you with the tools and assistance to give you a clear understanding of the market conditions in order to make an informed and calculated decision. From this our experienced consultants will look to negotiate the best possible price on your behalf saving you time and money.

For further information please call one of our specialists today on London +44 (0)207 718 0127 0r  +44 (0)207 718 0126

 

 

Oakmount and Partners – Corporate Division

At Oakmount and Partners, we know that a business strategy centred around being carbon neutral can bring value to your core business as well as to the environment. To help you realize that value, we offer strategy, implementation, management and communications services to maximize your company’s returns in the context of both business and sustainability goals.

 Our Corporate vision

The vision of Oakmount and Partners Corporate division is to become the most exclusive and dynamic international private investment consultancy house that provides its clients and strategic partners with successful, sustainable and profitable investment vehicles within key destinations of global markets.

Our corporate arm is the business investment division of Oakmount and Partners and is responsible for the expansion of our clients global corporate investments through its tradition of sustainable investment options.

Our priority is to manage the success, sustainability and profitability of the corporate organisations we deal with that includes activities and interests in a wide range of business investment opportunities throughout key destinations of the global investment arena.

Oakmount and Partners wide range of Investment options provide a complete corporate and management support platform to corporate organisations, that includes comprehensive consultancy and guidance on matters of corporate strategy and structure, risk management and effective international market research and that is vital to the success and sustainability of our clients portfolio’s and asset base.

As the corporate division of Oakmount and Partners we have a core responsibility for creating a clear and concise investment process that creates value by identifying, evaluating and scrutinizing opportunities that show huge growth potential. By drawing on the collective resources and expertise of the group, Oakmount and Partners divisions are uniquely positioned and structured to acquire a diversified portfolio of corporate investments, and opportunities that support the desire and need for exceptional growth within our clients portfolio’s.

We recognise in every investment the importance and value of good corporate governance,. We seek to be transparent, accountable and equitable, in our dealings with our clients and with local communities. We introduce four key principles to all of our clients, creating a clear and transparent process of how we enter them into the investment markets and exit with a positive outcome:

Knowledge – Commitment – Nurture – Growth.

Our Corporate philosophy
Oakmount and Partners ascribes its success to a simple yet effective philosophy. The pooling of resources of like-minded individuals and corporations who adhere to core principles, we believe that this will not only accelerate the creation of individual wealth, but also accelerate all professional, intellectual and business growth.

 

 

Are You Worried About Your Pension?

Oakmount are delighted to annouce a strategic move into the SIPP market through our associates and partners.

Clients can use SIPPS to Invest In the Carbon and Emissions market.

Oakmount and Partners Property Division

Our specialist below market value services:

Oakmount and Partners specialise in sourcing exclusive below market value property in the UK whilst offering a clear and concise investment experience. The experience, knowledge and commitment of Oakmount and Partners means that our investors can rely on us directly sourcing repossessed and BMV UK property with strong discounts off the property market value in order to build a substantial asset base.

Discounted property – With qualified discounts.

Expertise – We have experience, knowledge and contacts in all areas of commercial and residential property.

Free membership – Access our deals, resources & tips for the property market.

Instant equity – You make money from day one of purchase.

Dedicated client director – Personally devise and assess your strategy and completion requirements.

Oakmount and Partners offer a full range of services, customised to our investors needs and requirements in building a successful investment portfolio.

CALL OAKMOUNT AND PARTNERS NOW ON +44 (0)207 718 0126 or
+44 (0)207 718 0127 to discuss our services further.

 

 

UK inflation rate falls to 4.8% in November

The rate of Consumer Prices Index (CPI) inflation in the UK fell to 4.8% during November, down from 5% the month before, according to the Office for National Statistics (ONS).

The rate still remains well above the Bank of England’s target of 2%.

Retail Prices Index (RPI) inflation – which includes mortgage interest payments – fell to 5.2% from 5.4%.

The fall was partly due to a slowdown in the rise in food and non-alcoholic drink prices.

Cereals and bread prices fell by 1% in the month, compared with a 1.9% increase a year ago.

Vegetable prices fell by 1% between October and November, their largest fall over this period for a decade.

There was also a fall in the price of sugar, jam, chocolate and sweets.

‘Lingering risk’

The ONS figures showed that slower rises in transport, clothing and furniture costs also contributed to the fall in CPI.

“November’s UK inflation figures provide further hope that inflation has now passed its peak and could soon fall pretty sharply,” said Vicky Redwood of Capital Economics.

She added: “There is still a lingering risk that inflation picks up again in December, but come January – when the VAT rise drops out – it should start to fall like a stone.

“We still think that inflation will be below its target by the autumn, before dropping to 1% or lower.”

And David Kern, chief economist at the British Chambers of Commerce, said: “The fall in inflation in November was as expected, and will accelerate in the early months of 2012.”

‘Tough Christmas’

But there were words of caution from TUC general secretary Brendan Barber.

“Last month’s drop in inflation offers some respite for people over the festive period,” he said.

“But with pay growth under 2%, people are still getting poorer and millions of families are facing a very tough Christmas this year.

“It will take many more months of falling inflation, and far higher wage increases, before this long and painful period of real terms pay cuts comes to an end.”

Bank predictions

The largest upward contributors to inflation in the retail sector were alcohol and tobacco.

The ONS also said that prices of electricity, gas and other fuels rose at an annual rate of 20.9%, the fastest pace since February 2009.

The Bank of England said earlier this year that it expected the rate of inflation to drop in 2012 as prices fall back and the impact of the government’s increase in VAT is no longer felt.

The Bank believes weak economic growth will push inflation below the 2% mark over the next 18 months.

Data from the ONS last week showed that the rate of increase in the cost of goods being by manufacturers was also easing.

Savers ‘lose out’

The prolonged period of high inflation has made it difficult for savers to keep up with rising prices.

According to the Moneyfacts financial information service, people would need to find an account paying 6% for their savings to keep up with inflation.

“Savers continue to lose out to inflation even though the rate fell today,” said Sylvia Waycot of Moneyfacts.

“With returns so low and inflation unsteady, people don’t know which way to turn.”

 

 

Buffett Gets U.S. Incentive, High Power Rates in $2 Billion Solar Farm Bet

Warren Buffett’s Berkshire Hathaway Inc., which is buying a $2 billion solar project in California, may have picked the right time to invest in the industry.

The 550-megawatt Topaz project will qualify for a federal incentive because construction began last month, and it will sell electricity under a long-term contract that was completed before prices for solar panels fell 44 percent in the last year. Berkshire’s MidAmerican Energy Holdings utility unit and First Solar Inc. (FSLR), the project developer, announced the deal yesterday.

Topaz, which will use First Solar panels, may be the last large solar farm to qualify for the U.S. Treasury Department incentive program, which is set to expire this year. It will likely sell power at a higher price than projects that are seeking contracts from utilities now, said Paul Clegg, an analyst at Mizuho Securities USA in New York.

“The smart guys are getting into these early projects because they have very attractive power-purchase agreements,” Clegg said in an interview. “Financing won’t be as easy at the rates being signed for the latest ones.”

First Solar projects that are currently being built will sell power for 14 cents to 16 cents a kilowatt-hour, said Alan Bernheimer, a spokesman for the Tempe, Arizona-based company. By 2014, he expects its solar farms to sell power at 10 cents to 12 cents a kilowatt-hour, he said.

The price of the Topaz deal wasn’t disclosed and Bernheimer wouldn’t give the rates at which it will sell electricity. PG&E Corp. (PCG)’s San Francisco-based utility agreed in August 2008 to buy Topaz’s power for 25 years.

‘Favorable Terms’

“The reason this project made sense is because the power purchase agreement was signed three years ago at very favorable terms,” Sanjay Shrestha, an analyst at Lazard Capital Markets in New York, said in an interview. He has a “buy” rating on First Solar.

Prices for power sold under these long-term contracts are coming down, and the expected expiration of a federal incentive may further erode profit margins for large projects, Shrestha said. The Treasury Department’s 1603 program, which offers cash grants equal to about 30 percent of renewable energy projects’ development costs, is set to end Dec. 31.

First Solar received $3.1 billion in federal loan guarantees for three other solar projects that it later sold. Buffett is chairman and chief executive of Omaha, Nebraska-based Berkshire.

Loan Guarantees

The Topaz plant was offered a conditional guarantee that the company couldn’t complete because it was unable to meet some of the requirements before the U.S. Energy Department loan guarantee program ended Sept. 30. MidAmerican Energy said the purchase shows that solar energy is viable without government backing. Solyndra LLC, a failed solar panel company, received a guarantee under the same program.

“Buffett’s investment shows that solar has come of age,” Shrestha said. The end of the grant program “takes away some of the incentive but there will still be viable large scale solar plants.”

The billionaire’s endorsement may also help First Solar sell other solar farms, even if they have power-purchase deals with lower rates, Clegg said. “I don’t doubt they will find buyers for more of their projects,” he said. “The returns probably won’t be as good as the ones that have already been sold.”

First Solar has sold and begun building projects using its panels to buyers including General Electric Co., NextEra Energy Inc., Exelon Corp. and NRG Energy Inc. Projects that First Solar is developing and for which it still needs buyers total 600 megawatts, according to a company presentation on Oct. 26.

Biggest Acquisition

MidAmerican may not be one of the buyers, said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.”

“I would guess this is specific to MidAmerican and this particular deal,” he said in an e-mail. Though Buffett has voiced support for renewable energy, “I wouldn’t think he’s going to run around and buy solar assets.”

Buying Topaz will provide a “nice set” of cash flow for MidAmerican, Jenny Chase head of solar analysis at Bloomberg New Energy Finance, said in an e-mail. “This is the biggest acquisition of a single photovoltaic project anywhere,” she said.

The Topaz project in San Luis Obispo County is expected to be complete in 2015. It’s the third-largest solar farm announced to date in the U.S., tied with First Solar’s Desert Sunlight plant, also in California, and trailing plants that NRG Energy and Cannon Power Corp. are developing, according to New Energy Finance.

 

 

World Bank to ready new carbon funds by mid-2012

The World Bank said Tuesday it will start to funnel cash towards two of its newest carbon funds by the middle of next year, in a bid to boost the number of credits sourced from the world’s poorest countries.

 

 

Slash bankers’ bonuses, say top UK investors

(Reuters) – Britain’s banks should hand out sharply lower staff bonuses this year as part of an overhaul of pay practices designed to protect investor returns as profits and share prices across the sector tumble, the Association of British Insurers’ said.

‘It is our members’ view that it can no longer be business as usual for this remuneration round,’ ABI director general Otto Thoresen wrote in a letter to the country’s top banks on Monday.

‘They expect to see significantly lower bonus pools and individual awards given the current market circumstances.’

The ABI, whose members own about a fifth of Britain’s publicly traded shares, believes some of the cash channelled by banks into employees’ pay packets should be diverted into shareholder dividends to preserve investor returns, Thoresen said.

Insurers are also concerned that banks might fund higher regulatory capital requirements by trimming payouts to shareholders, he added.

Analysts already expect British banking bonuses to fall by nearly 40 percent this year, reflecting a slump in revenues as the eurozone sovereign debt crisis weighs on stock and bond markets.

British banks, seen as vulnerable to the euro zone crisis, have been among the worst stock market performers this year, with the FTSE All Share Banks index shedding a quarter of its value against a 5.7 percent drop for the FTSE 100.

 

 

HSBC faces £40m bill for mis-selling to elderly in care

HSBC has been fined £10.5m by the City watchdog for mis-selling investment bonds to elderly people in care.

Some 2,485 customers of the bank’s subsidiary NHFA were advised to invest, in order to fund care costs.

Unsuitable sales of this product were made to 87% of NHFA customers, prompting the largest retail fine to date from the Financial Services Authority (FSA).

HSBC will pay £29.3m compensation and said it was “profoundly sorry”.

Also on Monday, HSBC said that it would cut 330 jobs in the UK, mainly coming from HSBC’s UK commercial banking arm. The bank is also shedding roles in retail banking and wealth and in its technology services.

“Every effort is being made to support impacted employees and redeploy as many people as possible within the bank,” said Joe Garner, head of HSBC’s UK Bank.

But the union, Unite, told the BBC that the bank had said to it that 551 workers in total would lose their jobs.

“For the hugely profitable HSBC bank to announce 551 job cuts, just three weeks before Christmas, is disgraceful,” the union said in a statement.

In August, the bank said it would cut another 25,000 jobs by 2013.

Recommendation

The investments were sold by NHFA advisers, between 2005 and 2010, to people with an average age of 83 who were already in care, or entering long-term care.

They each invested an average of £115,000, and many were reliant on these investments to pay for their care.

Typically, it is recommended that people invest in these products for five years. However, because many had a life-expectancy of less than five years, they started to withdraw from the investments sooner than expected.

The combination of withdrawals and charges meant their capital was eaten away quicker than should have been the case if the products were sold properly.

Advice ‘failure’

NHFA was the leading supplier of independent financial advice on products to help pay for long-term care, with a market share of nearly 60%.

HSBC said it identified problems at NHFA, closed the subsidiary to new business in July, and alerted the FSA.

The bank said the problem was with 15 to 31 NHFA advisers who were not employees of HSBC and did not advise on HSBC products.

“I fully accept that NHFA failed to give suitable financial advice to some of their customers,” said Brian Robertson, chief executive of HSBC Bank.

“This should not have happened and I am profoundly sorry that it did. We have high values here at HSBC and this runs contrary to everything that we stand for. That is why when we suspected something was not right at NHFA, we took action.”

The bank said it would contact those affected in the coming weeks to offer compensation.

Trust ‘breached’

HSBC globally reported pre-tax profits for the first six months of the year of $11.5bn (£7bn), up 3% on the $11.1bn the bank made a year earlier.

The FSA said HSBC had received a 30% discount on the fine because it settled early, and the bank had demonstrated a commitment to making changes to the operations of NHFA.

“HSBC, who owned NHFA, has now recognised the issues and taken steps to do the right thing. They have been given credit for that – but for some customers it will be too late,” said Tracey McDermott of the FSA.

Families or inheritors of the estate of any customers who have died will be contacted by the bank, and any compensation payment due will be paid to them. The bank said it did not know how many of those affected by mis-selling had since died.

Ms McDermott added: “NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector.”

The watchdog said the fine – the fifth largest of any kind levied by the FSA – should serve as a warning to other businesses.

The fine comes a month after private bank Coutts, part of RBS, was fined £6.3m for describing bonds issued by US insurance company AIG as low-risk to 427 well-off customers. They invested £1.45bn but then saw the investments caught up in the uncertainty of the financial crisis when AIG had to be bailed out.

Two weeks earlier, the FSA ordered that the UK arm of Credit Suisse pay a fine of £5.95m for failings over advice to customers when selling complex financial products from January 2007 to December 2009.

 

 

 

FTSE Lacks Convictions After Wednesday’s Surge

Thursday trade was rocky and muted on the London Stock Exchange as investors adjusted positions following the previous day’s eurozone-fuelled spike

U.K. equities started the final month of the calendar year lacking conviction. Having stumbled lower in early deals only to recover losses and trade comfortably higher by midafternoon, London’s top tier edged back into the red in late deals Thursday.

The FTSE 100 index closed 16 points lower at 5,489, a slide of 0.3%, while the FTSE 250 index lost 112 points or 1.1% to end the first trading session of December at 10,204.

After Wednesday’s substantial gains, further upbeat economic data and signals from the bond markets failed to lift sentiment.

Spain and France held debt auctions today that found solid demand. The successful auction sent yields on 10-year Spanish bonds below 6% and yields on French bonds to 3.16%. Meanwhile, the closely watched U.S. ISM manufacturing index rose to 52.7% in November from 50.8% in October. Economists had expected a more modest rise to 52%. Construction spending rose for the third straight month in October across the pond, gaining 0.8% from September levels. The better than expected result was driven by a 3.2% boost in residential spending.

On the London Stock Exchange, individual shares’ movements were relatively muted after the excitement of recent sessions.

Banks and energy stocks were under the cosh as investors took profits following Wednesday’s stellar performances. As such, Lloyds Banking Group (LLOY), Royal Bank of Scotland (RBS) and Barclays (BARC) slipped 3.3%, 2.1% and 1.7%, respectively; Lonmin (LMI), Cairn Energy (CNE) and Essar Energy (ESSR) fell back 3.1%, 2.0% and 1.6%, respectively.

Though there were fewer gainers than losers–a little over a third of the FTSE 100 constitutent companies made headway in Thursday’s session, the presence on the list of risers of financials and natural resource stocks signalled the lack of investor conviction. Defensives also featured on the upside, as did several retailers such as Burberry (BRBY), which rose 3.0%, and Kingfisher (KGF), up 2.2%

 

 

Enel Green Power Adds 66 Megawatts of Wind in Spain, Portugal

Enel Green Power SpA (EGPW) began operating two wind farms with 62 megawatts of capacity in western Spain and added 4 megawatts to a facility in Portugal, the company said in an e-mailed press release today

 

 

Taiwan Aims to Boost Solar Power Capacity to 300MW by Next Year

Taiwan expects to boost solar power capacity to 300 megawatts by next year from 100 megawatts now, Lin Sheng-chung, a deputy economic minister said in Taipei today.

 

 

Asian markets up on central banks’ move to help lending

Asian stocks have gained after many of the world’s biggest central banks unveiled a plan to stimulate lending.

The US Federal Reserve, the European Central Bank, and the central banks of the UK, Canada, Japan and Switzerland will take coordinated action from 5 December.

In a separate move, China also said it would free up money for its banks to lend.

There have been growing fears that a lack of funds will hurt global growth.

“We are clearly seeing some very big stresses in the global banking system, and they wanted to do a pre-emptive strike,” said Boris Schlossberg of GFT, a currency trading company.

“The fact that this was a coordinated move took the market by surprise and lifted all risk trades,” he added.

‘Cheered’

Analysts said sentiment was lifted by the hope that the plan may limit market volatility and go some way to helping find a solution to the ongoing debt and economic problems in the eurozone.

They added that China’s move also helped soothe concerns about the speed with which its economy was slowing.

Japan’s Nikkei index closed up 1.9%, while South Korea’s Kospi ended the day 3.7% higher. In late afternoon trading, Hong Kong’s Hang Seng was up 5.7%.

The euro also strengthened on the news, and was trading at about 1.3448 against the US dollar and at 104.33 versus the Japanese yen.

Earlier on Wednesday, US and European markets had one of ther best sessions this year on the news.

Wall Street’s Dow Jones index saw its biggest gain since March 2009, rising 4.2%. In Europe, Germany’s Dax index closed 5% higher, while France’s Cac 40 jumped 4.2% and the UK’s FTSE 100 rose 3%.

“The moves were cheered by markets, as it shows central banks are willing to work together to ease Europe’s sovereign debt crisis,” said Stan Shamu of IG Markets.

“It seems China now thinks that slowing growth is more of a risk than inflation.”

Carrot or stick?

In previous months, central banks and policymakers have been criticised for not doing enough to reassure investors in what many observers are calling the most difficult economic climate in decades.

The plan unveiled by the central banks in the US and Europe is aimed at making it easier and cheaper for banks to obtain US dollars.

Based around a transaction called “dollar swaps”, the plan cuts the cost of borrowing the US currency by half a percentage point, or 50 basis points.

This should, according to policymakers, trickle down and make it easier for businesses and households to get access to finance, giving a filip to the market and larger economy in general.

As well as cheaper US dollars, the central banks will also provide easier access for lenders to other major currencies as and when they need it. The plan will start from Monday, 5 December

In its attempt to get more liquidity flowing, China said on Wednesday that it will cut the minimum amount of cash the country’s banks have to hold in reserve.

China’s central bank reduced the reserve ratio requirement for banks to 21% from 21.5%. The new requirement will also come into effect on 5 December.

“You don’t have to fix everything, you have to be on a path towards fixing things,” said Tobias Levkovich of Citigroup in New York. “Markets will reward you for the efforts you are making as long as you are moving in the right direction.

“It’s the carrot and the stick; you get rewarded when you do the right thing, and you get punished when you do the wrong thing.”

‘Important point’

Despite the gains in markets, many voices still urged greater action.

Bank of Japan Governor Masaaki Shirakawa warned that the coordinated action would only have a limited impact on the bigger economic problems unfolding in Europe and the eurozone.

“The European debt problem can’t be solved by liquidity provisions alone,” the governor was quoted as saying by the Dow Jones news agency.

His view was echoed by George Goncalves of Nomura Securities International.

“By no means does this address all of the issues facing markets, and we remain worried European Union policymakers might drop the ball,” said Mr Goncalves.

“But it removes one roadblock and signals that perhaps more help is on the way.”

 

 

Thames airport ‘being considered’ says MP

Plans for a new airport in the South East are being considered by the government, a Kent MP has confirmed.

Michael Fallon, deputy chairman of the Conservative Party and MP for Sevenoaks, said the government was “looking seriously at the proposals.”

Mr Fallon said Heathrow was already full and Gatwick would reach capacity in the next few years.

The idea of an airport on the Isle of Grain in Kent is opposed by Medway Council and Friends of the Earth.

The proposed airport, which could handle 150m passengers a year, was outlined by architect Lord Foster earlier in November.

‘A major shift’

In January 2010, Conservative leader David Cameron said building an airport in the Thames Estuary was not among his party’s plans.

Mr Cameron said that if elected to government in the May general election it would not be the policy to construct the four-runway airport.

At the time, Paul Carter, Kent County Council (KCC) leader, said he was “absolutely delighted” following Mr Cameron’s comments.

“We’ve always promoted Manston airport as an opportunity to develop a really good regional hub airport.”

Commenting on Tuesday on the confirmation by Mr Fallon of the government’s plans, Mr Carter said: “It seems clear that the government’s intent is to do a scoping exercise to find the most suitable location for a hub airport.

“We are losing a lot of international aviation to Schiphol airport in Holland which is damaging the aviation economy of this country.”

He said that there were “other and better options” than building a new airport on the Isle of Grain.

“What hasn’t been talked about has been the opportunity to build a new airport on the Essex side of the estuary. All options should be looked at,” he said.

Mark Norman, the BBC South East’s Business Correspondent, said: “This is now a conversation about do we need a major 24-hour a day, multi-runway hub airport in the South East? This is a major shift.”

Carbon free energy

The Thames Hub airport would have high-speed rail connections to London, the Midlands and northern England as well as continental Europe and links to key ports.

Lord Foster’s scheme also includes a new Thames barrier for flood protection and generating carbon-free energy from the tide.

Medway Council has denounced the Isle of Grain as one of the worst places anyone could build a new airport.

“The Isle of Grain is home to one of the world’s largest liquefied natural gas terminals,” said leader Rodney Chambers when the plans were announced.

“It is obvious that aircraft and huge gas containers are a potentially lethal mix.”

Friends of the Earth has said building the airport would have a “devastating impact” on wildlife.

 

 

Facebook Said to Plan IPO at $100B Valuation

Facebook Inc. is considering raising about $10 billion in an initial public offering that would value the world’s largest social-networking site at more than $100 billion, a person with knowledge of the matter said.

The company may file for the IPO before the end of the year, said the person, who asked not to be identified because the deliberations are private. Exact timing for the filing hasn’t been determined, the person said.

Facebook’s $100 billion valuation would be twice as high as it was in January, when the company announced a $1.5 billion investment from Goldman Sachs Group Inc. (GS) and other backers. Facebook aims to capitalize on strong demand for social- networking IPOs, said Josef Schuster, founder of Chicago-based IPOX Schuster LLC.

“It’s obviously a very steep valuation,” said Schuster, whose firm invests in IPOs and oversees about $2.5 billion in assets. “They are realizing their window of opportunity, and they want to do it sooner rather than later.”

At $10 billion, the offering would raise more money than any other technology IPO, a sign Facebook expects investors to clamor for a piece of the social-networking company. The amount would dwarf that of the previous record holder, Infineon Technologies AG, which generated $5.23 billion in its 1999 debut. Agere Systems Inc. raised $4.14 billion in 2000, putting it second.

Hard to Predict

Facebook’s IPO is far enough away that the details may change, said Lise Buyer, principal of the Class V Group, an IPO advisory firm.

“It’s far too early to accurately predict where the valuation will be on deal day,” she said.

Facebook expects to be required by U.S. regulators to disclose financial results by April 30, 2012, if it doesn’t go public by then, the company said in January. Facebook decided to wait until 2012 for its IPO to give Chief Executive Officer Mark Zuckerberg more time to gain users and boost sales, people familiar with the matter said last year.

Facebook, which boasts more than 800 million users, also is increasing its focus on mobile technology, aiming to take advantage of the shift to smartphones and tablets. The company expects its next 1 billion users to come mainly from mobile devices, rather than desktop computers.

Jonathan Thaw, a spokesman for Palo Alto, California-based Facebook, declined to comment on the IPO plans.

Google’s IPO

Google Inc., one of Facebook’s chief rivals in the Internet advertising market, raised $1.67 billion in its IPO in 2004. It is now valued (GOOG) at $190.4 billion.

Facebook’s valuation is currently pegged at $66.6 billion by SharesPost Inc., which handles trading of privately held companies. The Wall Street Journal reported earlier yesterday that Facebook was considering the $10 billion IPO with a valuation of more than $100 billion. The company aims to go public between April and June, the Journal said.

Demand for technology IPOs reignited in November after a summer lull, setting the stage for Groupon Inc. and Angie’s List Inc. to go public. Groupon, the largest provider of online coupons, has lost 24 percent of its value since its debut at $20 earlier this month.

Groupon’s decline may be spurring other companies to pursue IPOs before they lose the chance, Schuster said.

“Groupon has lost a lot of steam and I believe bankers are saying, ‘The market is still hot so let’s do it right now,’” he said.

 

 

Market Surge on Eurozone Hopes

Denied reports of a credit lifeline for Italy and hopes that EU leaders are working on a new pact provided global markets with a fillip Monday

After a near-5% drop last week, the U.K.’s top-tier equities started the week on stellar form Monday amid hopes of more concrete cooperation among the eurozone finance leaders and signs of a strong start to the holiday shopping season in the United States.

The FTSE 100 index climbed 148 points to close 2.9% higher at 5,313, with just one constituent falling into the red on the day. The FTSE 250 index took on 268 points to settle up 2.8% at 9,909, with just 7% of U.K. midcaps failing to register positive returns by the end of the trading session.

The general positive sentiment was triggered primarily by two events. The first was a series of press reports suggesting Europe’s leaders are a step closer to reaching agreement on a new plan to deal with the region’s debt crisis. Other reports that the International Monetary Fund is preparing to offer EUR 400-600 billion in financial assistance to Italy was denied by the IMF, but the denial failed to quash hopes of a stronger fiscal union in the currency bloc.

This week, Belgium, Italy, Spain and France are set to issue up to a combined total of EUR 19.5 billion in bonds. Meanwhile, Moody’s Investors Service said earlier today that none of the European countries is immune to the threat of having its credit rating removed due to the euro-zone crisis.

Across the pond, a sharp rise in U.S. retail sales on Black Friday—the first day of seasonal shopping following Thanksgiving on Thursday, signalled a rebound in consumer demand and also helped lift investor sentiment on Monday.

On the FTSE 100, with investors daring to buy into riskier assets and step away from gold-related securities, Randgold Resources (RRS) was the lone index casualty, down 7.9% after the firm cut its full-year gold output target on the back of production setbacks.

Other underperformers included those stocks favoured in times of market weakness for their defensive characteristics, though all still put in a positive move: Imperial Tobacco (IMT) added 0.5%, and National Grid (NG.) and GlaxoSmithKline (GSK) both took on 1.2%.

On the upside, of the 99 top tier stocks to register gains Monday, Weir Group (WEIR) was the top performer, up 8.3%. The main upward force, however, was provided by natural resource stocks and financials. Barclays (BARC), Schroder (SDR) and Aviva (AV.) jumped 6.5%-7.8%, while Vedanta Resources (VED), Kazakhmys (KAZ) and Eurasian Natural Resources (ENRC) climbed 5.4%-7.2% higher.

 

 

UK recovery to take five years, says MPC’s Martin Weale

The UK economy will take five-and-a-half years to recover to its pre-recession level, a Bank of England Monetary Policy Committee member says.

Martin Weale called the recovery “unusually slow” and signalled more quantitative easing – creating money to buy government debt – may be coming.

In a speech, he said the downturn is the longest by a year of six recessions since the 1920s.

The Bank expects output in the UK to return to its 2008 level only by 2013.

More easing

Speaking to the National Institute of Social and Economic Research, Mr Weale, who is an external member of the Bank’s nine-strong policymaking Monetary Policy Committee (MPC), said there was a strong case for more quantitative easing, as long as inflation was falling.

The Bank is currently engaged in a £275bn programme of UK government debt purchases – something that is expected to come to an end in February next year.

It is designed to put more cash into the UK financial system, to reduce long-term borrowing costs, and to push up the value of assets such as shares and house prices.

Mr Weale said that he hoped the programme would add 0.5% to economic output.

But, he said if that did not happen, the MPC should be cautious ahead of further action: “It might be prudent to wait to see that the sharp fall in the inflation rate which we have been forecasting actually happens before making any further decisions.

“But nevertheless, unless the economic situation improves, there is likely to be a strong case for extending the asset purchase programme after the current one comes to an end.”

He added that the UK needed to rebalance towards a more productive, export-led economy – but this was largely out of the Bank’s control, and would be easier when the economy was growing more strongly.

Mr Weale’s comments reinforce the impression that the MPC is highly likely to enact more quantitative easing, according to Howard Archer, the chief UK and European economist at Global Insight.

“[It will come] early in 2012, as long as there is evidence to support the view that consumer price inflation is headed down markedly, as expected,” said Mr Archer.

Earlier this week, the Bank of England released the latest set of minutes from the MPC’s November meeting.

It said the danger for the UK from the eurozone crisis has risen but that now was not the time to add further stimulus to the economy.

All nine members of the MPC backed maintaining the target level of quantitative easing at £275bn.

They also unanimously agreed to keep interest rates at 0.5%.

 

 

Arctic Sea Ice Is Shrinking at ‘Unprecedented’ Rate, Study Finds.

Arctic sea ice is disappearing at a rate that’s “unprecedented” in more than a millennia, according to a study that suggests the cause may be human- influenced climate change.

Trends from the last several decades suggest there may soon be an ice-free Arctic in the summer, according to a study published today in the journal Nature. Ice shrinkage is occurring at a rate that’s unmatched in duration and magnitude in 1,450 years, and greenhouse gases may be contributing to the warming, researchers said.

The ice, which melts every summer before cold weather makes it expand again, shrank this year to its second-smallest size since 1979, covering 4.33 million square kilometres (1.67 million square miles), according to the U.S. National Snow and Ice Data Center. Although previous sea ice declines have occurred at a similar pace, they don’t match the extent of the melt, the study authors said.

“This drastic and continuous decrease we’ve been seeing from the satellites does seem to be anomalous,” Christophe Kinnard, a study author and a geographer at the Centro de Estudios Avanzados en Zonas Aridas in La Serena, Chile, said in a telephone interview. “It does point to a continuation of this trend in the future.”

The researchers used ice core records, tree ring data, lake sediment and historical evidence to reconstruct the amount of Arctic cover. The thickness and extent of sea ice have declined dramatically over the last 30 years, the researchers said.

Arctic sea ice influences the global climate, since 80 percent of the sunlight that strikes it is reflected back to space. When the ice melts in the summer, it exposes the ocean surface, which absorbs about 90 percent of the light, heating the water, according to the National Snow and Ice Data Center. That influences climate patterns.

“You increase the radiation that’s absorbed by the oceans, that’s one of the strongest climate feedback mechanisms,” Kinnard said. “The more sea ice you lose, the more energy you get in the ocean, which warms the atmosphere.”

 

 

U.K. Economy Grew 0.5% in Third Quarter

U.K. economic growth accelerated in the third quarter as stockbuilding and government spending offset weak consumer spending and business investment

Gross domestic product rose 0.5 percent from the previous quarter, when it increased 0.1 percent, the Office for National Statistics said today in London. The figure matched a previous estimate and the median forecast in a Bloomberg News survey of 32 economists. Consumer spending was flat on the quarter, while investment fell 0.2 percent. Underlying growth “is weak,” the office said.

The Bank of England, which has restarted bond purchases to aid the recovery, said yesterday that underlying growth was probably weaker than the reported figure due to “heightened uncertainty” related to the euro-area crisis. The bank slashed its 2012 growth forecast by more than half and policy makers have signaled more stimulus may be needed in future.

“We don’t see any significant improvement or a change in conditions coming soon,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc (RBS) in London. “There will be a pickup in growth as 2012 progresses, but next year will feel very similar. But there’s no alternative. We’re in no position to engage in fiscal stimulus.”

From a year earlier, the economy grew 0.5 percent, the statistics office said.

The pound rose against the dollar and traded at $1.5564 as of 10:01 a.m. in London, up 0.2 percent on the day.

Inventories

Government spending rose 0.9 percent from the previous three months, when it increased 1.1 percent. Inventories rose by 2.9 billion pounds ($4.5 billion), contributing 0.7 percentage points to growth, the most in a year. Stockbuilding was driven by manufacturing, as well as electricity, gas and water supply.

Exports declined 1 percent on the quarter, while imports rose 0.3 percent, according to today’s report. Net trade subtracted 0.4 percentage points from third-quarter growth.

The statistics office said the squeeze on household incomes and an uncertain labor market is weighing on confidence. Growth over the last year has been concentrated in “just a few components,” while there is evidence that households are taking steps to reduce their debts and increase savings, it said.

In a separate report, the office said business investment fell 1.4 percent in the third quarter.

BOE Stimulus

The Bank of England increased the target for its bond purchases by 75 billion pounds to 275 billion pounds in October. While policy makers voted unanimously to maintain the target this month, some said more stimulus “might well become warranted in due course.”

Policy maker David Miles said yesterday that the “return to more normal rates of growth is something that is going to be a gradual process over the course of the next two years.”

The escalating crisis in the euro area, Britain’s biggest export market, may derail growth in the U.K. The Bank of England said yesterday that failure by euro-area nations to tackle the turmoil “could result in a much weaker external environment.”

Data in Germany today showed Europe’s largest economy grew 0.5 percent in the third quarter, boosted by consumer and company spending even as the debt crisis threatened to drag the euro area into recession.

Stagnation

Britain’s economy is already showing signs of stagnation. Gauges of manufacturing and services output fell in October, while an index of U.K. consumer confidence by Nationwide Building Society fell to a record low. Unemployment as measured by International Labour Organization standards rose to the highest since 1994 in the three months through August.

Aviva Plc (AV/), the U.K.’s second-biggest insurer by market value, said Nov. 15 it plans to cut about 380 jobs after the termination of a venture with Royal Bank of Scotland Group Plc.

The central bank said yesterday that recent output indicators point to “broadly unchanged activity in the fourth quarter rather than a material contraction.”

In the third quarter, growth in industrial production and services was revised down by 0.1 percent from the previous estimate.

 

 

Buffett Could Spend $10B on Next Investment

Warren Buffett, who invested $23.9 billion for his Berkshire Hathaway Inc. (BRK/A) in the third quarter, said the company could spend as much as $10 billion on its next acquisition.

Buffett, Berkshire’s chief executive officer, said today on his first visit to Japan that he potentially has $8 billion to $10 billion if he found the right investment, though he had no specific merger and acquisition plans currently.

“We like the A part better,” Buffett said in an interview with Bloomberg News in Fukushima prefecture in northern Japan, referring to a preference for acquisitions over mergers. “On the Lubrizol transaction I think we spent about $8.7 billion. We’d love another one like that — we can handle that. We can manage somewhat larger. We can handle a $10 billion deal very comfortably.”

Buffett, 81, has turned to stocks and takeovers this year after interest-rate declines limited returns in the bond market. He spent more than $10 billion on International Business Machines Corp. (IBM) shares and on the takeover of Lubrizol Corp. Buffett, who is also chairman and head of investments, is seeking deals as Omaha, Nebraska-based Berkshire’s cash builds.

“It can be any place,” he said. “If I can find something here in Japan that was a business that I like and understood, like their competitive position, like the price, like the financial position, like the management, we would do that tomorrow.”

Asia Visit

Berkshire’s investable funds were boosted in October by a $3.3 billion payment from General Electric Co. (GE) that ended Buffett’s 2008 financing deal with the Fairfield, Connecticut- based firm. Many of Berkshire’s units, including railroad Burlington Northern Santa Fe and Business Wire, are producing better results than last year, when the company posted about $13 billion of profit, Buffett said in September.

Buffett traveled to Japan to view a factory used by Berkshire’s tool-making unit, Iscar Metalworking Cos. He canceled a scheduled stop in March after a record earthquake in the country. Buffett, the world’s third-richest person, has visited China, South Korea and India in the last two years to promote philanthropy and scout investment opportunities.

He said he was unfazed by the recent scandal at Japanese camera maker Olympus Corp. and is looking for investment opportunities in the nation’s companies. Olympus said this month that it concealed losses by paying inflated advisory fees, raising concern among investors about corporate governance in Asia’s second-largest economy.

Olympus, Enron

“We’re looking for companies that have some kind of sustainable competitive advantage,” Buffett said at a news conference earlier today. “The fact that Olympus happens here or Enron happens in the U.S. doesn’t affect our attitudes at all.”

Buffett’s biggest non-U.S. acquisition was in 2006 when Berkshire paid $4 billion for 80 percent of Iscar, based in Tefen, Israel. Berkshire holds stakes in South Korean steelmaker Posco, German reinsurer Munich Re and U.K. retailer Tesco Plc. Buffett has bullish equity-derivative bets tied to the Nikkei 225 Stock Average, the Euro Stoxx 50 Index, and the U.K.’s FTSE 100 as well as the Standard & Poor’s 500 Index in the U.S.

In February, Buffett told shareholders that Berkshire’s cash pile gave him an “elephant gun” to fund investments.

Too Small

An investment in Jefferies Group Inc., the investment bank that lost more than half its market value this year, was not on the radar because it would be too small, said Buffett, who injected funds into Goldman Sachs Group Inc. and Bank of America Corp. after their shares plunged.

“I don’t know anything specific about Jefferies,” he said. “Jefferies would be small in terms of the size of investments.” Buffett said he looks to put at least $1 billion into one investment.

Leucadia National Corp., the largest holder of Jefferies stock, has partnered with Buffett in investment ventures including the 2009 purchase of Capmark, which was renamed Berkadia Commercial Mortgage. Buffett has said he was encouraged by the success of a 2001 deal with Leucadia to extend a $6 billion loan to Finova Group Inc., a Scottsdale, Arizona-based lender.

Berkshire’s cash fell 27 percent in the third quarter to $34.8 billion at the end of September as bets on Lubrizol and IBM joined investments in plant and equipment and the $5 billion purchase of Bank of America’s preferred shares and warrants. Berkshire, which gets the biggest portion of its profits from insurance units, keeps cash on hand to pay policyholder claims.

Iscar Chairman Eitan Wertheimer, who has described himself as Buffett’s “travel agent,” helped arrange the visit in Japan. In 2008, Wertheimer worked with Angelo Moratti, vice chairman of Saras SpA, to plan a trip to Germany, Spain and Switzerland, where Buffett promoted Berkshire as a buyer for family-run businesses.

 

 

Japan seek low carbon plan

Japan will this weekend seek regional backing for a low carbon plan that promotes new carbon markets regulated outside of the U.N., a government official told Point Carbon News Thursday. Eighteen state leaders will meet at the East Asia Summit in Bali, Indonesia and will discuss, among other

things, a regional drive to improve energy efficiency and promote clean technology in a bid to cut emissions in the world’s most polluting continent. While Japan’s plan to promote its bilateral carbon market will not be discussed directly, this weekend’s summit could lay the groundwork for an international convention next year.

“We hope to get endorsement from the Summit this weekend and would like to hold an international conference about it next year,” a high-ranking government official who preferred to be unnamed told Point Carbon News. Japan is seeking to launch a carbon offset market that would allow its companies to build clean technology in poorer nations in return for carbon credits that it can use to meet its goal to cut emissions 25 percent under 1990 levels by 2020.

Japan has already had talks with India, Indonesia and Vietnam about the offset scheme. The renewable and energy efficiency plan, named the East Asia Low-Carbon Growth Partnership Initiative, was originally presented to the East Asia Summit’s foreign ministry meeting in July.

“The initiative has a very wide coverage, the offset crediting mechanism is just one of the elements,” the official said. Russia and the U.S. are expected to officially join the summit at this weekend’s meeting, taking the membership to 18 nations: Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Russia, Singapore, South Korea, Thailand, the U.S. and Vietnam.

 

 

Airlines to spend estimated €1.4bn on carbon permits in 2012

Analysts say European airlines will have to buy about a third of stocks they require when new EU ruling comes in next year

 

 

Oakmount Festive Competition

Dear Followers of our Blog and Website.

Following such interest in our news column we are inviting each person who kindly takes the time to view our daily topics to join and like our newly incorporated Oakmount and Partners Facebook and Twitter pages.

We will have a constant flow of news and information available to those who are actively perusing the global markets for knowledge and guidance.

We are also due to run our Festive competition on Friday 25^th November where some of the following prizes are available to be won.

1st prize: An IPAD

2nd prize: A KINDLE

3rd prize: A MONTBLANC PEN

There will also be 5 copies of the award winning book: THE SECRET by Rhonda Byrne to be given away.

 

 

UK interest rates remain on hold at record low of 0.5%

UK interest rates have been held at a record low of 0.5% by the Bank of England’s Monetary Policy Committee.

Worries about the strength of the economic recovery meant that economists had expected rates to remain unchanged.

Interest rates have been kept at 0.5% since March 2009.

The Bank did not announce any increase in its policy of quantitative easing (QE). Last month, the Bank said it would inject another £75bn into the economy through QE.

Lee Hopley, chief economist at EEF manufacturers’ organisation, said: “There were unlikely to be any further announcements this month following last month’s decision to extend the Bank’s asset purchase programme.

“However, ahead of the November inflation report the committee is likely to be looking at a much weaker set of growth forecasts, where the potential risks to the economy have increased significantly.

“With growing turbulence in Europe, the possibility of further action can’t be taken off the table,” she said.

The new inflation and growth forecasts will be published by the Bank on Wednesday. Minutes from this week’s MPC meeting will be published on 23 November.

The Bank had already pumped £200bn into the economy with asset purchases between March 2009 and February 2010.

In a statement, the MPC said that its latest QE programme would take another three months to complete. “The scale of the programme will be kept under review,” the MPC said.

Ian McCafferty, chief economic adviser at the CBI employers’ group, said: “With the situation in the euro area ever more severe, the MPC will be waiting to see how events develop.

“Having announced an extension of QE last month, it’s not surprising that policy has been left unchanged.

“Although growth is expected to almost stall over the winter, the CBI’s latest forecast suggests that a double dip can be avoided.”

Last month, Bank governor Mervyn King said the financial crisis could be the worst the UK had ever seen.

 

 

HSBC shares fall on weak underlying profits

HSBC shares have fallen in early trading after the bank revealed shrinking underling profits and warned of a “very challenging” outlook.

Its shares were 4.7% lower in Tuesday mid-morning trading in London.

Headline profit before tax was actually up 66% to $5.2bn (£3.2bn) in the third quarter of the year, mainly thanks to a revaluation of its own debts, the value of which has fallen in fretful markets.

But underlying profits fell 36% due to weak business, and bad debts in the US.

“The outlook for the global economy is very challenging as problems in developed markets begin to affect growth rates around the world,” the bank said in its interim results.

HSBC repeated a warning that it may relocate its headquarters away from the UK, blaming new, stricter rules on capital – the amount of money they have to provision against potential future losses.

The UK government plans to introduce a ringfence for banks, requiring them to put their UK operations in a separate subsidiary, and is requiring them to significantly raise their capital levels, particularly for the UK business.

US bad loans

HSBC revealed that it had $13.7bn in direct exposure to troubled southern European economies – including $5.3bn to Italy – a comparatively modest figure compared with its $122bn in loss-absorbing core tier 1 capital.

Business levels at its investment banking unit continued to suffer, with profits down by more than half compared with the previous quarter, to $1bn.

“Trading conditions showed some improvement during October, but they remain very difficult and continuing turbulence in global markets may result in further downside risk,” the banks said.

Meanwhile, impairment charges and other provisioning for credit risks increased by $1bn in the three month period, the banks said, with the bulk coming from its North American business.

Cost-cutting

“The shares have fallen foul of high expectations,” said Richard Hunter, head of equities at stockbrokers Hargreaves Lansdown.

“HSBC remains largely exposed to economies in Asia which continue to enjoy burgeoning growth when compared to their peers in developed economies.

“The strength of the bank’s capital position and global growth prospects continue to underpin prospects.”

The lender is currently going through a major cost-cutting programme, which has already seen 5,000 job cuts, and is concentrating on its core Asia businesses.

 

 

Private bank Coutts fined £6.3m by the FSA

Private bank Coutts has been fined £6.3m by City watchdog the FSA for the way it sold investments to clients.

The fine surrounds the sale of bonds issued by US insurance company AIG and described as low-risk to 427 well-off customers, who invested £1.45bn.

However, the investments were caught up in the uncertainty of the financial crisis when AIG had to be bailed out.

Coutts, which is part of RBS, became a household name as the bank to the rich and famous, including the Queen.

It said it would compensate anyone who suffered losses as a result of the failures identified by the regulator. Some 247 Coutts customers had £748m invested in the fund when it was frozen. They either lost some of their money or did not earn a return.

Complaints

The AIG Enhanced Variable Rate Fund was sold to investors between December 2003 and September 2008.

Then investors saw their money frozen after AIG was bailed out by the US government during the financial crisis.

They were told that a significant proportion of their money would be inaccessible for several years.

Some clients, including the millionaire founder of the Nectar loyalty card and Air Miles inventor Sir Keith Mills, claimed they had been mis-sold the bonds.

Now the Financial Services Authority (FSA) has highlighted a string of failures by Coutts including:

• Telling customers that the fund could be seen as an alternative to a bank or building society account
• Failing to train advisers properly about the risks and features of the fund
• Recommending the fund to customers who did not want to be exposed to such a risk, or advising them to invest a large chunk of their assets in the fund
• Not responding appropriately to the changing market conditions of late 2007 and 2008.

“Firms giving investment advice must ensure they make suitable recommendations,” said Tracey McDermott, acting director of enforcement and financial crime at the FSA.

“It is imperative that firms also ensure that clients understand the nature of the product they are buying and the risks it involves. We will continue to take action where we find evidence that firms are giving unsuitable advice to customers.

“It is also disappointing that Coutts failed to reflect properly upon the impact of changing market conditions and what that meant for the advice they had given, and were giving, to their customers.”

The fine, one of the largest of its kind handed out by the regulator, was reduced from £9m owing to the bank agreeing to the penalty at an early stage.

“We always strive to provide the highest level of investment advice to our clients and have therefore been disappointed that we did not meet our high standards of service in respect of this product,” said Rory Tapner, chief executive of Coutts.

“We had already implemented enhancements to our investment advice procedures, which provide reassurance that the past failings identified by the FSA will not be repeated.”

The action comes two weeks after the UK arm of Credit Suisse was fined £5.95m for failings over advice to customers when selling complex financial products from January 2007 to December 2009.

 

 

Italy borrowing costs hit record 7%

Italy’s cost of borrowing has touched a new record, a day after Prime Minister Silvio Berlusconi said he would resign once budget reforms are passed.

The yield on Italian 10-year government bonds reached more than 7%, the highest since the euro was founded in 1999.

The debt was pushed up as a clearing house asked for a larger deposit to trade Italian bonds – to cover the increased risk of non-payment.

Investors fear that Italy could become the next victim of the debt crisis.

LCH Clearnet, a clearing house for buying and settling debt, has asked for a larger margin, or deposit, for trading debt of the eurozone’s third-biggest economy.

Rates on the 10-year bonds are currently the highest since June 1997, when Italy still had the lira.

They are even higher on one- and two-year Italian debt, meaning that it is considered even less likely that Italy will pay back what it owes immediately than in a decade’s time.

Italian stocks dropped 3%, while the benchmark German and French stock indexes fell more than 1%.

Separately, the make-up of Greece’s new government is expected to be announced.

Stocks fall

The rate of 7% is considered by most investors as unsustainable. The higher the yield – the implied cost of borrowing – goes for Italy, the more likely it is that the country’s huge economy will need to be bailed out – something that the eurozone has been desperately trying to avoid.

Italy has to roll over more than 360bn euros (£309bn) of debt in 2012.

The BBC’s business editor Robert Peston said: “No one wants to lend to a country when that country would use the loan to pay the interest on previous loans – that’s throwing good money after bad.”

On Tuesday, Mr Berlusconi said that he planned to resign after won a budget vote, but did not succeed in getting an absolute majority in the lower house of parliament.

After rising in early trade, stock markets in Europe fell back.

French banks, which are heavily exposed to Greek debt, continued to rally.

Shares in BNP Paribas rose 2.2%. Societe Generale gained 2.1% and Credit Agricole rose 1.8%.

On Tuesday, SocGen reported that quarterly profits had fallen by 31% because of a 60% write-off on its Greek loans.

Greece, which has been bailed out twice and is undergoing painful austerity cuts, also looks close to forming a new government.

In some good news, record exports pushed the trade surplus of Germany – Europe’s largest economy – to a three-year high in September, data showed on Tuesday.

 

 

Tui prepares Greek hoteliers for possible euro exit

German tour operator Tui has asked hotels in Greece to sign new contracts spelling out how the company will pay its bills if Greece leaves the eurozone and starts using a new currency.

A spokesman for the company confirmed it had written to hoteliers after the letter had been reported in German newspaper Bild.

In the letter, Tui said it was entitled to pay in whatever currency was in use.

But the Greek Tourist Board said that no hotelier would agree to that.

Bild quoted the latter as saying: “If the euro should no longer be the currency… Tui is entitled to pay the sum of money in the new currency. The exchange rate shall be made at the exchange rate set by the government.”

Tui spokesman Robin Zimmermann confirmed the letter had been sent to hoteliers, saying: “As a responsible company, we should protect ourselves for a potential exit of Greece from the eurozone.”

But Andreas Andreadis, president of the Greek Tourist Board, told Bild that Tui could not pressure hoteliers into signing such a contract.

More than two million Germans travelled to Greece last year, making them the biggest group of visitors there.

 

 

BDO warns on economy as Item club says prices may ease

The UK economy could start contracting this year due to the weakness of the service sector, according to the accountancy group BDO.

The group said its output index – based on a range of survey data – fell to 92.6 in October from 93.3 in September.

The index measures company turnover expectations over the next three months.

In a separate report Ernst and Young’s ITEM club forecast inflation would fall next year due to weak global growth.

However the same report warned that inflation was likely to pick up again, as the economic recovery took hold and companies sought to restore profits.

“The good news is that food, oil and petrol prices will all start to come down next year,” said Neil Blake, senior economic adviser to the ITEM club.

“However, the five-year outlook is far less rosy as inflationary pressures begin to bite once again. This will be compounded by weak wage growth,” due to high unemployment, he warned.

Contraction

The BDO survey also reported a worsening in the labour market.

The employment index fell to 93.4 in October down from 95.9 in September.

Any rating below 95 indicates performance below the normal trend.

The index did, however, record a slight increase in optimism – especially in the manufacturing sector.

“Despite official GDP figures of Q3 [growth] exceeding expectations, the UK’s economic recovery remains sluggish and we could already be entering a period of negative growth,” said Peter Hemington, a partner at BDO.

 

 

S. Africa to Earn $31 Million in Carbon Plan, Business Day Says

South Africa may earn 250 million rand ($31 million) by selling carbon credits for a project to rehabilitate thousands of hectares of spekboom bush in the Eastern Cape, Business Day said.

To date, 24 million rand has been spent to restore the bush, which used to cover about 1.4 million hectares (3.5 million acres) a century ago, the newspaper reported, citing Christo Marais, a manager at the Department of Environmental Affairs. Only about 200,000 hectares of healthy bush remain. Spekboom is a small-leaved succulent with significant carbon- storing capabilities.

The country needs to spend 57 billion rand to restore degraded landscapes and maintain its ecological resources, the Johannesburg-based newspaper said. The government has budgeted 1.8 billion rand, it said.

 

 

Ryanair profits from higher revenues

Ryanair has reported a 23% rise in second quarter profits, and said its full-year results will be better than previously expected.

The budget airline made a pre-tax profit of 463m euros ($637m; £398m) in the three months to 30 September, up from 378m euros a year earlier.

Ryanair said its annual profits would be 10% higher than its previous target.

It said it was continuing to see higher revenues per passenger offset high fuel costs.

Expansion

Ryanair chief executive Michael O’Leary told BBC Radio 4′s Today programme that the airline would be sticking to its growth plans.

He said: “We have been expanding rapidly for 20 years now, there [is] more and more demand for Ryanair services across Europe.”

Mr O’Leary said last month that he intended to double the size of the airline over the next decade.

He added that the rise in profit came despite the “economic downturn in Europe”.

Ryanair’s chief financial officer Howard Millar, expanded on this point, saying: “So far we have not seen any impact from recession.”

The airline also confirmed that it would ground up to 80 aircraft over the winter due to high oil prices, a move it first announced earlier in the year.

 

 

House prices up 1.2% in October, says Halifax

UK house prices rose by 1.2% in October compared with September, but have fallen over the last year, according to the Halifax.

The lender, part of Lloyds Banking Group, said that values had fallen by 1.8% compared with a year ago.

It said that the housing market had remained “highly resilient” despite weakness and a deteriorating outlook for the UK economy.

The average home in the UK was valued at £163,311, the Halifax said.

Its house price survey is based on its own mortgage data.

‘Resilient’

The Halifax said that there was a 0.3% fall in prices in the three months to the end of October compared with the previous quarter. This was the first time this measure has recorded a fall since June.

Martin Ellis, Halifax’s housing economist, said that this was an indication of the general stability of prices, despite the month-on-month figures having shown some volatility during the year.

“The housing market has proved highly resilient in recent months, despite the weak economic recovery and the deterioration in the outlook for both the UK and global economies,” he said.

“The prospect of exceptionally low official interest rates over the foreseeable future is likely to continue to support the market in the face of a very difficult economic climate.

“Both prices and activity levels are expected to remain close to current levels over the coming few months.”

The survey’s findings are similar to the picture painted by the Nationwide Building Society. A week ago, it said that UK house prices were “treading water”.

The Nationwide said the annual change in October was a 0.8% rise.

However, the year-on-year comparison is calculated slightly differently by the two lenders. The Halifax compares the previous three months with the same three months a year earlier to give a smoother comparison, rather than a direct comparison of the equivalent months.

The most recent figures from the Land Registry showed that there have been sharp differences in price changes in different parts of the country.

In London, prices rose by 0.3% in September compared with August, and were up 2.7% compared with a year ago. Yet the North East of England witnessed a 3.9% drop in month-on-month prices, and an 8.2% fall in annual values.

 

 

Italy government borrowing rates hit euro-era high

The Italian government’s borrowing cost has risen in early trade as fears grow over political uncertainty in Rome.

The yield on Italian 10-year bonds rose from 6.37% to a euro-era high of 6.64%.

It is feared that Italy, the eurozone’s third biggest economy, could become the next victim of the debt crisis. PM Silvio Berlusconi faces a crunch vote on public finance on Tuesday.

European shares also fell in morning trade with markets in London, Frankfurt and Paris all down more than 1%.

The main Italian index, the FTSE MIB, was also down 1.1%, while the Spanish Ibex fell 2.5%.

Concerns over Italy are overshadowing developments in Greece, where Prime Minister George Papandreou has agreed to stand down.

Mr Papandreou sealed a deal with the opposition to form a new coalition government to approve an EU-IMF bailout package.

Once the vote has been passed, it will open the way for Greece to receive the next 8bn euro tranche of bailout loans.

The deal was welcomed by investors, with the main Athens bourse up 2%, lifted by the banking sector. Shares in Alpha Bank were up 7.8% while Hellenic Postbank rose 11.4%.

Eurozone finance ministers are due to meet later, when they are expected to discuss the latest on Greece and mechanisms for expanding the European Financial Stability Facility (EFSF) bailout fund.

Leaders have agreed in principle to boost the EFSF from its current 440bn euros (£375bn) to 1 trillion euros, in order to tackle debt problems in Italy and Spain.

On Tuesday, finance ministers from the full EU will meet.

Last week world leaders from the G20 countries agreed to boost the resources available to the IMF, but gave but no detail on plans for the eurozone.

Meanwhile, representatives from the European Commission, the European Central Bank and the International Monetary Fund (IMF) – the so-called troika – are in Lisbon on Monday for their latest evaluation of how Portugal is implementing its bailout package.

‘Beginning of the end’

The markets are viewing Italy’s ability to repay its debt as increasingly doubtful.

The spread between Italian and German 10-year government bond yields widened to 488 basis points, its widest level since 1995.

The yield on Italian one-year bonds also jumped to 6.3% from 5.5% on Friday, compared with 0.26% for German one-year bonds.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers in London, said the worries over Italy were not so much about the economy but about the state of the political situation.

“This may be the beginning of the end for Berlusconi,” he told the BBC.

“We’re talking about a completely different animal when it comes to Italy [compared with Greece].

“Greece is responsible for 2% of [the eurozone's] GDP whereas Italy is the third biggest economy behind Germany and France.”

Pressure is growing on Mr Berlusconi, with the opposition also preparing a vote of no confidence in the prime minister later in the week.

 

 

US economy: US unemployment rate drops to 9%

The US unemployment rate, which has remained stubbornly high, dropped to 9% in October from 9.1% the month before.

The US added 80,000 new jobs in October, the Department of Labor said, less than had been forecast.

But the world’s largest economy added 158,000 jobs in September, more than the original estimate of 103,000.

Sluggish growth and high unemployment are key issues for President Barack Obama and his Republican rivals as the country enters an election year.

In September, Mr Obama unveiled a $450bn (£282bn) package of spending plans aimed at creating jobs. But that plan has been held up in a much-divided Congress.

Earlier this week, the Federal Reserve cut its forecast for US growth and increased its expectation for unemployment next year.

The Fed anticipates unemployment falling only to 8.5%-8.7% next year. It had previously predicted a fall to 7.8%.

‘Recovery of turtles’

The Department of Labor said that, over the past 12 months, employment had increased by an average of 125,000 per month.

But economists had predicted the US would add 95,000 jobs last month.

“I was actually expecting something better than consensus, so this is another disappointing month,” said Patrick O’Keefe, director of economic research at JH Cohn.

“That it is this small at this point in the recovery is an indication that this is a recovery of turtles, not a recovery of greyhounds.”

The unemployment rate was last at 9% in April this year, and peaked at 10.1% in October 2009.

The bulk of jobs in October was added in business services – such as temporary help services and technical consulting – and in leisure and hospitality.

The number of long-term unemployed who have been without a job 27 weeks or more dropped slightly to 5.9 million, or 42% of the total unemployed.

 

 

Royal Bank of Scotland reports £2bn pre-tax profit

Royal Bank of Scotland made pre-tax profits of £2bn in the three months to 30 September, against a £1.6bn loss in the same period last year.

In a statement, RBS said that its retail operation was “holding up well”, but that the investment bank side was “only modestly profitable”.

Bailed-out RBS warned of further job losses, and said the global economic slowdown was delaying its recovery.

RBS took more writedowns of £142m on its exposure to Greece in the quarter.

The bank also said it had cut its holdings of sovereign debt from Portugal, Italy, the Irish Republic, Greece and Spain to £772m at the end of September, from £4bn at the start of the year. The bulk of these sales were made during the third quarter.

“RBS’s third quarter results show the improved strength and resilience we have built up since 2008,” said chief executive Stephen Hester.

“They also highlight the external pressures facing banks, and economies more broadly, which are making the road to recovery longer and bumpier than hoped for,” he added.

Retail banking revenues were steady at £4.1bn, but bad debt charges were cut to £1.5bn, down £728m on the previous quarter.

Stock market turbulence saw income at its investment arm, Global Banking and Markets, fall 29% to £1.1bn during the quarter.

The third-quarter profits compare with a £678m loss in the second quarter of 2011. For the first nine months of the year RBS made pre-tax profits of £1.2bn.

The £2bn pre-tax profit was achieved only after accounting gains of £2.36bn on fluctuations in the value of its own debt.

The operating profit in core operations was £1.26bn, down from £1.68bn in the second quarter and £1.73bn in the third quarter of last year.

Job losses

RBS shares have fallen by nearly 50% over the past year, but rose as much as 5% on Friday.

Mr Hester warned of further cost cutting, including an undisclosed number of job losses, as the bank expected to implement the proposals put forward by the Independent Commission on Banking.

These include ringfencing retail operations from the investment arms.

The regulatory changes, combined with the weak outlook for economic growth, will lead to increased focus on its retail division and will require further cost savings, Mr Hester said.

He is halfway through a five-year turnaround plan, which has included halving the size of its investment bank operations. He has previously said 2,000 more jobs could go in the division.

“Forward momentum will be challenging, however, until the economies we serve see stronger growth,” Mr Hester said.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “The bank remains a work in progress, but is making some headway amidst turbulent conditions.

“There is little doubt that major challenges remain for RBS, not least of which is the torrent of regulation which is heading in the industry’s direction.”

 

 

G20 leaders agree to boost IMF resources

G20 leaders in Cannes have ended their summit with a plan to boost growth and rebalance the global economy.

The continuing eurozone debt crisis has dominated the summit.

In a closing press conference, French President Nicolas Sarkozy said: “We will fight to defend Europe and the euro.”

He said the G20 had agreed to boost the resources of the International Monetary Fund (IMF) and would agree on specific steps by February.

Mr Sarkozy also said that France and Germany were in favour of a financial transactions tax and they hoped it would be implemented in 2012.

US President Barack Obama was enthusiastic about commitments to greater currency flexibility.

“We welcome China’s determination to increase the flexibility of the renminbi,” he said.

“This is something we’ve been calling for for some time and it will be a critical step in boosting growth.”

British Prime Minister David Cameron said it was “essential for confidence and economic stability” that the IMF had the resources it needed, but reaffirmed that the UK would not contribute to any eurozone bailout.

German Chancellor Angela Merkel confirmed that no countries outside the eurozone had offered to contribute to the bailout fund.

The leaders released a final communique, which:

• Commits to move “more rapidly” towards greater exchange rate flexibility, without specifically mentioning China
• Agrees to support the IMF and give it more money if necessary
• Welcomes Italy’s invitation to the IMF to monitor its economic reforms
• Calls on countries with strong public finances to take steps to boost domestic demand
• Welcomes the eurozone’s plans to restore confidence and financial stability
• Sets up a task force on youth employment

Mr Cameron disputed the suggestion that there had not been the promised agreements.

“There are agreements on both the eurozone and the IMF,” he said.

“The problem is not that there isn’t a deal – the problem is that not all of the details… have been put in place.”

Some stock markets took a downward turn after the summit ended. In New York, the Dow Jones was down 1.5%, the Dax in Frankfurt was down 2.8% and the Cac 40 in Paris dropped 2.1%.

There were reports of the European Central Bank intervening to buy Italian bonds after the difference between the yields of German and Italian bonds rose to more than 4.6 percentage points.

Greek problems

The G20 leaders’ hope is that increased resources will help the IMF to support struggling eurozone economies, such as Greece.

Mr Barroso said that he hoped Greece would stay in the euro, but added that the country would need to take on the responsibilities that come with membership.

Greek prime minister George Papandreou will face a confidence vote in parliament late on Friday.

Opposition politicians and some members of his government have called for his resignation, following his announcement of a referendum on the austerity measures.

The Greek finance minister said on Friday that the referendum has now been scrapped, but the announcement of the referendum caused big market falls earlier in the week.

If Mr Papandreou loses the confidence vote then Greece will have to hold fresh elections, which may further delay the implementation of a Greek bailout package.

Eurozone leaders have already withheld 8bn euros ($11bn; £7bn) of fresh rescue loans to Greece and there are fears that further delays may see the government run out of cash and default on its payments.

Italian reforms

Italy’s decision to call in the IMF to make sure it implements austerity measures is a response to the increasing pressure from eurozone leaders to reduce its debt levels.

On Thursday, six former allies of Silvio Berlusconi wrote an open letter urging him to resign after his government failed to agree economic reforms.

The Italian cabinet agreed a limited package of budget reforms at an emergency meeting on Wednesday evening, but they failed to agree to issue a decree implementing the changes, meaning that they must now go to a confidence vote in parliament.

“Developments in Italy are a crucial test for the credibility of the anti-crisis framework set by the European Union,” said Luigi Speranza of BNP Paribas.

 

 

ECB rate cut boosts flagging markets

After a slow start, the equity market welcomed the news that the ECB had cut rates by 0.25%.

News that Eurozone rates were to drop to 1.25% spurred the Dax and CAC 40 to gains of over 2.5%. The FTSE 100 saw more moderate gains, rising 1.12% to 5,546.

The ECB’s move helped counter gloomy news from the US earlier in the day. The Federal Reserve cut its growth forecast for 2012 by 0.8% to 2.7%. It said that unemployment was likely to remain over 8.5% until the end of the year, but inflation would be under 2% from 2012-2014.

Man Group was one group leading the FTSE 100 higher, after results for the six months to 30 September beat expectations. Man has had a tough year, but said that redemptions from its funds had reduced in October and it had ended the month with $63.6bn under management.

Tate & Lyle also had a strong day’s trading after it reported stronger interim revenue figures. Sales rose 19% for the six months to 30 September on the back of its strength in international markets, such as Mexico. BT was another of the day’s top performers in spite of recording 2% dip in revenue in the quarter to 30 September. Its relative strength dragged up the rest of the telecommunications sector, with Cable & Wireless and Spirent also showing good gains.

Unilever was one of the day’s few fallers in spite of third quarter sales growth ahead of the market at 7.8%, driven by price rises of 5.8% and volume growth of 1.9%. The shares have had a strong run since mid-September and embedded expectations were high.

Insurance stocks sold off in early trading after Aviva reported lower sales. They had recovered by mid-morning, but were still among the day’s weaker performers. The group saw life insurance sales fall 8% in the third quarter and the resulting share price weakness hit Old Mutual and Admiral as well.

 

 

Q&A: Greek debt crisis

The eurozone has been plunged into renewed turmoil by Greece’s decision to hold a referendum on the EU’s efforts to bail out its stricken economy.

In October, the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) said they had reached agreement with Greece on reforms to put the nation back on track.

However, the leaders of Germany and France, as well as the IMF, have now said that Athens will not receive its next tranche of emergency aid until Greece decides whether or not to remain in the eurozone.

This is money from the 110bn-euro ($148bn; £95bn) bailout agreed last summer. Eurozone leaders have subsequently agreed a more comprehensive bailout package, including losses for banks and a larger bailout fund.

The whole point is to prevent what started in Greece spreading to other European economies.

Why is Greece in trouble?

Greece has been living beyond its means since even before it joined the euro, and its rising level of debt has placed a huge strain on the country’s economy.

The Greek government borrowed heavily and went on something of a spending spree after it adopted the euro.

Public spending soared and public sector wages practically doubled in the past decade. It has more than 340bn euros of debt – for a country of 11 million people.

However, as the money flowed out of the government’s coffers, tax income was hit because of widespread tax evasion.

When the global financial downturn hit, Greece was ill-prepared to cope.

It was given 110bn euros of bailout loans in May 2010 to help it get through the crisis – and then in July 2011, it was earmarked to receive another 109bn euros.

But that still was not considered enough. Another summit was called in October in Brussels to solve the crisis once and for all.

Why did the crisis not end with the Greek bailout?

The aim of the original Greece bailout was to contain the crisis.

That did not happen. Both Portugal and the Irish Republic needed a bailout too because of their debts.

Then Greece needed a second bailout, worth 109bn euros.

In July this year, eurozone leaders proposed a plan that would see private lenders to Greece writing off about 20% of the money they originally lent.

But bond yields continued to rise on Spanish and Italian debt – leading to fears that their huge economies will need to be bailed out too.

The failure of Franco-Belgian lender Dexia also added to woes – French and German banks are large holders of Greek debt.

The eurozone rescue fund – the European Financial Stability Facility – was 440bn euros, nowhere near big enough to deal with that scenario.

And so, in October, the eurozone agreed to expand the EFSF to 1tn euros and got banks to agree to a 50% “haircut” on their Greek holdings.

But then Greece’s Prime Minister George Papandreou shocked European leaders by calling a referendum on the bailout package.

That has led the leaders of Germany and France, as well as the IMF, to declare that Athens would not receive its next tranche of emergency aid until the referendum had passed.

What would happen if Greece defaulted?

Europe’s banks are big holders of Greek debt, with perhaps $50bn-$60bn outstanding. An “orderly” default could mean a substantial part of this debt being rescheduled so that repayments are pushed back decades. A “disorderly” default could mean much of this debt not being repaid – ever.

Either way, it would be extremely painful for banks and bondholders.

What’s more, Greek banks are exposed to the sovereign debts of their country. They would need new capital, and it is likely some would need nationalising. A crisis of confidence could spark a run on the banks as people withdrew their money, making the problem worse.

A Greek exit from the euro is seen by some as inevitable if the country defaulted. The big question would then be, what about other heavily-indebted nations in the eurozone?

It might be a repeat of the collapse of Lehman Brothers, which sparked the credit crunch that pushed Europe and the US into recession.

What does all this mean to the UK?

According to figures from the Bank for International Settlements, UK banks hold a relatively small $3.4bn worth of Greek sovereign debt, compared with banks in Germany, which hold $22.6bn, and France, which hold $15bn.

When you add in other forms of Greek debt, such as lending to private banks, those figures rise to $14.6bn for the UK, $34bn for Germany and $56.7bn for France.

However, any knock-on from Greece’s troubles would exacerbate the UK’s exposure to Irish debt, which is larger.

The UK’s direct contribution to any Greek bailout is limited to its participation as an IMF member. But the indirect effect of a Greek default on the UK would be incalculable.

 

 

Top Gold Forecasters See Rally Until March

The most accurate forecasters say gold will rebound from its biggest monthly plunge since 2008 and reach a record by March because economic growth is stagnating and Europe’s debt crisis is unresolved.

Futures traded in New York may rise 13 percent to $1,950 an ounce by the end of the first quarter, according to the median of estimates compiled by Bloomberg. The predictions are from eight of the top 10 analysts tracked by Bloomberg over the past eight quarters. Two declined to give forecasts.

Holdings in exchange-traded products backed by bullion rose the most in three months in October, and the most-widely held option gives owners the right to buy gold at $2,000 by Nov. 22. Demand for the metal accelerated since May as slowing growth and mounting concern that European leaders will fail to contain the region’s debt crisis caused $7.5 trillion to be erased from the value of global equities.

“There is a loss of trust in the entire financial system and urgent need for safe-haven investment,” said Ronald Stoeferle at Erste Group Bank AG in Vienna, the second most- accurate forecaster in the past three months. “The environment for gold is just perfect.”

ETP holdings expanded 1 percent to 2,271.2 metric tons last month, a pile now valued at $126.6 billion and greater than the reserves of all but four central banks, data compiled by Bloomberg show. Bullion bought for investment accounted for 38 percent of total demand in 2010, compared with about 4 percent a decade earlier, the London-based World Gold Council estimates.

Paulson Buys Gold

Paulson & Co., founded by John Paulson, remains the largest shareholder in the SPDR Gold Trust, the biggest ETP backed by gold, according to an Aug. 15 filing with the U.S. Securities and Exchange Commission. Paulson, who made $15 billion betting against subprime mortgages, bought the 31.5 million shares in the first three months of 2009. Their value increased to $5.3 billion from $2.84 billion since then.

Gold has risen 22 percent this year, beating the 2.2 percent advance in the Standard & Poor’s GSCI gauge of 24 commodities, the 9.3 percent decline in the MSCI All-Country World Index of equities and the 8.8 percent return on Treasuries calculated by Bank of America Corp. indexes. The metal has appreciated more than sixfold in its 11-year run of annual gains.

Prices climbed 6.3 percent in October, rebounding from the bear market in September after dropping more than 20 percent from the record $1,923.70 reached Sept. 6. Gold futures for December delivery rose 1.1 percent to $1,730.60 as of 9 a.m. in New York, headed for the first gain in four sessions.

Hedge Funds

Hedge funds and other speculators increased their bets on higher prices by 8.7 percent to 138,846 futures and options in the week ended Oct. 25, Commodity Futures Trading Commission data show. It was the biggest gain in almost three months.

The rally may fade because the swings in prices undermined the perception of gold as a haven, said Dean Junkans, an analyst at Wells Fargo & Co. in Minneapolis. In an Aug. 16 report, three weeks before the plunge began, he characterized the market as a “bubble that is poised to burst.”

“It’s not risk free and is not a currency, even though too many people think of it that way,” Junkans said in an interview. “It can go down to $1,300, and could also rise to $2,000, but there is definitely a downside potential.”

Gold also retreated in September as the Dollar Index, a measure against the currencies of six trading partners, jumped 6 percent, the most in almost three years. The 30-day correlation coefficient between gold and the index is now at -0.45, compared with 0.23 in March, data compiled by Bloomberg show. A figure of -1 means the two move in opposite directions, and 1 means they move in lockstep.

Financial System

The Dollar Index rose 3.3 percent in the past three sessions on mounting concern that European leaders will fail to contain the debt crisis, spurring demand for what are perceived to be the safest assets, including the dollar and Treasuries.

Some forecasters expect the dollar’s rally to fade because of concern that a slowing global economy may force the Federal Reserve to pump more money into the financial system. The U.S. currency will end next year at $1.40 a euro, compared with $1.3703 now, according to the median of 30 economists surveyed by Bloomberg.

Fed Vice Chairman Janet Yellen said on Oct. 21 that a third round of large-scale securities purchases may become warranted to boost the economy. The central bank bought $2.3 trillion of housing and government debt during two rounds of so-called quantitative easing from December 2008 to June 2011, spurring a 70 percent jump in the price of gold.

Bear Markets

The metal’s plunge in September may signal it is poised to keep rising. The last time bullion had a bigger drop was in October 2008, when prices tumbled 18 percent as the worst global recession since World War II drove equities and commodities into bear markets. The metal rose 23 percent in the next two months.

Investors aren’t the only ones buying bullion. Thailand, Bolivia, Kazakhstan and Tajikistan were among nations adding gold to their reserves in September, International Monetary Fund data show. Central banks are expanding reserves for the first time in a generation. Switzerland’s central bank said Oct. 31 it returned to a profit in the first nine months as gold holdings helped counter losses on currency reserves.

“There’s huge potential for gold in the coming years,” said Jochen Hitzfeld, the analyst at UniCredit SpA in Munich who was the most accurate tracked by Bloomberg in the past two years. “Investors are buying gold. That’s reinforced by buying from central banks. Prices did run up a little bit too fast, but the drop was just a breather.”

Fourth Quarter

Hitzfeld forecast on Oct. 12 that gold would average a record $1,900 in the fourth quarter of next year.

A measure of the combined earnings of the 16-member Philadelphia Stock Exchange Gold and Silver Index will rise 8.3 percent this year and almost 27 percent in 2012, according to analyst estimates compiled by Bloomberg.

Barrick Gold Corp. (ABX), the world’s biggest producer and the largest member of the index, will report net income of almost $4.8 billion this year, compared with $3.27 billion in 2010, the mean of 12 estimates shows. Shares of the Toronto-based company declined 5.3 percent this year.

“When we look at gold five years from now, we will say gold was wildly cheap,” said Jason Schenker, the president of Prestige Economics LLC in Austin, Texas, and the fifth-best forecaster tracked by Bloomberg. “What happens to gold is going to hinge on what happens to the dollar, and that is going to be influenced by what happens in Europe and monetary policy.”

 

 

Junior Isa saving option launched

Tax-free savings accounts for children, known as Junior Isas, are now available from providers for the first time.

About six million children are estimated to be eligible for the products, which cannot be cashed until a youngster reaches the age of 18.

The system in effect replaces the Child Trust Fund, which had included a voucher from the government to kick-start the savings habit.

Analysts say many potential providers have yet to publish their rates.

“Some of the larger names in the savings market are keeping their Junior Isas under wraps for the time being, in anticipation of what their competitors may be launching,” said a spokesman for financial information service Moneyfacts.

“It will be interesting to see what the big providers have to offer over the next few days as more products are launched.”

Contributions

Family or friends can pay money into a child’s Junior Isa, run by banks, building societies and investment groups, up to a total maximum annual contribution £3,600. This can be entirely in a cash savings Junior Isa, or an investment version made up of shares, bonds and investment funds, or split across both.

Children are currently limited in the amount of tax they can shield from HM Revenue and Customs (HMRC). Junior Isas are a way of side-stepping this limit.

Various providers have calculated that if parents invested an full allowance each year, they could accumulate savings of up to £100,000 by the time their child reached 18, based on growth of 5% a year.

The Treasury has estimated that six million children will be eligible for Junior Isas at launch, with 800,000 more eligible each year after that.

But some concerns have been raised about the scheme. The Institute for Public Policy Research (IPPR) said there was no longer the incentive of a voucher of at least £250 at birth from the government that was available under the Child Trust Fund.

“Labour failed to make Child Trust Funds popular or to persuade the public that they should be a permanent fixture in Britain, even in times of austerity,” said Nick Pearce, IPPR director.

“Only time will tell whether the new Junior Isas are going to work, but because the government will not provide an initial voucher to kick-start the account, many low-to-middle earner families may not feel they can afford to open one.”

Anna Sofat, director of Addidi Wealth, said some issues remained for those who had Child Trust Funds.

“The bad news is that there will be about six million children with CTFs who face being left in ‘zombie’ funds, trapped by providers who no longer feel they need to offer a competitive deal,” she said.

 

 

UK house prices see slight rise, Nationwide says

House prices increased year-on-year for the first time in six months in October, with a 0.8% rise, the Nationwide building society has said.

Prices went up by 0.4% in October compared with September, making the average home worth £165,650.

But the Nationwide said the figures failed to shift the overall picture of a housing market “treading water”.

“Property transaction levels remain subdued and prices essentially flat compared to last year,” it said.

“The outlook remains uncertain, but with the UK economic recovery expected to remain sluggish, house price growth is likely to remain soft in the period ahead, with prices moving sideways or drifting modestly lower over the next 12 months,” said the Nationwide’s chief economist, Robert Gardner.

The quarter-on-quarter comparison showed prices having dropped by 0.2% in the three months to the end of October compared with the previous three months.

Declining sales

The Nationwide’s figures are based on a sample of the building society’s own mortgage lending.

Recent data from other sources have suggested that sales may be heading for a renewed downturn after a brief and modest revival in the spring and summer.

Completed sales fell for two consecutive months in both August and September, according to HM Revenue & Customs.

Mortgages approved for house purchase but not yet lent – a good indicator of forthcoming trends – also fell in September.

That was the first drop in five months and suggest that sales backed by a mortgage may dip further in the coming months.

“Average prices have finally recovered to where they were at this time last year,” said Nicholas Ayre of property buying agency Home Fusion.

“But that can’t mask the fact that the number of sales is still paltry and the market is essentially stagnant.”

Andrew Montlake of mortgage brokers Coreco said: “There seems to be a two-tier system in place, with London and other high demand areas holding their value.”

“We expect to see house prices continue to wander aimlessly for the foreseeable future until constraints on mortgage borrowing ease and more sellers are able to return to the market,” he added.

 

 

UK economic growth picks up to 0.5%

The UK economy grew by 0.5% in the third quarter of 2011, according to the Office for National Statistics (ONS).

The growth in the July-to-September period compared with a 0.1% expansion in gross domestic product (GDP) in the previous quarter.

But analysts said growth in the second quarter of the year had been dampened by one-off factors.

As a result, the third-quarter figures should not be interpreted as a big economic rebound, they added.

Output of the production sector rose 0.5% in the third quarter, compared with a 1.2% fall previously.

Service sector growth was up 0.7%, against a rise of 0.2% in the previous quarter.

The ONS emphasised that growth in the April-to-June period had been hindered by factors such as the extra bank holiday for the royal wedding.

James Knightley, at ING Financial Markets, said: “While the Q3 growth rate looks respectable, it is important to remember that this follows a Q2 figure depressed by having fewer working days because of the royal wedding and supply disruptions caused by the Japan earthquake/tsunami.

“So for the economy to have only grown 0.5% in Q3 suggests the underlying picture remains weak,” Mr Knightley said.

Howard Archer, economist at IHS Global Insight, added: “This performance overstates the underlying strength of the economy and this is likely to be as good as it gets for some time to come.”

However, Chancellor of the Exchequer George Osborne described the figures as “a positive step” and better than many people had forecast.

“Of course the British economy has got this difficult journey. It is a journey made more difficult by the kinds of things you see for example today in the markets because of the situation in the eurozone.

“But we are determined to finish this journey,” Mr Osborne said.

Asked whether the government would stick to its austerity plans, Mr Osborne said: “We have to understand that this journey is the only route that will take us to prosperity and recovery.”

The EEF engineering employers’ group also drew some comfort from the ONS figures.

EEF chief executive Terry Scuoler said: “Despite the seemingly endless stream of gloomy news from Europe, the UK economy seems to have weathered the turbulent summer months.

“Today’s modest figures are better than expected, but global challenges are growing, confidence is fragile and investment plans remain on hold.”

But concerns about the UK economy were not helped by latest Markit Purchasing Managers’ Index data, also released on Tuesday.

The index for manufacturing activity in October fell to 47.4 points, from 50.8 points in September. Any reading above 50 indicates expansion.

Rob Dobson, senior economist at Markit, said: “The UK manufacturing PMI fell sharply back into contraction territory in October.

“The most worrying aspect of the survey is the trend in new orders, which declined at the quickest pace since March 2009. Companies are facing tough conditions in both domestic and overseas markets, meaning that output is increasingly being sustained through the depletion of backlogs of work.

“A marked recovery in the replenishment rate of order books is needed to prevent the renewed manufacturing downturn becoming embedded,” Mr Dobson said.

 

 

U.S. Banks Sell More Insurance on Europe Debt

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers, accounting for two-thirds of the total related to the five nations, BIS data show.

The payout risks are higher than what JPMorgan Chase & Co. (JPM), Morgan Stanley and Goldman Sachs Group Inc. (GS), the leading CDS underwriters in the U.S., report. The banks say their net positions are smaller because they purchase swaps to offset ones they’re selling to other companies. With banks on both sides of the Atlantic using derivatives to hedge, potential losses aren’t being reduced, said Frederick Cannon, director of research at New York-based investment bank Keefe, Bruyette & Woods Inc.

“Risk isn’t going to evaporate through these trades,” Cannon said. “The big problem with all these gross exposures is counterparty risk. When the CDS is triggered due to default, will those counterparties be standing? If everybody is buying from each other, who’s ultimately going to pay for the losses?”

Hedging Strategies

Similar hedging strategies almost failed in 2008 when American International Group Inc. couldn’t pay insurance on mortgage debt. So far, banks that sold protection on sovereign debt have bet the right way. Last week, European leaders persuaded bondholders to participate in a restructuring that will likely avert a Greek default triggering payments. A CDS is a contract that requires one party to pay another for the face value of a bond if the issuer defaults.

The CDS holdings of U.S. banks are almost three times as much as their $181 billion in direct lending to the five countries at the end of June, according to the most recent data available from BIS. Adding CDS raises the total risk to $767 billion, a 20 percent increase over six months, the data show. BIS doesn’t report which firms sold how much, or to whom.

The jump in CDS sold by U.S. banks on Greek, Portuguese, Irish and Spanish debt was almost the same as the decline in the exposure of German and U.K. lenders. German and U.K. risk related to Italy didn’t fall, even as the amount of CDS sold by U.S. lenders on debt related to that country rose.

Five Banks

Five banks — JPMorgan, Morgan Stanley, Goldman Sachs, Bank of America Corp. (BAC) and Citigroup Inc. (C) — write 97 percent of all credit-default swaps in the U.S., according to the Office of the Comptroller of the Currency. The five firms had total net exposure of $45 billion to the debt of Greece, Portugal, Ireland, Spain and Italy, according to disclosures the companies made at the end of the third quarter. Spokesmen for the five banks declined to comment for this story.

While the lenders say in their public disclosures they have so-called master netting agreements with counterparties on the CDS they buy and sell, they don’t identify those counterparties. About 74 percent of CDS trading takes place among 20 dealer- banks worldwide, including the five U.S. lenders, according to data from Depository Trust & Clearing Corp., which runs a central registry for over-the-counter derivatives.

In theory, if a bank owns $50 billion of Greek bonds and has sold $50 billion of credit protection on that debt to clients while buying $90 billion of CDS from others, its net exposure would be $10 billion. This is how some banks tried to protect themselves from subprime mortgages before the 2008 crisis. Goldman Sachs and other firms had purchased protection from New York-based insurer AIG, allowing them to subtract the CDS on their books from their reported subprime holdings.

‘AIG Moment’

When prices of mortgage securities started falling in 2008, AIG was required to post more collateral to its CDS counterparties. It ran out of cash doing so, and the U.S. government took over the company. If AIG had collapsed, what the banks saw as a hedge of their mortgage portfolios would have disappeared, leading to tens of billions of dollars in losses.

“We could have an AIG moment in Europe,” said Peter Tchir, founder of TF Market Advisors, a New York-based research firm that focuses on European credit markets. “Let’s say Greece defaults, causing runs on other periphery debt that would trigger collateral requirements from the sellers of CDS, and one or more cannot meet the margin calls. There might be AIGs hiding out there.”

Dexia Bailout

The bailout of Dexia SA (DEXB) by Belgium and France last month resembled AIG’s rescue. The bank, based in Brussels and Paris, faced 16 billion euros ($22 billion) of new margin calls on Oct. 7 as a result of interest-rate swaps it had sold, Belgian central bank Governor Luc Coene said.

The two countries agreed to aid Dexia on Oct. 9, assuring creditors — including holders of CDS and other derivatives counterparties — they would be paid in full, the same way AIG’s were after the U.S. takeover. Goldman Sachs and Morgan Stanley (MS) were among the lender’s biggest trading partners, the New York Times reported on Oct. 23, citing people it didn’t identify.

Benoit Gausseron, a spokesman at Dexia in Paris, didn’t confirm or deny the newspaper report.

“The risks for the U.S. banks are particularly relevant if their counterparties are European,” said Darrell Duffie, a Stanford University finance professor who has written seven books about derivatives. “What if they sold protection to some banks and bought protection from others, and they can’t get paid by the ones they bought protection from?”

Counterparty CDS

Banks also buy CDS on their counterparties to hedge against the risk of trading partners going bust, Duffie said. To ensure those claims are paid, the banks may be turning to institutions deemed systemically important, such as JPMorgan, according to Duffie. The bank, the largest in the U.S. by assets, accounts for a quarter of all credit derivatives outstanding in the U.S. banking system, according to OCC data.

Goldman Sachs said it had hedged itself against the collapse of AIG by buying CDS on the firm. Company documents later released by Congress showed that some of that protection was purchased from Lehman Brothers Holdings Inc. and Citigroup, firms that collapsed or were bailed out during the crisis.

U.S. banks are probably betting that the European Union will also rescue its lenders, said Daniel Alpert, managing partner at Westwood Capital LLC, a New York investment bank.

“There’s a firewall for the U.S. banks when it comes to this CDS risk,” Alpert said. “That’s the EU banks being bailed out by their governments.”

Triggering Default

European leaders are doing everything they can not to trigger the default clauses in CDS contracts to avoid putting the banking system at risk. They persuaded bondholders to accept a 50 percent loss on their holdings of Greek debt in an agreement reached in Brussels last week with the Institute of International Finance, an industry association. The deal calls for a voluntary exchange of debt.

Another trade group, the International Swaps & Derivatives Association, or ISDA, decides whether a debt restructuring triggers CDS payments. The committee that will rule on the Greek deal is made up of 10 bank representatives and five investment managers and needs 12 votes to reach a decision. ISDA said on Oct. 27 that the agreement would most likely not be considered a default since it’s voluntary.

That determination is difficult to justify because almost every sovereign debt default includes some restructuring in which bondholders participate, according to Janet Tavakoli, founder of Tavakoli Structured Finance Inc. in Chicago.

Favoring Big Banks

“The ISDA ruling favors the big banks that sold the CDS because those banks sit on the ISDA board,” said Tavakoli, a former head of mortgage-backed-securities marketing at Merrill Lynch & Co. “Smaller banks or other institutions that might have bought the swaps to protect against a default like this don’t have as much influence.”

Some bondholders might challenge the ruling in court, Tavakoli said. Lauren Dobbs, an ISDA spokeswoman, declined to comment.

U.S. Treasury Secretary Timothy F. Geithner urged European leaders and finance ministers to increase the firepower of their 440 billion-euro rescue fund. The Obama administration’s stance might have been prompted by worries that defaults in the euro zone would hurt U.S. banks through their CDS exposure, according to Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based bank-rating firm.

‘Risk-Creation’

“Geithner keeps asking Europeans to fix their shop, but he doesn’t do anything to rein in the risk-creation at home through these derivatives,” Whalen said.

Leaders of the 17 euro-zone countries decided last week to more than double the size of their rescue fund to 1 trillion euros. They haven’t yet said how it will be financed.

Geithner and Federal Reserve Chairman Ben S. Bernanke have said they’re not worried about U.S. banks’ exposure to European sovereign debt. Regulators, including the Fed, are monitoring CDS risk, according to one official who declined to be named because he wasn’t authorized to discuss the matter. U.S. banks have collected sufficient collateral from counterparties on the CDS and should be able to manage defaults, the official said.

JPMorgan CEO Jamie Dimon, 55, said last month that the New York-based bank hedges its exposure to European sovereign debt through contracts with lenders in other countries, including Germany and France. The counterparties are diversified, and JPMorgan takes sufficient collateral to protect itself against losses, Dimon said during a third-quarter earnings call.

MF Global

MF Global Holdings Ltd. (MF), a broker-dealer run by former Goldman Sachs co-Chairman Jon Corzine, reported $1 billion of net exposure to Spain and $3 billion to Italy in its second- quarter financials, explaining in a footnote that the net was partly due to a short position on French bonds. Those hedges weren’t enough to protect MF Global, which filed for bankruptcy yesterday after losses in the portfolio wiped out its capital.

Hedging and other ways of netting help banks report lower exposures than the full risk they might face. Morgan Stanley said last month that its net exposure in the third quarter to the debt of Spain’s government, banks and companies was $499 million. The Federal Financial Institutions Examination Council, an interagency body that collects data for U.S. bank regulators and disallows some of the netting, said the New York-based firm’s exposure in Spain was $25 billion in the second quarter.

The net figure for Italy was $1.8 billion, Morgan Stanley said, compared with $11 billion reported by the federal data- collection body.

Ruth Porat, 53, Morgan Stanley’s chief financial officer, said during a call with investors after the earnings report last month that the data compiled by regulators didn’t take into account short positions, offsetting trades or collateral collected from trading partners.

“It’s the firms that don’t post collateral because they’re seen as more creditworthy that pose the counterparty risk,” said Tchir. “Those could be insurance companies, mid-size European banks. If some of those fail to pay when the CDS is triggered, then the U.S. banks could be left holding the bag.”

 

 

Shares gain after eurozone agrees a deal on debt crisis

Shares have jumped after eurozone leaders agreed a deal that they say will help resolve the debt crisis.

The eurozone agreed a deal on expanding the bailout fund and banks taking losses on Greek debt in exchange for recapitalisation.

UK stocks rose 1.9% to 5,656.5. Shares in Frankfurt jumped 3.5% and gained 2.5% in Paris.

The euro was higher, rising 1.1% against the dollar to $1.3987, and up 0.5% against the pound to 87.32 pence.

In Athens, the heart of the crisis, stocks jumped 4.8%.

Stock markets in Europe and Asia have seen sharp falls this year due to fears that the crisis was not going to be resolved and may even lead to a Greek default.

On Thursday, Tokyo stocks jumped 2% and, in Hong Kong, they added 2.7%.

Stocks in Sydney, which had been unable to open for four hours due to a technical glitch, eventually rose 1.8%. The Shanghai index added 0.4%.

Deal reached

Leaders from all 27 European Union nations have finally thrashed out a deal to solve the crisis started by concern over how Greece would cope with its debts.

Greece, the Irish Republic and Portugal have all required bailouts and this last week of talks was prompted by fears the crisis would spread to the larger economies of Spain and Italy.

Late on Thursday morning, the EU leaders meeting in Brussels agreed to expand the eurozone’s main bailout fund to 1tn euros ($1.4tn; £880bn).

Banks also accepted a loss of 50% on Greek debt, and they must raise more capital to protect themselves against losses resulting from any future defaults.

Under the deal, Greek debt would drop from 160% of GDP to 120% by 2020.

EU leaders said measures to restore confidence in the bloc’s banks “are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector”.

The agreement replaced a deal that had been reached at a July summit, when the eurozone offered 109bn euros in aid and banks agreed to take a 21% loss on their debt holdings.

 

 

Kuwait Sets Biggest Gulf Renewable-Energy Goal to Free Crude for Export

Sun-drenched Kuwait, a desert nation with no solar-power plants and electricity demand that’s growing about 8 percent a year, has set the most ambitious target for using renewable energy in the Gulf region.

OPEC’s fifth-biggest oil producer, whose air conditioners run cheaply off state-subsidized oil-fired power plants, aims to generate 10 percent of its electricity from sustainable sources by 2020, said Eyad Ali al-Falah, assistant undersecretary for technical services at the Ministry of Electricity and Water.

Kuwait is trying to free up oil for export and expand its generation capacity to support increased tourism, manufacturing and home building in a $112 billion development program. To meet its clean-energy target, which exceeds the 7 percent goal set by Abu Dhabi in the United Arab Emirates, Kuwait next must gather data on sunshine and wind speeds, al-Falah said.

“Renewable energy is a new subject for Kuwait,” al-Falah, who coordinates alternative energy for the ministry, said in an interview at its headquarters outside Kuwait City. “That’s why there’s a lack of information regarding the suitability of renewables for our weather.”

While analysts are skeptical Kuwait will meet its target, they don´t question the economic case that underpins it. The Arab country consumed 413,000 barrels a day of oil in 2010, about 16 percent of production, according to the BP Statistical Review of World Energy for 2011. That’s 66 percent more than in 2000, while production increased about 14 percent.

Summer Heat Waves

In a nation where summer temperatures can top 50 degrees Celsius (122 Fahrenheit), domestic consumption has more than doubled in the last 10 years.

Gulf oil producers need to generate more electricity to meet demand that’s growing an average of 10 percent a year, Jarmo Kotilaine, chief economist at National Commercial Bank in Jeddah, Saudi Arabia, said in March.

“We definitely see solar potential in Kuwait,” said Rajit Nanda, chief financial officer for ACWA Power International, a Saudi Arabia-based company that develops electricity and water projects. While Kuwait hasn’t kick-started renewable energy projects, “there’s a lot of peak demand when solar resources are at their best.”

Kuwait could then export more fuel and generate higher revenue instead of pumping it into electricity plants, Nanda said. Oil contributed 95 percent of the 11.89 billion dinars ($43 billion) in revenue the country recorded for the five months through Aug. 31.

Beginning in 2014

The Ministry of Electricity and Water is “firmly” behind Kuwait’s renewable-energy plans, according to al-Falah. “It’s a long process but I’m expecting 2014 or 2015 may witness the inception of these solar projects, and the wind turbines. I think of solar as fuel saving, not as an alternative.”

The 10 percent renewable-energy goal by 2020 may be too optimistic, according to analysts.

“Kuwait is not going to come anywhere close to meeting that target,” said Robin Mills, head of consulting at Manaar Energy in Dubai. “The U.A.E. will come closer but will still miss its goal. Kuwait is taking its time deciding which technologies to use, and thereby delaying implementation.”

Kuwait subsidizes electricity for more than 1 million Kuwaiti citizens and about 2.5 million expatriates. They pay 2 fils (7 U.S. cents) a kilowatt-hour compared with more than 35 fils a kilowatt-hour for production, according to al-Falah.

Tenders for Construction

The country issued a tender in March to build the Al-Zour North power plant, one of Kuwait’s biggest projects to boost supplies, which could cost an estimated 750 million dinars.

The country imports liquefied natural gas to supply its power stations when demand peaks in the summer months. Kuwait is also planning to build a new oil refinery at a cost of at least 4 billion dinars to help meet domestic demand. Less than 1 percent of the power supply is from renewable sources.

Jutting 16 meters high (53 feet) along one of Kuwait’s busiest highways, the country’s only wind turbine generates five kilowatts of electricity to power lights in the garden of Mohammed al-Naki, a former engineer in the Kuwaiti army and an environmental activist.

“At least if I fix something in my house, it helps,” al- Naki said in an interview at his home. “If I can do it, you can do it, and pressure would ease on the government’s production of electricity by 10 percent.”

Though a more common site in other Middle East and North African countries, a wind turbine in the holder of the world’s sixth-largest oil reserves is novel.

Capacity Limit

The Kuwait Institute for Scientific Research is studying building wind turbines capable of adding 10 megawatts to the main electricity grid and which may be started this year, al- Falah said. Electricity consumption in the summer months of 2010 reached 99 percent of capacity.

Another project in Abdaliyah, southwest of Kuwait City, is planned to build a combined-cycle gas power plant, with a capacity of 220 megawatts, enhanced with solar radiation generating another 60 megawatts.

There is also a proposal to build a 50-megawatt power plant using photovoltaic panels, which convert sunlight directly to electricity, al-Falah said.

Other countries in the region already have their own plans for renewable energy and are turning them into action.

Masdar, a $22 billion renewables company owned by Abu Dhabi, has solar plants already and started building a low carbon-emitting city. Dubai, the second-largest sheikhdom in the U.A.E., said last month it will soon announce plans for the emirate’s first utility-scale solar plant.

Qatar and the U.A.E. are among the first oil producers in the Middle East to seek United Nations credits for alternative- energy projects.

Al-Naki, the former army engineer, said aside from a wind turbine, he uses a rooftop solar panel to heat water used in three bathrooms in his house in Salwa, 16 kilometers south of Kuwait City.

“It’s also fun,” he said. “A culture for a new generation, and why not?”

 

 

Eurozone deal hopes prompt market rally

Markets have risen further on hope that a deal to resolve the eurozone debt crisis can be put together.

Stock markets rose in early Monday trading, while the euro held steady.

Although a weekend summit of eurozone leaders was inconclusive, the outline of a deal was agreed, with a summit to finalise details set for Wednesday.

Eurozone leaders agreed to force banks to protect themselves against future losses, and to increase the firepower of the single currency’s bailout fund.

European stock markets rose at the open of Monday trading on the apparent progress at the talks, with the Cac 40 index in France and the Dax in Germany both up more than 0.5%.

Hong Kong’s Hang Seng index ended the day 3.8% higher, while in Tokyo the Nikkei ended 1.9% up.

The price of copper – an indicator of market sentiment over the global economy – rose 6% in Shanghai trading.

The euro was largely unchanged over the weekend, holding firm against the dollar at about $1.39.

Pressure on Italy

Among the main points of agreement reached at the weekend were:

 

 

Diversified investors should look to have 40 per cent of their portfolios in

Climate change forces new look at investor risk:

Diversified investors should look to have 40 per cent of their portfolios in assets that are primed for the impacts of climate change, according to an advisory report to the investment industry.

The report, Climate Change Scenarios: Implications for Strategic Asset Allocation, was drafted by asset consultants Mercer, which advises big institutional investors, such as pension funds. Mercer concluded that climate change will force these highly diversified investors to re-balance their portfolios according to sources of risk, rather than the traditional approach purely according to asset classes.

Mercer says investors should bear in mind three areas of change: energy efficiency and technology; societal shifts, such as in health and food security; and shifts in policy, particularly in carbon emissions reduction.

In light of this, a range of “climate sensitive” areas were identified for returns and risk management potential emerging from the most likely climate change scenarios emerging over the next two decades.

The report identifies listed shares, infrastructure and private equity as the best asset classes for investment in the recommended areas of timberland, renewable energy, energy efficiency and other sustainable assets. Investment opportunities in low-carbon technology could be as high as $5 trillion by 2030, the report states.

The report warns that weather extremes expected in a warming world, such as drought, floods and storms, could contribute 10 per to portfolio risk by 2030. But investors must not only take account of environmental damage, but anticipate policy changes designed to tackle the climate problem.

In the most likely of four global policy settings to emerge by 2030, action on climate change would be in place on a regionally divergent basis with some nations taking stronger measures to cut emissions than others, but no more than medium ambition overall. A carbon price of $110 per tonne could be expected in this scenario by 2030, the report says.

 

 

BofA Loses No. 1 Assets Ranking to JPMorgan

Bank of America Corp. (BAC) lost its ranking as the largest U.S. lender by assets as Chief Executive Officer Brian T. Moynihan cut jobs and sold units and rival JPMorgan Chase & Co. (JPM) expanded.

JPMorgan’s total assets increased 1.9 percent in the third quarter to $2.29 trillion as of Sept. 30, while Bank of America reported today a 1.8 percent decrease to $2.22 trillion. San Francisco-based Wells Fargo & Co. (WFC) was the largest by market value as of yesterday’s close on the New York Stock Exchange.

Bank of America became biggest by assets under former CEO Kenneth D. Lewis through acquisitions, including credit-card issuer MBNA Corp. and home lender Countrywide Financial Corp. Both were the largest in their industries and later triggered writedowns that contributed to six quarterly losses since mid- 2008 at Charlotte, North Carolina-based Bank of America.

The change in ranking “tells me that Bank of America is behind JPMorgan,” said Jefferson Harralson, an analyst at KBW Inc. “Their capital levels are 200 to 300 basis points behind JPMorgan; their ability to pay a dividend is 8 to 12 quarters behind. The acquisition of Countrywide was a key determinant of why they’re so far behind.”

Moynihan has been shutting branches and selling assets such as Canadian credit-card operations and a stake in health-care company HCA Holdings Inc. as the bank prepares for capital rules set by the Basel Committee on Banking Supervision. He said last month he would eliminate about 30,000 jobs after consumer- protection rules squeezed revenue from debit and credit cards.

‘More Driven’

“We don’t have to be the biggest company out there,” Moynihan said at a Sept. 12 investor conference in New York. “We can get out of things we don’t need to do, make the company leaner, more straightforward, more driven.”

JPMorgan, led by CEO Jamie Dimon, never reported a losing quarter throughout the financial crisis, even as it rescued Bear Stearns Cos. and took over the banking unit of Washington Mutual Inc. after that Seattle-based lender collapsed. Dimon added units to the commodities business and has been increasing the branch count.

JPMorgan raised its dividend in March to 25 cents a share from 5 cents after the Federal Reserve reviewed the ability of the largest U.S. lenders to withstand another economic slump. Bank of America said that month that the Fed rejected its request to increase its dividend from 1 cent a share.

JPMorgan’s third-quarter net income was $4.26 billion, the New York-based company reported last week. Moynihan’s firm posted third-quarter net income of $6.23 billion helped by an accounting gain, the bank said today.

Bank of America became the largest bank in the first quarter of 2009. JPMorgan had supplanted New York-based Citigroup Inc. (C) as the biggest U.S. bank in 2008 after taking over Bear Stearns.

 

 

Coca-Cola reports $2.2bn profit and 45% revenue jump

Coca-Cola, the world’s largest drinks manufacturer, has reported a third-quarter profit of $2.2bn (£1.4bn).

This was a 9% rise on the same period last year. Its revenues rose 45% to $12.3bn.

Coca-Cola’s revenues were helped by price rises and its acquisition of its North American bottling operations.

Its volume sales rose 5% globally and by the same level in North America. Sales in Europe were up 2%, and by 7% in China.

Its sales in India added 19% and rose by 7% in Latin America

 

 

Shares fall on France and China concerns

European shares have fallen after Moody’s warned about France’s credit rating and figures showed a slowdown in the rate of China’s economic growth.

Disappointing results overnight by US computer company IBM also hit sentiment.

France’s main Cac index was down 1.8%, while the UK’s FTSE 100 had lost 1% and Germany’s Dax had given up 0.4%.

Moody’s said it may change its “stable” outlook on France’s top AAA rating to “negative” in the coming months.

Explaining its announcement, the rating agency said the financial strength of the French government “has weakened”.

It added that it was concerned about the impact on French finances of the government having to contribute more funds to help bail out indebted eurozone countries and commercial banks exposed to eurozone sovereign debt.

EU summit

Moody’s warning about France renewed concerns about the eurozone debt crisis.

European Union leaders are due to meet on Sunday to try to agree on concrete proposals to solve the debt crisis, but a number of reports suggest no definite measures may be agreed.

Separately, new figures showed that China’s economic growth slowed to 9.1% in the three months to the end of September from a year earlier, down from 9.5% in April to July.

The slowdown in the world’s second-largest economy comes as the Chinese government continues measures to control inflation.

Japan’s main Nikkei share index ended down 1.5% following the news, while Hong Kong’s Hang Seng index dropped 4.3%.

On Monday, IBM said that its third quarter net income had risen 7% from a year earlier, barely meeting Wall Street forecasts.

The company’s shares fell more than 3% in after-hours trading in New York.

 

 

Social Media

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We look forward to speaking about interesting relative news stories as they break and socialable topics around the clock.

 

 

UK CPI inflation rate rises to 5.2% in September

The rate of Consumer Prices Index (CPI) inflation in the UK matched its record high in September, rising to 5.2% from 4.5% the month before.

An increase in energy costs was behind a large proportion of the rise.

The 5.2% rate is the highest CPI measure since September 2008, and it has never been higher since the CPI measure was introduced in 1997.

The Retail Prices Index (RPI) – which includes mortgage interest payments – rose to 5.6% from 5.2%.

The latest RPI measure is the highest annual rate since June 1991.

The CPI measure is way ahead of the Bank of England’s target rate of 2%. However, Bank governor Mervyn King still expects inflation to begin falling next year, once factors such as January’s VAT rise drop out of the equation.

But the rise in the cost of living highlights the risk of the Bank’s latest move to revive the economy through further quantitative easing, which could help to stoke inflation.

 

 

Citigroup Q3 net rises, boosted by accounting gain

(Reuters) – Citigroup Inc reported higher third-quarter earnings on Monday as the bank set aside less money to cover bad loans and recorded an accounting gain banks can take in turbulent markets.

Investment banking fees dropped as the European debt crisis cut into stock and bond issuance and merger activity. Operating expenses rose, in part because of investments the bank is making to boost its business.

Citigroup, the third-largest U.S. bank by assets, reported net income of $3.77 billion (2.39 billion pounds), or $1.23 per share, up from $2.17 billion, or 72 cents per share, in the same quarter last year.

The third-quarter results included a pre-tax gain of $1.9 billion, or 39 cents per share after taxes, due to the bank’s widening credit spreads during the quarter. When a bank’s debt weakens relative to U.S. Treasuries, it can record an accounting gain because it could profit from buying back debt.

Excluding that gain, Citi earned $2.6 billion, or 84 cents per share.

Revenue at the bank’s continuing securities and banking business fell 12 percent excluding the debt value adjustment, to $4.84 billion, hurt by declining underwriting and merger advisory fees.

JPMorgan Chase & Co also reported declines in investment banking fees when it reported third-quarter results last week. JPMorgan also reported an accounting gain identical to Citi’s.

Overall operating expenses for Citigroup rose 8 percent from a year earlier. Operating expenses were $12.46 billion and have been hovering around that level since the fourth quarter of 2010. From the beginning of 2009 through the third quarter of 2010, quarterly operating expenses were typically closer to $11.9 billion.

It was not immediately clear if the quarterly earnings were comparable to analysts’ average earnings forecast of 81 cents per share, according to Thomson Reuters I/B/E/S.

Citi, which received three U.S. government rescues at the height of the financial crisis, is seeing its problem loan portfolio shrink.

Nonaccrual loans fell to $7.95 billion from $12.46 billion a year earlier.

The bank’s share price has fallen about 40 percent this year, in line with declines for other large banks.

Citigroup shares rose 2 percent to $29.00 in early trading.

 

 

Great Prizes to be won

Oakmount and Partners are proud to announce that we will shortly be running a competition to win the following products:

1^st prize: an IPAD

2^nd prize: a Kindle

3^rd  prize: a Montblanc

There will also be 5 copies of the award winning book: THE SECRET by Rhonda Byrne to be given away.

 

 

BP gets $4bn from Anadarko as part of a Gulf settlement

BP is to receive $4bn (£2.5bn) cash as part of a settlement with Anadarko Petroleum over last year’s Deepwater Horizon oil platform disaster.

The money will go into a $20bn trust that BP set up to meet claims against it following the Gulf of Mexico oil spillage and deaths of rig workers.

Anadarko owned 25% of the oil well. Both companies have agreed to drop all other claims against each other.

Investors welcomed the news, with BP shares almost 5% up in early trading

BP chief executive Bob Dudley said the settlement was “clear progress” towards ending long-running legal disputes with it partners in drilling project, and he called on other contractors to seek a resolution.

BP is still in dispute with other contractors, including Transocean and Halliburton, involved in drilling the Macondo oil well.

An official report has blamed safety and operational lapses for the worst oil spill in US history and oil rig explosion which killed 11 workers.

Mr Dudley, BP’s chief executive, said in a statement: “This settlement [with Anadarko] represents a positive resolution of a significant uncertainty and it resolves the issues among all the leaseholders of the Macondo well.

“There is clear progress with parties stepping forward to meet their obligations and help fund the economic and environmental restoration of the Gulf. It’s time for the contractors, including Transocean and Halliburton, to do the same.”

BP has recently struck settlements with MOEX, which owned 10% of the Macondo well, and Weatherford, which provided drilling equipment.

As part of the latest settlement, US-based Anadarko will drop its claims of gross negligence against BP and give up its 25% interest in the Macondo well.

BP will end claims for about $6bn of invoices against Anadarko, and also award the company a small share of any successful insurance claims or money recovered from third parties.

The out-of-court settlement involves no admission of liability from either side.

 

 

UK economy at dangerous junction, warns Item Club

The UK economy has stalled at a dangerous junction, according to independent forecaster Ernst and Young.

The body, whose Item Club uses the same forecasting methods as the government, says the economy needs new growth measures to get back on track.

It says uncertainty across the eurozone and a slowing world economy is undermining business confidence.

Ernst and Young also says the Bank of England’s new quantitative easing (QE) bout is unlikely to prompt recovery.

The Item Club has downgraded its forecast for gross domestic product (GDP) to just 0.9% this year, well below the 1.4% it predicted three months ago.

It says growth should pick up to 1.5% in 2012, although that is also well under the 2.2% it previously predicted.

Earlier this month, official figures showed the UK economy grew by 0.1% between April and June, less than the 0.2% estimated previously.

A Treasury spokesman said the government’s strategy was the right one: “The government has taken decisive action to reduce the deficit and this fiscal strategy is helping keeping interest rates low for taxpayers, businesses and homeowners and is essential for strong and sustainable growth.

“The latest data confirms the British economy is growing.”

The Ernst and Young findings are in line with recent ones from other forecasts and survey evidence and add to the pressure on the Chancellor, George Osborne, to provide an economic boost.

Also on Monday, professional services company Begbies Traynor reported it found an increase of 23% of companies reporting “critical” financial distress in the third quarter of this year compared with 2010.

Companies with “critical” problems are those with county court judgements totalling £5,000 or more, and/or wind-up petition related actions.

‘Cut rates’

Ernst and Young says the government should be looking to use targeted monetary and fiscal measures to support growth, as well as the latest injection of £75bn of further quantitative easing (QE).

It thinks further action should include cutting interest rates to 0.25% from their current record low of 0.5%, and a cut in stamp duty for first-time buyers.

It warns that unemployment will rise to 2.7 million from 2.57 million over the next 18 months, and that there should be more support for the labour market.

Peter Spencer, the chief economic adviser to the Ernst & Young Item Club, said: “It’s worse than we thought. The bright spots in our forecast three months ago – business investment and exports – have dimmed to a flicker as uncertainty around Greece and the stability of the eurozone increases.

“We think there is scope for targeted tax relief and spending measures to help put us back on track. In the meantime, businesses need to be much more aware of the economic risks and have contingency plans in place given the current volatility.”

 

 

G-20 Gives EU One Week to Fix Debt Crisis

European leaders have one week to settle differences and flesh out a strategy to terminate their sovereign debt crisis as global finance chiefs warn failure to do so would endanger the world economy.

Group of 20 finance ministers and central banks concluded weekend talks in Paris endorsing parts of the emerging plan to avoid a Greek default, bolster banks and curb contagion. They set an Oct. 23 summit of European leaders in Brussels as the deadline for it to be delivered.

“The risk of a recession would be increased dramatically were the Europeans to fail to accomplish goals that they’ve set for themselves,” Canadian Finance Minister Jim Flaherty said after the G-20 meeting, which ended Oct. 15.

Two years to the week since Greece triggered the turmoil by revising its budget math, the inability of policy makers to stamp it out has pushed the Greek government to the edge of default and the European economy close to recession. Stocks and the euro extended last week’s gains after the meeting.

The Stoxx Europe 600 Index added 1.3 percent to 241.59 at 9:15 a.m. in London. The euro rose 0.2 percent to $1.3904, following a 3.8 percent weekly advance, the biggest since March 2009.

Greece’s Vote

Hurdles to overcome for an accord include resistance from bankers to a deeper restructuring of Greek debt as well as disagreements between Europe’s capitals over just how to multiply the firepower of their bailout fund and recapitalize financial institutions. Greece’s parliament faces another tight vote on new fiscal measures as soon as this week, a showdown that Prime Minister George Papandreou needs to win to ease the way for more foreign financing.

The Brussels meeting “has the potential to turn into a positive historic moment,” Joachim Fels, London-based chief economist at Morgan Stanley, wrote in a note to clients yesterday. “But it could also easily turn into a negative catalyst.”

Europe’s plan, which has still to be made public, includes writing down Greek bonds by as much as 50 percent, establishing a backstop for banks and magnifying the strength of the 440 billion-euro ($611 billion) temporary rescue fund known as the European Financial Stability Facility, people familiar with the matter said last week.

“The plan has the right elements,” U.S. Treasury Secretary Timothy F. Geithner said in Paris. “They clearly have more work to do on the strategy and the details.”

Cannes Summit

The G-20 officials — who met to prepare for a Nov. 3-4 gathering of leaders in Cannes, France — said in a statement that the world economy faces “heightened tensions and significant downside risks.” European authorities must “decisively address the current challenges through a comprehensive plan,” they said.

The policy makers held out the possibility of rewarding European action with more aid from the International Monetary Fund, while splitting over whether the Washington-based lender’s $390 billion war chest needs topping up.

Europe’s latest strategy hinges on putting Greece, whose government forecasts its debt to reach 172 percent of gross domestic product in 2012, on a sustainable path. Austerity has plunged the country deeper into recession and provoked civil unrest that threatens political stability.

Wage Cuts

Papandreou faces the latest test of his party’s unity as soon as this week when he asks Parliament to approve steps including bigger pension and wage cuts as well as plans that may lead to the dismissal of 30,000 state workers. One ruling party lawmaker, Thomas Robopoulos, said he may quit his seat ahead of the vote, exposing the tensions in Papandreou’s socialist party. It has 154 seats in the 300-member chamber.

Failure to limit the risk of a default to Greece led to Portugal and Ireland requiring bailouts, and markets are now targeting larger debt-strapped nations such as Italy. Investors are concerned that if the crisis keeps festering, the world economy could face a repeat of the chaos that followed the 2008 collapse of Lehman Brothers Holdings Inc. (LEHMQ) The euro area is already set to suffer a renewed recession, say economists at JPMorgan Chase & Co. and Goldman Sachs Group Inc.

“We’re aware of our responsibility,” German Finance Minister Wolfgang Schaeuble said in Paris. “We’ll solve the problems in the euro zone.”

Crisis Plan

In the works is a five-point plan foreseeing a fix for Greece, boosting of the rescue fund, fresh capital for banks, a new push to increase competitiveness and consideration of European treaty amendments to tighten economic management.

Proposals include revising a voluntary July accord struck with investors for a 21 percent net-present-value reduction in Greek debt holdings. One variant would take that reduction up to 50 percent, and a more aggressive suggestion is for investors to exchange Greek bonds for new debt at a lower face value collateralized by the euro area’s AAA-rated rescue fund, the people said. The ultimate choice is a restructuring involving writedowns without collateral.

Highlighting potential opposition from bankers this week, Charles Dallara, managing director of the Institute of International Finance, told the Financial Times in an article published Oct. 15 that he doesn’t “see a compelling case” to reopen the July deal. The imposition of greater losses on investors may prompt them to sell other European bonds, he said. The European Central Bank has also signaled it doesn’t favor a rewrite of the three-month old accord.

Bank Liabilities

The bank-aid model under discussion is to set up a European-level backstop capitalized by the EFSF, the people said. It would have the power to take direct equity stakes in banks and provide guarantees on bank liabilities. Such ideas are controversial in Germany, which has called for recapitalization on a country-by-country basis.

European Union Economic and Monetary Affairs Commissioner Olli Rehn told Bloomberg Television on Oct. 15 that euro-area authorities are “close” to a pact. Banks may be required to maintain a 9 percent capital buffer to absorb sovereign risks, up from the 5 percent core capital level used in July’s stress tests, a person with knowledge of discussions said last week.

How to magnify the strength of the EFSF may also sow discord this week. Options include enabling it to borrow from the ECB or using it to partly insure new bonds issued by distressed governments. The ECB has all but ruled out the first method, making bond guarantees more likely, the people said.

Bond Guarantees

The guarantees of new bonds sold by distressed euro-area governments might range from 20 percent to 30 percent, a person familiar with those deliberations said.

Recourse to bond insurance suggests the central bank will need to maintain its secondary-market purchases for an unspecified “interim” period, the people said. ECB President Jean-Claude Trichet, who attended his last G-20 meeting before he retires Oct. 31, reiterated the central bank hopes to stop purchasing government bonds once the EFSF is able to take over.

A consensus is nevertheless emerging to accelerate the birth of a permanent aid fund by a year to July 2012. This week’s discussions will also look at easing unanimity rules that permit solitary countries to block bailouts.

Morgan Stanley’s Fels said the steps could backfire because investors may fail to be lured by the guarantees, harsher writedowns could spark contagion and banks would likely prefer to sell assets and reduce leverage than raise capital. What’s really required is leaders to take a “big step” toward fiscal integration, he said.

The coming weekend “is the moment people are expecting something quite impressive,” U.K. Chancellor of the Exchequer George Osborne said in Paris.

 

 

Solid End to the Week Puts FTSE Up 3% Overall

The top tier index’s solid end to the week saw natural resource stocks help push the FTSE 100 to a 3% gain over the five sessions

A weak start on the U.K. market Friday morning gained momentum as the session progressed and received a further boost midafternoon from U.S. economic data.

The FTSE 100 index took on 63 points to close 1.2% firmer at 5,466, while the FTSE 250 index added 108 points or 1.1% at to 10,339.

In the U.S., September retail sales rose more than economists had predicted as consumers increased their spending despite the sluggish recovery and high unemployment. On the flipside, U.S. import prices unexpectedly increased by 0.3% in September. The inflation may limit the Federal Reserve’s toolkit for stimulus action. Meanwhile, the Thomson Reuters/University of Michigan gauge of consumer sentiment declined to 57.5 in October from 59.4 in September, missing the expected 59.7 reading. Stock volatility likely weighed on the sentiment gauge, which aims to measure how consumers view their personal finances in addition to business conditions.

In Europe, market gains were extended on stronger-than-expected U.S. retail sales data, which diverted attention from Standard & Poor’s downgrade late Thursday of Spain’s long-term sovereign credit rating and Fitch’s downgrade earlier in Thursday’s session of several U.K. banks.

Still, Lloyds Banking Group (LLOY) was among the worst off on the FTSE 100 by close of play, down 3.0%, while HSBC (HSBA), Royal Bank of Scotland (RBS) and Standard Chartered (STAN) achieved muted gained of between 0.4% and 0.5% each. Barclays (BARC) outperformed the broader sector, rising 1.7%. Fitch on Thursday placed its rating on Barclays under negative review.

The main upward force on the FTSE 100 was applied by the natural resources sectors, with Tullow Oil (TLW), Petrofac (PFC) and BP (BP.) leading the oil producers, up 4.7%, 3.6% and 2.6%, respectively. Antofagasta (ANTO) and Xstrata (XTA) represented the miners on the top tier, 3.7% and 3.1% firmer, respectively.

But the leaderboard was topped by hedge fund manager Man Group (EMG), which bounced back after two consecutive sessions of losses following the latest net asset value results from its flagship fund AHL. Man Group shares closed up 5.1% Friday.

Unilever (ULVR) was another strong performer, 2.5% higher after announcing plans to acquire 82% of Kalina, a leading Russian beauty-care firm, for about EUR 495 million. Morningstar analyst Erin Lash said the deal, struck at a reasonable price, supports her view that Morningstar’s wide- and narrow-moat companies with substantial cash piles are taking advantage of opportunities to build out product portfolios and gain footholds in key emerging markets through smaller tuck-in acquisitions.

 

 

Banks and Miners Drag as Downgrade, Data Weighs

Trade data from China and the U.S. reignited global growth fears Thursday, while rating downgrades hit the banking sector

European shares gave back some recent gains Thursday as the market pondered the effectiveness of plans to stem the sovereign debt crisis and digested trade data from China.

The FTSE 100 index slipped 38 points to close 0.7% weaker at 5,403, while the FTSE 250 index fell back 89 points or 0.9% to settle at 10,231.

In economic news today, the U.S. trade deficit narrowed a fraction to $45.61 billion from $45.63 billion in August. However, the deficit with China soared 7.4% to $28.96 billion as the rise in imports far outpaced the rise in exports. The growing trade imbalance comes after the Senate passed a bill this week calling for sanctions against China for its policy of artificially weakening its currency to make its exports more attractive.

China’s own trade report revealed its surplus narrowed last month for the second consecutive month, while both the growth of exports and imports turned out to be lower than expected. The data were delivered on the same day that the International Monetary Fund (IMF) warned in a separate report that the risks to Asian economies are rising in the near term.

Returning our focus to the U.S., initial unemployment claims fell 1,000 last week to a slightly better-than-expected 404,000. Still, the elevated levels of claims point to a stagnating job market and there was little sign of a major turnaround.

In corporate news, J.P. Morgan Chase (JPM) shares were down 5.7% at last check after the firm posted disappointing third-quarter results. The firm also announced that it plans to lay off 1,000 people in its investment banking business.

The news added its weight to the international banking sector, which was already under pressure in the U.K. after ratings agency Fitch downgraded several banks. Barclays (BARC), Royal Bank of Scotland (RBS) and Lloyds Banking Group (LLOY) dropped 7.4%, 6.4% and 5.5% respectively in London.

Heavyweight miners were also down in the dumps on the back of global demand concerns following data from China. Antofagasta (ANTO), Vedanta Resources (VED) and Anglo American (AAL) lost between 4.7% and 6.3% each.

On the flipside, gold miner Rangold Resources (RRS) topped the blue-chip leaderboard with a surge of 9.9% as investors flocked to the perceived safe haven of gold and gold-tied securities.

 

 

Bank of America Preparing For California’s Upcoming Cap-and-Trade Program

Bank of America Merrill Lynch has entered an agreement with carbon offset provider TerraPass, Inc. that will allow Bank of America to offer several million tons of carbon offsets to California’s cap and trade program when it becomes operational.

In December 2010, the California Air Resources Board’s (CARB) approved a new carbon emissions cap-and-trade system which will set greenhouse gas emissions limits and give companies an allowance of how much they may emit. Companies that emit more than their allowance will be required to buy carbon credits from the marketplace; and those that emit less than their cap can sell those allowances.

With this announcement Bank of America Merrill Lynch is readying its Global Commodities Group to plunge into what is expected to become the second largest carbon market in the world next to Europe.

Under the terms of the agreement, Bank of America Merrill Lynch will have the option to purchase several million tons of CARB-compliant California carbon offsets from TerraPass through 2020.

Kerrie McHugh of Bank of America told Energy Boom the company is not held or obligated to purchase a set amount of carbon offsets from TerraPass. However, when the California opens the market with its first auction in the middle of 2012, Bank of America wants to be out front, leading the charge.  In order to do so, it needs a vehicle to provide millions of tons of carbon offsets.

“By acting as a first mover in California, we are positioning ourselves as the offset provider of choice for companies that will need to become compliant under these new regulations,” said Abyd Karmali, global head of Carbon Markets in the Global Commodities Group at Bank of America Merrill Lynch.

For San Francisco-based TerraPass this deal could mean a spike in business.  All of the company’s agricultural methane projects, which provide it with carbon credits, use a CARB approved offset protocol. The company already manages over 4 million tons of CO2 that it sells to both wholesale and retail customers.

CEO Erin Craig said this new agreement with Bank of America “creates a best-in-class solution” for companies needing to meet new state regulations.

 

 

Flat Close as Slovakia Delays Eurozone Debt Plan

The European sovereign debt crisis continued to dominate markets on Tuesday, though thankfully no volatile kneejerk reaction was experienced today

The sovereign debt crisis remained firmly in focus on Tuesday and the London market responded by ending a four-day rally, though stocks broadly took a breather from kneejerk volatility.

The FTSE 100 index closing just 3 points lighter at 5,396 and the FTSE 250 index creeping up 14 points to 10,155. Other European markets were similarly unmoved.

Though all other eurozone members have already approved the plan, a vote on a proposal to expand the powers of the European Financial Stability Facility (EFSB) was postponed by Slovakia’s ruling coaltition party, which said it would abstain. The proposal would allow the fund to buy government bonds and directly back European banks. A re-vote may be scheduled for later this week if the existing measure fails.

A joint statement from the European Union, International Monetary Fund and the European Central Bank indicated that Greece is likely to get another EUR 8 billion in aid in November. The statement comes after the Greek government passed further austerity measures in September to convince its lenders that the country can meet aggressive fiscal targets.

On the FTSE 100, banks continued to enjoy share price gains as investors bought back into the battered sector, albeit more tentatively than in recent sessions. Royal Bank of Scotland (RBS), Barclays (BARC) and Standard Chartered (STAN) all featured on the leaderboard, climbing 2.8%, 2.1% and 1.8%, respectively.

That said, while some investors opted to take on risk others continued to build positions in defensives, pushing SABMiller (SAB), Imperial Tobacco (IMT), Unilever (ULVR) and Diageo (DGE) each 0.5%-0.7% higher.

Commodities-related shares were a mixed bag, with Eurasian Natural Resources (ENRC) down 2.3% following news it is to buy the remaining 75% of common stock of Shubarkol Komir for up to $600 million plus assumed debt of $50 million. The acquisition is expected to be broadly earnings neutral in the first full financial year after its completion and earnings enhancing in the following year.

Meanwhile fellow Kazakh miner Kazakhys (KAZ) slipped just 0.3% and diversified miner Vedanta Resources (VED) took on 1.1%.

Man Group (EMG) was the worst off on the FTSE 100, down 2.8% after its Man AHL Diversified fund’s net asset value had slipped to $1.1914 as at October 10.

 

 

Greece payout likely to go ahead

International financial inspectors say they have reached agreement with Greece on reforms to put the nation’s troubled economy back on track.

“Economic and financial policies” have been agreed between Greece and the troika of bodies which has been mulling if Athens will get any new loans.

The EU, IMF and European Central Bank say Greece is now likely to get 8bn euros ($11bn; £7bn) more bailout cash.

It came as they said Greece’s fiscal target for 2011 was not achievable.

“Once the Eurogroup and the IMF’s executive board have approved the conclusions of the fifth review, the next tranche of 8bn euros will become available, most likely, in early November,” a statement said.

Some 5.8bn euros would come from the euro area member states, and another 2.2bn from the International Monetary Fund.

“The success of the programme continues to depend on mobilising adequate financing from private sector involvement (PSI) and the official sector, ” the troika statement continued.

“Ongoing discussions on PSI together with assurances provided by European leaders at their 21 July summit suggest that the programme remains fully financed,” it said.

The statement said that, “the fiscal target for 2011 is no longer within reach, partly because of a further drop in GDP, but also because of slippages in the implementation of some of the agreed measures”.

However, it added that that 2012′s deficit target of 14.9bn euros should be met if there was a “determined implementation” of the government’s austerity plan.

Workplace reforms

The inspectors said they believed Athens was committed to its privatisation plan. Ministers hope to raise 35bn euros by the end of 2014.

The troika said the key to achieving that goal was to ensure that the privatisation fund, which supervises the sell-offs, remains independent.

The auditors also praised a decision to end sector-wide collective labour agreements as “a major step forward”.

The government wants pay and terms to be negotiated at a company-level rather than across whole industries, as they have been previously. The move should make it easier for managers to sack employees.

Unions oppose the reform. However the inspectors say it will boost growth and prevent unemployment from becoming entrenched.

The news provoked a mixed reaction.

“It doesn’t contain any surprises,” said Michael Massourakis, chief economist at Athens-based Alpha Bank.

“Most of these things are known. But of course it is encouraging that the troika have concluded that there is reasonable hope that the agreement will get back on track.”

Constantine Michalos, president of the Athens Chamber of Commerce and Industry, was more critical.

“We do welcome the fact that the troika is now coming forward with the proposal to advance the sixth tranche of aid in early November,” he said.

“However, the mixture of economic policy which is currently being applied to the Greek economy is completely in the wrong direction. It will lead to a further, and even deeper, recession in 2012″

‘Rapidly rising risk’

There was a warning that decisive action is needed to tackle the eurozone debt crisis from Jean-Claude Trichet as he made his last scheduled appearance as president of the European Central Bank. He retires at the end of October.

“The crisis is systemic and must be tackled decisively,” Mr Trichet said in a testimony to the European Parliament.

“The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion.”

He added that it was “absolutely fundamental” that investors view governments, and their debts, as credible.

Rabobank’s senior fixed income strategist, Richard McGuire, interprets the comments as an appeal to politicians to strengthen the European Financial Stability Fund (EFSF).

“It’s something he has been pressing for, to ensure there is enough money to bail out peripheral sovereigns and the core banks that have lent to them,” he said.

“He believes speed is of the essence, and once governments get dragged down into the crisis there is no further fall back position.”

 

 

Bank Rating Downgrades Undermine Market Rally

News Friday that Moody’s had downgraded several banks weighed heavily on financials, offsetting a step-up in the U.S. labour market

The first week of the fourth quarter has certainly been one of turbulence, so no change compared to the trend of the previous quarter, but the rebound seen in the second half of the week amid central bank moves helped the U.K.’s blue-chip index climb 3.4% over the five trading sessions.

The FTSE 100 index ticked up 12 points to close 0.2% firmer at 5,303, while the FTSE 250 index took on 69 points or 0.7% to end the week at 9,958.

Asian markets set the stage for a strong session on Friday, taking their lead from Thursday’s ECB announcement regarding plans to provide further liquidity for the region’s banks and the Bank of England launching its second round of quantitative easing. But the positive trend was scuppered in European deals as investor caution towards banking stocks once again took hold after Moody’s downgraded its ratings for several U.K. and Portuguese banks. The news landed on the same day that Morningstar unveiled its own global bank credit ratings.

Lloyds Banking Group (LLOY) and Royal Bank of Scotland (RBS) topped the FTSE 100 casualty list, losing 3.4% and 3.0% respectively. Morningstar credit analysts have issued Lloyds with a rating of BBB and RBS with a BBB+ rating. Barclays (BARC) was also in the doldrums, down 1.9%, but HSBC (HSBA) and Standard Chartered (STAN) escaped much of the weakness, both closing within 0.2% of breakeven. HSBC and Standard Chartered are both rated A+ by Morningstar.

In other news, a better-than-expected jump in U.S. non-farm payrolls in September helped calm market nerves to a certain extent. Morningstar senior equity analyst Vishnu Lekraj commented that the job market has shifted up but still remains in a low gear.

A better than expected jump in US non farm payrolls last month gave stocks yet another boost on Friday, helping the FTSE 100 to trade higher by 1% having been largely flat on the day.

US non-farm payrolls increased by 103,000 in September, higher than the initially expected 60,000 jobs, whilst Augusts’ previous flat reading was also revised higher to 57,000. Private payrolls jumped 137,000 which also beat consensus forecasts of 100,000, whilst the US unemployment rate remained flat at 9.1%.

On the flipside from financials, Vedanta Resources (VED), which suffered substantial losses earlier in the week, extended Thursday’s rally by an additional 4.2% Friday, while Eurasian Natural Resources (ENRC) followed suit, ticking up 2.9%.

On the second tier, shares in Premier Foods (PFD) took a nose dive, slumping 42% by close of play after the firm warned that its full-year profits will miss market expectations. Premier also announced it is in talks to renegotiate its banking facilities ahead of crucial covenant tests.

 

 

Warm weather ‘knocks High Street sales’

September’s unseasonably warm weather was bad news for the UK’s retailers, as people were more interested in enjoying the sunshine than going shopping, a report has said.

Like-for-like sales were down 4% last month compared with a year earlier, according to accountancy group BDO.

It said this was the sharpest fall since March 2009.

BDO added that fashion stores were the most affected, as there was little interest in their new winter lines.

“Rather than stock up on cardigans and coats, consumers largely avoided the High Street in favour of a final few days of sun,” said BDO.

It added that the combination of the hot weather, a lack of promotional deals, and economic gloom had created something of a “perfect storm” for the High Street, and fashion retailers in particular.

BDO said same-store sales at fashion stores fell 5.1% in September.

Looking forward, BDO’s national head of retail and wholesale, Don Williams, said things should now improve towards the festive season.

“While conditions on the High Street are undoubtedly tough, consumer spending is unlikely to collapse completely between now and Christmas,” he said.

“We expect an element of bounce back now the temperature has dropped, and the usual seasonal promotions are starting to appear.”

A separate report by research group Springboard said retail footfall fell 1.2% in September.

 

 

Ferrovial sells BAA stake to cut reported debt

Spanish infrastructure firm Ferrovial has sold 5.9% of Heathrow Airport-operator BAA to an investment fund.

Alinda Capital Partners – a US firm that specialises in infrastructure – will pay 325m euros ($441m, £282m).

The deal will boost Ferrovial’s accounts. It cuts the Spanish owner’s stake in BAA to 49.99%, meaning it no longer has to include the UK firm’s debts on its balance sheet.

The deal puts a much higher value on BAA than analysts had expected.

“This sale is in line with our strategy to establish a market valuation of our assets,” said Ferrovial chief executive Inigo Meiras.

Accounting benefits

The transaction values BAA – which operates Heathrow, Stansted, Glasgow, Edinburgh, Aberdeen and Southampton airports – at £4.8bn.

That was more than double consensus, according to news agency Reuters, and news of the sale sent Ferrovial’s share price more than 5% higher in morning trading.

However, it is still considerably lower than the £10.3bn valuation at which Ferrovial originally bought BAA in 2006.

BAA’s value had been damaged by a decision by the UK’s Competition Commission that BAA’s dominance of air traffic into and out of Scotland and London was unacceptable.

This had already forced BAA’s sale of Gatwick Airport, with Stansted and one of Edinburgh and Glasgow set to follow.

By reducing its ownership of BAA to a fraction below 50%, Ferrovial also no longer needs to consolidate its UK subsidiary into its accounts – meaning that it no longer has to include BAA’s debts as part of its own.

The accounting rule means that Ferrovial’s reported debts will fall by almost three-quarters, from 19.75bn to 5.2bn euros.

However, Ferrovial’s remaining stake still leaves it as by far the biggest single investor in BAA, with effective control over the firm.

The Spaniards had been openly seeking a buyer for up to 10% of BAA for a year.

The infrastructure company said the sale proceeds would be used to fund other investments.

 

 

Eurozone crisis: David Cameron calls for decisive steps

Europe’s leaders must take “decisive steps” to solve the financial crisis sweeping through the eurozone, David Cameron has said.

The prime minister said it was putting the world economy in a “precarious” situation and eurozone leaders had a “collective responsibility”.

The eurozone had to be made to work or its “possible failure” confronted.

Germany’s and France’s leaders met on Sunday and proposed “important changes”.

German chancellor Angela Merkel said details of the Franco-German package would be announced before the G20 summit in Cannes next month but she said France and Germany “are determined to do the necessary to ensure the recapitalisation of Europe’s banks”.

Meanwhile, France, Belgium and Luxembourg have approved a plan to secure the future of the troubled bank Dexia, following fears it could go bankrupt.

Dexia, which is jointly owned by France and Belgium, has significant exposure to Greek debts.

Mr Cameron told the Financial Times on Monday: “The situation with the world economy is very precarious.”

He added: “The eurozone is probably contributing more to that uncertainty and lack of confidence than anything else. You either make the eurozone work properly or you confront its potential failure.”

During last week’s Conservative Party conference Mr Cameron warned the world economy was at a “moment of danger” and he has been pushing for European leaders to take decisive action.

“We need to push, but in the end it is their currency, it is their issue – they have to take the decisive steps,” he told the FT.

 

 

Public sector job losses ‘worse than forecast’

The current rate of public sector job losses is far greater than official projections and suggests total job cuts in the sector will be 50% higher than forecast, researchers say.

Since April, the public sector shed jobs at five times the rate predicted by the Office for Budget Responsibility, the Chartered Institute of Personnel and Development (CIPD) said.

The body called on the government to halt public sector job cuts.

The Treasury said the cuts were needed.

A spokesman said: “Risks in the global economy make it even more essential to stick to the government’s essential deficit reduction plan, which is supported by the International Monetary Fund, the OECD and the CBI.

“This plan is essential for sustainable growth and has helped deliver record low interest rates for families.”

A Treasury source told the BBC it was sceptical of the CIPD’s projections as it had previously overestimated the UK unemployment peak.

More losses

However, the CIPD said the public sector job cuts could be far greater than the OBR’s latest projections.

In June 2010, the OBR forecast that the government’s spending cuts, designed to reduce its budget deficit, would lead to 610,000 public sector job losses between 2010/11 and 2015/16.

However, in November last year it reduced this projection to 410,000.

The CIPD said that, based on the current rate of job cuts, the actual number of jobs lost in the public sector was likely to be 610,000 – “exactly the same as the initial OBR projection”.

As a result, it called on the government to “call a halt to public sector job cuts while the economy and labour market remain in the current fragile condition”.

A number of economists and opposition politicians have called on the government to rethink its programme of spending cuts given the weak recover.

Figures released last week showed that the UK economy grew by 0.1% between April and June, slightly less than the previous estimate of 0.2%.

‘Strength sapping’

The body also questioned whether the private sector was capable of compensating for public sector losses, as the government is hoping.

“Especially worrying is that public sector job losses in the second quarter of 2011 far exceeded net private sector job creation, which suggests that the slowdown in economic growth since the autumn of 2010 is gradually sapping the strength of those parts of the economy that were creating jobs in the initial part of the recovery,” the CIPD said.

Therefore it would be “sensible to delay all further job cuts to the end of this parliament and, if necessary, into the next”.

However, the government said private sector job creation would more than outweigh losses in the private sector.

“Half a million private sector jobs were created last year and the independent OBR has forecast that there will be 900,000 more jobs created in the private sector than lost in the public sector by 2015,” the Treasury spokesman said.

The OBR is a government-appointed body formed last year to make an independent assessment of the government’s finances and of the economy.

 

 

Rally on Rumours Rings Hollow

BOND STRATEGIST: The markets were quick to give back rumour-fuelled gains last week, but at currently heightened spreads, credit risk looks attractive from a fundamental viewpoint

Never before have we seen the markets place so much faith in the hands of European politicians. At the start of last week, credit spreads began to tighten and the equity markets took off higher. The improvement in the markets was attributed to unsubstantiated rumours that European policymakers were close to formulating a comprehensive liquidity and recapitalisation plan.

But the rumours appear to be for nowt, as no formal news was released over the course of the week. By the end of the week, the credit market gave up the early-week gains and closed relatively unchanged. The Morningstar Corporate Bond Index ended the week at 250 basis points over Treasuries, 1 basis point wider than the previous week.

We were amazed at how much the markets had rallied on these rumours. While we fully expect that the European policymakers are working on such a plan, we were sceptical that politicians would be able to get each of the eurozone members to agree on a plan of action in such short order.

Trading volume in the credit markets was weak, perhaps suggesting that investors were not buying the hype. In fact, we heard from several sources that high-quality, short-dated corporate bonds were in demand, which suggests to us that many investors were shortening duration. We’re not sure if investors are concerned that interest rates could rise or credit spreads could widen further, but either way, it had the feel that investors were looking to reduce risk.

As we have pointed out before, over the next few weeks (maybe months?) credit spreads will continue to be whipsawed by the headlines out of Europe. At these heightened levels, from a fundamental viewpoint, we think credit risk is attractive. In fact, we are beginning to find significant value in some of the more beaten-down issuers, such as those in deeply cyclical sectors.

 

 

Oakmount and Partners – Carbon Markets News

2014 could see Chinese carbon market launch

A carbon emissions trading market in China could be launched by 2014, with companies given targets to limit greenhouse gas emissions. The market will likely be run by associations managed by the China Clean Development Mechanism Management Center.

Both China and India are trying to encourage polluters to slow emissions. As the biggest polluter in the world, China pledged to reduce carbon dioxide emissions by 2020. Although an absolute reduction is not realistic for China at this stage, the new Government targets could include the ability to buy carbon credits. In the first phase, only Chinese companies will be allowed to trade in the domestic market, which could be worth many billions.

UN Carbon Credit Prices May Rise by over 40% by 2012

United Nations Certified Emission Reduction credits (CERs) could rise by 42% by 2012, due to reduced supplies. The news was supplied by an analyst at Barclays Capital. The price could hit 25 euros by the third phase of the EU’s carbon trading plan which starts in 2013.

CDM offsets are utilised to comply with the European carbon market, which is the largest in the world. The price of a CER fluctuates depending on supply and rules regarding issuance and acceptance of carbon credits. CER prices track prices of European Union carbon allowances, and will rise as UN restrictions reduce HFC-linked CERs and rules in the EU force users to switch to credits from renewable energy industries.

Huge African CO2 credit deal signed

A large agreement between Merrill Lynch and Nuru energy will generate several million carbon credits for a massive clean energy project in sub-Saharan Africa. Nury Energy provides clean lighting systems, and the most recent project will replace kerosene lamps with LED lighting technology.

Merrill Lynch has the option to buy several million CERs over the next decade. The global head of carbon markets, Abyd Karmali,  said: “The project not only helps to address climate change by delivering next generation lighting services but creates thousands of jobs for those living in poverty.”

Carbon Market to Grow 15% This Year, Bloomberg New Energy Finance Predicts

Higher prices and increased emission allowance demand will push up global carbon markets by 15% in 2011, Bloomberg New Energy Finance experts said. Markets will expand by 107 billion euros from 93 billion euros last year. European power producers are buying more permits this year.

Guy Turner, director of carbon market research at New Energy Finance, reportedly commented:  “In spite of the recession and little progress at the international climate talks, the value of the global carbon market has continued to grow. With the advent of auctioning in the European scheme, we are likely to see even higher traded volumes and prices in Europe in 2011, and these may increase further in future years.”

Although Europe still dominates the carbon market and accounts for 81 per cent of total trades during 2010. If more countries implemented cap-and-trade schemes the global carbon market could soar in 2020.

 

 

Banking Woes and Eurozone Fears Hit FTSE Again

News from Dexia hit the banking sector on Tuesday, while global growth and eurozone fears also did their worst for share valuations

Fears over global growth and eurozone debt dictated the direction of markets once again on Tuesday, causing the U.K. leading index to close at its lowest level since July 2010.

The FTSE 100 index dropped another 2.6% on Tuesday, falling 131 points to 4,944. The FTSE 250 index fared even worse, losing 325 points or 3.3% to end the day at 9,426—also the lowest closing level seen in 15 months.

Equities were broadly lower across Asia and Europe as the situation in Greece continued to be a grave cause of concern, with investors deeply uncertain about the future prospects of Greece, the impact a default would have on the global economy and the potential occurrence of repeat recessions in Europe and the U.S.

Eurozone finance ministers hinted Monday evening that they may take a decision on whether to provide emergency funds to Greece later than expected. That after media reports said Greece may fall short of its deficit target set down in order to get bailout money added to concerns.

Crude oil futures fell on the economic uncertainty while gold prices rose. In the United States, focus is on Federal Reserve Chairman Ben Bernanke as he testifies on his views on the U.S. economy.

Bernanke spoke to a Congressional panel in early U.S. trade and stated that even though the Fed is willing to take additional steps to catalyse the economy, the legislative and executive branches should also take on more action of their own. Bernanke said economic policymakers have a “shared responsibility,” and that labour markets, housing, regulation, and more, all are key factors to economic growth in addition to monetary policy, which he said is not a “panacea for the problems currently faced by the U.S. economy.” Bernanke also stated the Fed could start a new lending programme amid market uncertainty in Europe.

Meanwhile, highlighting the dismal outlook, economists at Goldman Sachs cut their global growth forecasts and said they now see growth of 3.5% in 2012 versus their previous estimate of 4.2%.

Bank stocks were broadly lower: Barclays (BARC) lost 7.6%, while Lloyds Banking Group (LLOY) and Standard Chartered (STAN) shed a little less than 5.0% each. Outside London trade, shares in Dexia (DEXB) plunged 22.5% after the Belgian bank confirmed Morningstar analyst Erin Davis’s fears that it is largely insolvent and is considering various proposals to avoid a messy collapse. “We aren’t surprised that Dexia is the first European bank to need a bailout in this round of the crisis, as we have long warned investors that it is the weakest bank in Europe under our coverage,” Davis said. “This bailout is unlikely to be as investor-friendly as the last, and there may be very little value left for equityholders.”

Returning to the FTSE, Tesco (TSCO) topped a short list of blue-chip risers, up 2.6% on the back of a broker upgrade.

 

 

London Gateway ‘super-port’ to open before end of 2013

The owners of the London Gateway port say the project is due to open in the last three months of 2013.

DP World says the site will initially be able to handle 1.6 million standard shipping containers a year. Over time, the Dubai-headquartered group plans to raise capacity to 3.5m containers.

Construction work began near Thurrock, Essex, in January 2010 on the site of a former Shell oil refinery.

When complete, it will be the largest deep-sea port in the UK.

DP World says the Thames Estuary development has already created 600 jobs and it plans to increase that number by a further 1,000 over the coming months. Seven hundred of the new posts will be in construction, while the other 300 are described as port jobs.

The firm estimates that eventually, the port and a neighbouring logistics centre will help create 32,000 jobs, adding £3.2bn to the UK economy each year.

‘Environmentally friendly’

The company says the project is also good for the environment. It says that by allowing the world’s largest cargo ships to unload their goods next to a major distribution centre, 65 million road freight miles can be saved every year.

DP World’s chief executive, Mohammed Sharaf, said: “London Gateway is a giant leap forward for the UK’s supply chains and will benefit our customers tremendously through more efficient transportation of goods.”

Business Secretary Vince Cable also welcomed the news, saying: “It will help Britain maintain its competitiveness, drive productivity, and crucially strengthen our links with Asia and beyond.”

 

 

Deutsche Bank will miss full-year profit target

Deutsche Bank says it will miss its profit target for the year as it takes impairment charge of 250m euros (£215m, $330m) on its Greek government debt holdings.

Germany’s biggest bank also said it would cut 500 jobs, mainly outside its home market.

Deutsche Bank’s statement comes as fears continue to rise about the health of the eurozone.

Shares in the bank were down 5.8% in trading in Frankfurt.

Deutsche Bank’s chief executive, Josef Ackermann, told an investors’ conference in London there had been a “significant and unabated slowdown in client activity”.

But he added that banking business not related to sovereign debt was robust.

“We are confident that the classic banking businesses – private clients, asset management and global transaction banking – as a whole will deliver their best pre-tax profit ever.”

Deutsche’s profit was previously expected to be around 10bn euros.

Data from Reuters shows that since September, half the 34 analysts that follow Deutsche Bank have revised their full-year earnings estimate down by an average of 10.3% to around 7.72bn euros, including one-off charges, and corporate investments.

Deutsche Bank itself had excluded these from its target definition.

Its latest reported net profits for the three months to 30 June were 1.2bn euros ($1.8bn; £1bn), 6% higher than a year earlier.

At the time it revealed it had needed to write down 155m euros from the value of its Greek government bonds.

 

 

U.N. issues 37 mln offsets in Sept, 3rd highest ever

 

 

UK’s AAA credit rating confirmed by S&P

Ratings agency Standard & Poor’s has confirmed the UK’s AAA credit rating.

S&P said that despite sluggish growth, the UK’s “diversified” economy and “flexible” fiscal and monetary policy would enable it to weather a slowdown.

The news will be welcomed by Chancellor George Osborne, who on Monday told the Conservative Party conference that he would not change economic course.

S&P said its AAA rating could be re-evaluated if the government weakened its resolve to reduce public debt.

An AAA rating is the highest possible. Any downgrade would raise Britain’s borrowing costs, and also provide ammunition for the coalition government’s opponents.

‘Lacklustre’

In an announcement, S&P said it had “affirmed its AAA long-term and A-1+ short-term sovereign credit ratings on the UK. The outlook remains stable.”

It said the decision reflected the country’s “wealthy and diversified economy, fiscal and monetary policy flexibility, and relatively adaptable product and labour markets”.

S&P added: “In addition, we view the UK as having deep capital markets with strong demand for long-dated gilts by domestic institutional investors.

“There is also demand from non-residents for sterling-denominated UK government debt, which provides some diversification to the UK’s investor base.”

The agency said, however, that the UK’s recovery has been “lacklustre”.

It added: “The official assumption that the private sector will quickly step in to replace the withdrawal of public spending may prove optimistic, especially given weakening external demand.”

The decision to hold the UK’s rating comes just over a month after S&P shocked the markets with its first ever downgrade of US debt, cutting it from AAA to AA plus.

 

 

Tory conference: Osborne rules out temporary tax cuts

Chancellor George Osborne has said taxes will only be cut when the government can afford to do so, in a speech to the Conservative conference.

Mr Osborne has found £805m to freeze council tax in England in 2012-13 – saving people £72 a year.

But he stressed that money is still tight and there will be no deviation from his deficit reduction plan.

He said solving the eurozone crisis remains the most important factor in kick starting growth in the UK.

The chancellor has been under pressure from Labour to cut VAT to inject money into the economy – and from senior figures in his own party to scrap the 50p top rate of income tax.

‘Debt crisis’

But in a sober speech to party activists, the chancellor said it would be wrong to borrow money to fund temporary tax cuts or increase public spending.

He did, however, announce that the Treasury would engage in “credit easing” – a move aimed at cutting the cost of borrowing for hard-pressed businesses, as well as improving access to loans.

The BBC’s business editor Robert Peston said the move, which would involve the public sector buying bonds issues by companies, was “potentially very significant” but full details would not be revealed until the chancellor’s autumn statement in November.

In his speech, Mr Osborne said he had “thought hard” about what more can be done to boost growth and explored “every single option” – but “borrowing too much is the cause of Britain’s problems, not the solution”.

“We would be risking our nation’s credit rating for a few billion pounds more, when that amount is dwarfed by the scale and power of the daily flows of money in the international bond markets, swirling around ready to pick off the next country.

“We will not take that risk. We are in a debt crisis, it is not like a normal recovery. You can’t borrow your way out of debt.”

And he added: “I’m a believer in tax cuts – permanent tax cuts paid for by sound public finances.

“Right now, temporary tax cuts or more spending are two sides of exactly the same coin, a coin that has to be borrowed – more debt that has to be paid off.”

Mr Osborne said Britain’s economic troubles were caused by the “catastrophic mistakes” of the previous Labour administration, as well as banks which “let down their customers, let down their shareholders and let down this country”.

‘Underspend’

He said the government is helping businesses by keeping interest rates low – “the most powerful stimulus that exists” – but borrowing billions of pounds more would put that at risk.

Mr Osborne’s speech comes as the Institute of Directors called for a fresh effort to boost economic growth in the UK.

The chancellor announced increased investment in scientific research and the extension of mobile phone coverage to six million people – as well as extra cash from a Whitehall “underspend” to fund a council tax freeze.

The government cannot force councils to freeze bills but it is offering to give those that limit spending rises to 2.5% the money they need.

Money would also be offered to the Scottish and Welsh administrations, which will choose how it is spent.

Speaking earlier to BBC News, Mr Osborne said a solution to the eurozone debt crisis must be found by the time the Group of 20 nations meet next month and failure to do so would be “terrible not just for Britain, not just for Europe, but for the entire world economy”.

The chancellor, who is travelling to Luxembourg for a meeting with European finance ministers, told BBC News that the 17 eurozone nations meeting in Luxembourg on Monday must decisively figure out how to handle Greece’s debts, and urged them to extend the size of their bailout fund.

Credit rating

The chancellor’s speech comes as Standard and Poor’s said it would hold the UK’s credit rating at the highest possible level in light of its “wealthy and diversified economy” and said the outlook remained “stable”.

But the agency, which released the announcement just as Mr Osborne took to the stage in Manchester, said the government’s efforts to correct the UK’s public finances would “weigh on the economy”.

For Labour, shadow Treasury minister Chris Leslie said it was “staggering” the speech did not give more attention to the “growth problem”.

He said: “His speech really seemed incredibly complacent and quite frankly out of touch, out of touch with the realities of some of the costs that ordinary people face, the difficulties that businesses are facing and no plan for growth.”

But Andrew Tyrie, the senior Conservative backbencher who said at the weekend that the government was not doing enough to promote economic growth, told the BBC: “I think it’s a huge step forward, and will be widely welcomed not only in the party, but by all those people in the country who also need a growth strategy to help them move forward.”

 

 

Delhi metro first railway to earn UN carbon credits

Delhi Metro has become the world’s first railway network to earn carbon credits from the United Nations for helping cut greenhouse gas emissions.

The transport system has helped reduce pollution levels in the city by 630,000 tonnes a year, a UN release said.

If not for the Metro, the 1.8 million people who use it daily would have travelled by cars, buses or motorbikes, adding to pollution, it added.

It will now get $9.5m (£6.1m) in carbon credits annually for seven years.

And as the number of passengers increase, so will this figure.

Carbon credits are generated by a UN-run scheme called the Clean Development Mechanism (CDM).

The mechanism gives firms in developing countries financial incentives to cut greenhouse gas emissions.

“The United Nations body administering the clean development mechanism under the Kyoto Protocol has certified that Delhi Metro has reduced emissions,” the UN statement said.

“No other Metro in the world could get the carbon credit for the above because of the very stringent requirement to provide conclusive documentary proof of reduction in emissions,” it added.

Every passenger who uses the Metro instead of cars or buses helps reduce greenhouse emissions by approximately 100gm of carbon-dioxide for every trip of 10km (6 miles) and that helps in reducing global warming, the UN said.

Delhi’s hi-tech metro system was launched in 2002. Parts of the network are underground while some sections use elevated tracks.

The system, which covers some of the city’s most congested streets, is seen as the answer to Delhi’s traffic chaos and has helped in lowering air pollution levels.

 

 

Eurozone inflation rate jumps to 3%

The eurozone inflation rate is expected to show a sharp increase to 3% in September, up from 2.5% in August, according to official estimates.

No breakdown was given, but the EU’s statistics agency said its initial forecasts were usually “reliable”.

Separate figures also released by Eurostat showed the eurozone unemployment rate unchanged at 10% in August from the previous month.

The number of people unemployed fell by 38,000 compared with July.

The unemployment rate in Spain, the highest in Europe, rose slightly to 21.2%, with youth unemployment hitting 46.2%.

However, the jobless rate for those under 25 in the eurozone as a whole fell slightly, to 20.4%.

Falling shares

Analysts, who had expected a small rise in inflation, pointed to technical changes in the way price rises are calculated as a contributory factor in the sharp increase.

“It’s not a nice number, but I wouldn’t panic that the high inflation which some have warned about for years is finally here,” said Martin Van Vliet at ING.

“We will see inflation declining over the next months, staying above 2.5% but next year, with stable oil and food prices, we will fall to lower levels.”

The European Central Bank target for inflation is 2%, and the bank raised interest rates in July from 1.25% to 1.5% in order to combat rising prices.

However, the continuing debt crisis makes further rate rises in the coming months unlikely, analysts say.

With confidence in the outlook for economic growth in the eurozone fragile, policymakers are unlikely to risk raising rates, they say.

Equally, however, sharply rising prices make a cut in interest rates less likely.

This put further downward pressure on markets that fell sharply in early trading.

Germany’s Dax index was down 2.5%, with France’s Cac 40 and the UK’s FTSE 100 sliding about 1.5%.

 

 

Greek PM presses EU leaders for new bailout tranche

The Greek prime minister is having a day of talks with fellow EU leaders to approve a new bailout tranche Greece needs to avoid bankruptcy in October.

George Papandreou is meeting European Council chief Herman Van Rompuy and others in Warsaw before seeing French President Nicolas Sarkozy in Paris.

International inspectors in Athens to decide whether Greece should receive the 8bn euros (£6.9bn; $10.9bn).

Protesters forced the rescheduling of a meeting on Friday morning.

Anger continues over austerity measures including a new property tax, and demonstrators have publicly burnt copies of emergency tax notices outside a tax office in the country’s second city, Thessaloniki.

Meanwhile, the expansion of a general bailout fund for the eurozone looks on track for approval.

Jean-Claude Juncker, head of the eurozone group of finance ministers (Eurogroup), predicted all of the euro states would have endorsed the expansion by mid-October.

‘Charm offensive’

Mr Juncker was speaking to Reuters news agency after the lower house of Germany’s parliament backed the European Financial Stability Facility (EFSF) on Thursday in a vote which tested Chancellor Angela Merkel’s credibility.

Austrian MPs are also expected to back the expansion when they vote on Friday, with only the parliaments of Malta, the Netherlands and Slovakia left to cast their votes.

In June, the European Council proposed expanding the size of the EFSF rescue fund to 440bn euros (£380bn;$595bn), and giving it new powers, such as allowing it to buy government bonds.

Analysts have suggested the fund actually needs to expand to 1-2 trillon euros in order to win market confidence, but EU officials have played down such reports.

The BBC’s Chris Morris in Athens says Mr Papandreou is on a charm offensive, trying to convince his European colleagues that Greece can meet the demands imposed upon it by a tough austerity programme.

The unpopular reforms are vital to guarantee the international loans offered by a troika of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).

Since eurozone leaders agreed on a second rescue package for Greece this summer, Athens has fallen behind on its debt reduction targets, raising fears of a Greek default.

Many Greeks believe that austerity measures are pushing the country’s crippled economy deeper into recession and strangling any chance of growth.

President Sarkozy has said that after his meeting with Mr Papandreou on Friday afternoon he will unveil a Franco-German strategy, but he did not give any details.

Germany and France together represent about half of the 17-nation eurozone’s economic output.

German Foreign Minister Guido Westerwelle said that with Thursday’s vote in the German parliament: “The signal to our European partners is that you can rely on Germany.”

Talks disrupted

Our correspondent says some analysts believe the whole strategy for Greece, with a possible second bailout, needs urgent readjustment.

That is partly because contagion from Greece to other eurozone countries is no longer a threat but a dangerous reality, he adds.

The troika’s team of inspectors found its second day of talks in Athens disrupted on Friday after protesting civil servants occupied the transport ministry, where they had been due to meet the minister, Yannis Ragoussis.

“Take the austerity package and get out of here!” the civil servants shouted as they stood in front of the shuttered entrance, according to a Reuters news agency report.

The meeting with the minister was rescheduled as a result.

Angry protesters against the government’s austerity measures have been causing disruption in the Greek capital for months.

 

 

Scotland to Invest 35 Million Pounds in Wind Turbine Production

The Scottish government is starting a 35 million-pound ($54 million) fund to invest in the production of new wind turbines, First Minister Alex Salmond told a conference in Edinburgh.

The money will go to “support production of full-scale prototypes of the next generation of offshore wind turbines,” Salmond said today.

 

 

Deloitte Touche sued for $7.6bn in mortgage fraud case

Giant accounting and consulting firm Deloitte Touche Tohmatsu has been accused of failing to detect fraud during audits of a mortgage firm which failed during the US housing crash.

A trust overseeing now-defunct Taylor, Bean & Whitaker (TBW), and one of the company’s subsidiaries, have filed complaints in a Florida court.

They are claiming a combined $7.6bn (£4.9bn) in losses.

TBW shut down after federal agents raided its headquarters in August 2009.

Deloitte spokesman Jonathan Gandal said the firm rejected the court claims, and that they were “utterly without merit”.

‘Red flags’

The fraud at Ocala-based TBW began in 2002 and continued until its collapse two years ago.

Seven TBW executives were convicted of federal criminal charges, with former chairman Lee B Farkas sentenced to 30 years in jail.

The lawsuits claim Deloitte’s certifications of the TBW books were essential in giving it the appearance of a legitimate mortgage business.

However the lawsuits say TBW was selling false or highly overvalued mortgages, mis-stating its liabilities and hiding overdrawn bank accounts.

“They [Deloitte Touche Tohmatsu] certainly did not do their job,” said attorney Steven Thomas, who represents those suing Deloitte.

“This is one of those cases where the red flags are staring you in the face, and you’ve got to do a lot, and they did not.”

 

 

Shares rise on growing hopes for a eurozone rescue plan

European shares have risen strongly on growing hopes that eurozone leaders and the International Monetary Fund (IMF) will agree a comprehensive package to solve the eurozone debt crisis.

The optimism follows after talks at G20 and IMF meetings at the weekend.

A number of ideas were reportedly discussed, including a 50% write-down of Greek government debts.

Germany’s Dax index was up 3%, the UK’s FTSE 100 was 2% higher and France’s Cac climbed 1.8%.

Earlier, Asian stocks had also risen, with Japan’s main Nikkei index ending up 2.8%.

Strengthening banks?

The increased optimism comes despite European Union officials stressing that no grand plan of action was agreed at the weekend.

Investors are instead focusing on what was reportedly proposed at the meetings, which is also said to have included strengthening big European banks that could be hit by any defaults on national debt obligations.

Another reported proposal is to boost the size of the eurozone bailout fund, the European Financial Stability Facility.

However, late on Monday German Finance Minister Wolfgang Schaeuble cast doubt on this.

On Thursday, Germany will vote on whether to approve proposals set out in July to extend the powers of the EFSF that would allow it to buy the bonds of highly-indebted countries, and to make credit available to both governments and under-capitalised banks.

Banking stocks were among the biggest risers across Europe, with France’s BNP Paribas up 7.7%, Germany’s Commerzbank gaining 5.7%, and the UK’s Royal Bank of Scotland adding 5.2%.

Oil prices also rose, as fears eased about the extent to which the eurozone debt crisis could affect the global economy.

US light crude oil was up $2.16 to $82.40 a barrel, while Brent crude rose $1.75 to $105.69.

The spot price of gold was up 2% to $1,659.99, but analysts said this was led by the US dollar falling in value, thereby making the previous metal slightly more affordable for holders of other currencies.

Keith Bowman, markets analyst at financial services group Hargreaves Lansdown, cautioned that the rise in share prices may prove shortlived.

“The optimists have taken the forefront on hopes that we could see European politicians getting to grips with the current situation over the coming weeks,” he said.

“But there are still a lot of concerns. Investors remain sceptical about the success of the measures being planned to resolve the eurozone credit crisis.”

Greek discussions

The prime minister of Greece – the country at the epicentre of eurozone debt concerns – will hold talks with German Chancellor Angela Merkel later on Tuesday to discuss his country’s progress in cutting its budget deficit.

George Papandreou’s meeting comes as policymakers decide whether to release the latest tranche of Greek bailout funds.

The European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) are due in Athens this week to review Greece’s progress in cutting its debt levels.

Together, they will decide on whether to release the latest tranche of bailout funds the Greek government needs to pay its bills.

 

 

Euro Remains Above Average Amid Debt Concerns

For all the concern about sovereign default in Europe, the euro remains above its average since being created almost 12 years ago, a sign that foreign-exchange traders see little chance of a collapse as officials step up efforts to keep the debt crisis from expanding.

“Too much political and ideological capital has been invested into making the euro project work and bringing the continent of Europe closer together since the end of World War II to allow it to unravel now,” Thanos Papasavvas, the head of currency management in London at Investec Asset Management Ltd., which invests about $95 billion, said in a Sept. 20 interview.

Investors from billionaire George Soros, whose $10 billion bet in 1992 preceded the Bank of England’s devaluation of the pound, to John Taylor, who runs the world’s biggest currency hedge fund, have predicted the euro’s breakup or forecast it will slump to parity with the dollar.

At the same time, the currency’s relative strength reflects the commitment of German Chancellor Angela Merkel and French President Nicolas Sarkozy to solving the region’s debt crisis and keeping Greece, Ireland and Portugal in the 17-nation bloc. While bonds show growing expectations of a Greek default, currency strategists still predict the euro will appreciate this year.

Rescue Fund Talks

European governments are exploring accelerating the start of a permanent rescue fund for their economies, with senior finance officials set to examine this week the cost advantages of setting up the European Stability Mechanism, or ESM, a year earlier than its July 2013 start, according to a document prepared for the meetings and obtained by Bloomberg News.

“The euro is still the best way for the peripheral countries in Europe to become more competitive and address their structural issues,” Papasavvas said.

The euro strengthened 1.42 percent last week against a basket of nine developed-nation peers, the most since gaining 1.55 percent in the period ended June 3, according to Bloomberg Correlation-Weighted Currency Indexes. It has risen 2.5 percent from this month’s low on Sept. 12, the indexes show.

At last week’s close of $1.35, the currency is 12 percent stronger than its average of $1.2024 since January 1999. While strategists have cut their forecasts for appreciation, they still see it rising to $1.43 by the end of 2012, based on the median of 35 estimates in a Bloomberg survey.

The shared currency extended losses today, falling to as low as 102.19 yen, the least since June 2001, and losing 0.7 percent to $1.3409 as of 6:39 a.m. in London.

‘Cathartic’ Default

Schneider Foreign Exchange, the most-accurate currency forecaster during the six quarters through June 30, according to data compiled by Bloomberg, predicts the euro will trade at $1.56 next year. A default by Greece will prove “cathartic” for the region, shifting attention back to the U.S.’s $1 trillion budget deficit and rising debt, according to Stephen Gallo, the firm’s head of market analysis in London.

Nomura Holdings Inc. cut its year-end prediction this month to $1.30 from $1.40 amid increasing stress in Europe’s fixed- income markets and as investors wait for EU officials to present details on how they plan to keep the union together.

“The big euro-zone bond markets are under pressure and we don’t really have any policy response lined up whatsoever, in fact we’re in a policy vacuum,” Jens Nordvig, global head of Group of 10 foreign exchange strategy in New York at Nomura, said in a Sept. 22 telephone interview.

Default Swaps

The Markit iTraxx Financial Index of credit-default swaps on the senior debt of European 25 banks and insurers jumped as much as 23 basis points on Sept. 23 to an all-time high of 325 basis points, according to JPMorgan Chase & Co. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 5.5 to 365.5, CMA prices show.

Greek two-year note yields posted their biggest weekly increase in the period ended Sept. 23 since it joined the euro region, surging 14.76 percentage points to 69.8 percent, as credit-default swaps signaled a 94 percent probability the government will renege on its obligations within five years. Portugal 10-year yields jumped 63 basis points to 11.8 percent.

Greece and Portugal may be able to regain their economic competitiveness by leaving the euro, Soros said in a Sept. 16 New York Times editorial. Taylor, whose FX Concepts LLC oversees $8.5 billion, has said the euro would fall to parity with its U.S. counterpart as the EU crisis escalates.

Austerity measures in Europe designed to lower debts and deficits means that the EU’s economy may grow more slowly.

IMF Cuts Outlook

The International Monetary Fund cut its estimates last week for the region’s expansion this year to 1.6 percent from 2 percent, and in 2012 to 1.1 percent from 1.7 percent. That compares with growth of 4 percent in 2011 and 2012 in the world economy, the organization forecast.

“Damage is done,” JPMorgan Chase & Co. Chief Economist Bruce Kasman said Sept. 24 during a panel discussion at the Institute of International Finance annual meeting in Washington. “Europe in our mind is entering recession. Greece is insolvent and the European Union needs to deal with that. It hasn’t yet come to terms with that.”

The ESM will have a 500 billion-euro ($670 billion) war chest that would help shield countries such as Italy and Spain from the region’s growing debt crisis. It also includes provisions for sharing costs with bondholders for countries with “unsustainable” debt.

Credit-default swaps on sovereign debt of Italy, Spain, Belgium, France and Germany also rose to records on Sept. 23. Contracts on Italy rose 13 to 547, Spain jumped 17 to 450, Belgium climbed 10 basis points to 304, France increased 3.5 to 206, Germany advanced four to 110, CMA prices show.

‘Effective Financing Structure’

Faster ESM enactment would provide a “more effective financing structure” that cuts the extra debt of donor countries by 38.5 billion euros, according to the document obtained by Bloomberg News. “This gain is to be considered as a minimum,” it said.

Asked by Bloomberg Television about bringing forward the ESM’s start date, EU Economic and Monetary Affairs Commissioner Olli Rehn said the focus for now is on upgrading the temporary fund, the 440 billion-euro European Financial Stability Facility.

Speculating on a weaker euro means betting against the ability of Merkel and Sarkozy to keep the EU together. The two said this month in a joint statement that “it is more than ever indispensable” to “assure the stability of the euro zone.”

IMF Managing Director Christine Lagarde said investors haven’t taken into account “very solid fiscal consolidation” in some euro region nations.

‘Under the Skin’

“I would hope that analysts would actually look under the skin of budgets of economies, of policies, to appreciate their solidity,” Lagarde said in a Sept. 22 Bloomberg Television interview with Tom Keene.

Germany, Europe’s largest economy, benefits from keeping the EU together because 43 percent of its goods, or about 416 billion euros, are sold within the region. Exports were 4.9 percent higher last quarter than three years ago.

“It would complicate trade a lot if the euro zone breaks up, never mind the socio-economic impact,” Ulrich Leuchtmann, Commerzbank AG’s head of currency strategy, said in a Sept. 22 telephone interview from Frankfurt. “The euro is the main tool for stronger European integration.”

The euro is the second-most traded currency after the dollar, according to the Bank for International Settlements in Basel, Switzerland. It accounted for 26.6 percent of global currency reserves at March 31, up from 18 percent at its inception, and second only to the greenback’s 60.7 percent share.

Euro Support

Concern that the U.S.’s debt and deficits may become unmanageable as economic growth slows is helping support the euro. The Federal Reserve said last week it would sell $400 billion of short-term debt and reinvest the proceeds in longer- maturity Treasuries to contain borrowing costs because of what it sees as “significant downside risks to the economic outlook.”

“There’s still enough concern about the Fed and the U.S. economy that it limits the degree to which the euro falls,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a Sept. 21 telephone interview.

Over the life of the euro the Bloomberg Correlation- Weighted Index that measures its performance has ranged from as low as 89.3740 in October 2000 to as high as 120.3054 in December 2008, before ending last week at 99.4761.

Euro Challenges

Against the dollar, it has ranged from 82.3 cents in October 2000 to $1.6038 in July 2008. The euro will hold above $1.30 this year as central banks led by the Swiss National Bank and sovereign-wealth funds such as those in Asia seek alternatives to the dollar, Michael Derks, the chief strategist at foreign-exchange broker FxPro Group Ltd. in London, said last week.

“I don’t think the euro is going to break up, it’s facing lots of challenges but it’s not going to fall apart,” Audrey Childe-Freeman, global head of currency strategy in London at the private-banking unit of JPMorgan, said Sept. 22 by telephone. “Economically, no member country would gain from a breakup of the euro-zone and that’s why politically, it’s unlikely to happen.”

 

 

Morning Report

News In Brief   Focus continues to remain on Europe. The single currency reacted negatively in Asian trade overnight as the markets gave a less-than-enthusiastic response to vague promises made at the G-20 meeting in Washington over the weekend on how best to deal with the euro zone crisis. The euro led Asian regional currencies broadly lower this morning as the exchanges saw little to cheer from the weekend discussions. In reaction to the news, stock markets sold off around the region. The Nikkei Stock Average was down 2.2% in late trading while the Seoul’s KOSPI was off 2.3%. Thai shares fell more than 8.0% to a 13-month low. Nothing concrete came out of the G-20 meeting over the weekend, which is causing uncertainty to persist. Leveraging of the European Financial Stability Facility through borrowing remained the main agenda item but there there seemed no clear consensus, with German officials still remaining cautious. German Deputy Finance Minister Joerg Asmussen was quoted as saying in Washington on Sunday that extra funding for Greece was unlikely to be granted at an October meeting, countering previous expectations that the money could come quickly after recent talks between Athens and the “troika” of the IMF, ECB and EU commission. “It’s up to the Germans,” said Dai Sato, senior vice president at Mizuho Corporate Bank. “Sentiment could turn for the better if Germany makes a resolve to save the euro in a spirit of self-sacrifice,” he added. The situation could otherwise continue to get worse with no imminent reversal in sight, Sato said, adding the euro may fall as low as $1.3200 this week. Early price action saw the euro at $1.3407 down from $1.3499 in New York late Friday. It briefly fell as low as $1.3365. Against the yen, it fell to Y102.18, a ten-year low, before recovering some ground to Y102.46, from Y103.70 in New York Friday. Traders also took remarks by a senior official at US rating agency Standard & Poor’s as a green light to dump the single currency. The official said efforts to increase the size of the European Financial Stability Facility could have “potential credit implications in different ways.” Meanwhile, China, set the yuan’s reference rate against the US dollar at a record high this morning, a surprise move that market participants said was aimed at sending a message of stability to jittery investors. The People’s Bank of China fixed a central parity for the dollar at a record low CNY6.3735, down from Friday’s over-the-counter close of CNY6.3889. Calling the fixing “totally unexpected,” a trader at a Beijing-based bank said the action indicates that the PBOC “is sending a strong signal to the market that it won’t let the yuan depreciate despite unfolding sovereign-debt woes overseas.” Other Asian currencies were lower, in line with falling stock markets and the euro, but the region’s central banks weren’t seen intervening to defend their currencies, as they did so, aggressively last week. The Korean won was sharply lower against the dollar although it came off its worst levels as traders remain cautious about dollar-selling intervention after the Bank of Korea was spotted multiple times last week taking action to support the currency. The Australian dollar fell throughout the day and was at $0.9694, although a Macquarie strategist said that the unit could draw buying interest from exporters and real money names if markets start to stabilise. The currency is still ahead of its low of $0.9669 hit on Friday. The dollar also rose sharply against its Canadian counterpart, climbing to C$1.0377, its highest in a year. Meanwhile, dollar/yen remained locked in its recent range. Dollar selling by Japanese exporters ahead of the end of fiscal half-year is likely to continue weighing this week, while hopes for currency intervention by Japan’s finance ministry is likely to prevent any sharp falls in the pair, dealers said. The dollar was at Y76.40 from Y76.64 in New York. The dollar was at CHF0.9107 from CHF0.9088. The pound was at $1.5458 from $1.5469, while the ICE Dollar Index was at 78.665 from 78.302. Little on the UK News front over the weekend. Most press items cantered on the discussions in Washington on the euro crisis. However, the Prime Minister has commented on the BBC that there is no change to UK debt crisis plans The government will not change tack in its efforts to reduce the budget deficit despite the lack of UK economic growth, the prime minister has said.

 

 

Shares fall sharply on economy fears

World stock markets have dropped sharply after a series of grim warnings over prospects for the global economy.

Christine Lagarde, head of the International Monetary Fund, said the economic situation was entering a “dangerous place”.

Earlier, the president of the World Bank, Robert Zoellick, said the world’s economy was “in a danger zone”.

The comments came after the Federal Reserve warned that the US economy faced “significant downside risks”.

In Europe, the UK FTSE 100 closed down 4.7%, while France’s Cac 40 fell 5.25% and Germany’s Dax ended 5% lower. In the US, the Dow Jones was 3.3% down at midday.

The FTSE 100′s tumble was its biggest one-day fall since the index fell 5.3% on 2 March 2009.

Mrs Lagarde told a news conference at the IMF’s annual meeting in the US that the “path to recovery is narrower that three years ago,” when developed economies sank into recession.

She said that international leaders must act quickly on fiscal consolidation, the repair of household debt, and reforms of the public sectors. “Time is of the essence,” she said.

It was key, she added, that the banks were supported because international lending was essential to “fuel growth”.

Earlier on Thursday, Mr Zoellick added his weight to fears that the global economy had taken a turn for the worse.

He said that a double-dip recession was “unlikely”, but added: “My confidence in that belief is being eroded daily by the steady drip of poor economic news.

“Delays will narrow choice and make them more costly – we all have a stake in this succeeding.”

Also on Thursday, US Treasury Secretary Timothy Geithner said that the eurozone crisis and the political divisions in the United States were the biggest threats to the global economy.

In early 2011, high oil prices and the Japan earthquake slowed economic growth substantially, but Mr Geithner said those two shocks had started to fade.

“The two other clouds still over us are the European crisis and the deep concern that you can see across the world and around the country about whether the political system in the United States is up to the challenges we face.”

Bond plan

On Wednesday, the US Federal Reserve had warned: “Recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated.

“There are significant downside risks to the economic outlook, including strains in global financial markets.”

It also unveiled a stimulus plan – dubbed Operation Twist – designed to help stimulate the flagging US economy.

The Fed will sell about $400bn (£260bn) of short-term bonds and buy longer-term debt. Buying bonds pushes the price up and lowers the interest rate, or yield.

The Fed hopes the move will help to keep long-term interest rates low, thereby boosting mortgage lending and loans to businesses.

The policy, the first of its kind since the early 1960s, does not inject any new money into the economy.

A number of analysts, some of whom were expecting the Fed to expand on its two previous rounds of quantitative easing (QE), under which it created money to buy assets to try and boost demand, expressed scepticism at the Fed’s latest move.

“It seems the market doesn’t believe Operation Twist is enough to kick start the spluttering economy,” said Ben Potter, market strategist at IG Markets.

“This, [together with] a very downbeat outlook… seems to have unsettled markets even further.”

The UK and six other G20 countries have written to France – the current G20 president – calling for swift action to resolve the eurozone and US debt problems.

The move by the Fed comes amid deepening gloom about the global economy, with the International Monetary Fund cutting growth estimates for the US, Europe, and Japan.

Figures released on Thursday indicated that the eurozone’s private sector contracted in September for the first time in two years.

Markit’s purchasing managers’ index (PMI) of activity dropped to 49.1, from 51.5 last month. A reading below 50 indicates contraction.

On Wednesday, the Bank of England said members of its Monetary Policy Committee had considered a new round of quantitative easing to pump money into the economy.

 

 

Shares slide on Federal Reserve warning

Global shares have fallen sharply after the Federal Reserve gave a stark warning about the state of the US economy and announced limited measures designed to boost growth.

The Fed warned of “significant downside risks” as it announced a bond swap programme designed to keep long-term interest rates low.

Major European markets all dropped in morning trading, with the FTSE down 3.65%, and the Cac-40 down 4.32%.

On Wednesday, the Dow Jones fell 2.5%.

Bond plan

Following a two-day meeting, the Fed warned: “Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated.

“There are significant downside risks to the economic outlook, including strains in global financial markets.”

It also unveiled a stimulus plan – dubbed Operation Twist – designed to help stimulate the flagging US economy.

The Fed will sell about $400bn (£260bn) of short-term bonds and buy longer-term debt. Buying bonds pushes the price up and lowers the interest rate, or yield.

The Fed hopes the move will help to keep long-term interest rates low, thereby boosting mortgage lending and loans to businesses.

The policy, the first of its kind since the early 1960s, does not inject any new money into the economy.

A number of analysts, some of whom were expecting the Fed to expand on its two previous rounds of quantitative easing (QE), under which it created money to buy assets to try and boost demand, expressed scepticism at the Fed’s latest move.

“It seems the market doesn’t believe Operation Twist is enough to kick start the spluttering economy,” said Ben Potter, market strategist at IG Markets.

“This, [together with] a very downbeat outlook… seems to have unsettled markets even further.”

The move by the Fed comes amid deepening gloom about the global economy, with the International Monetary Fund cutting growth estimates for the US, Europe, and Japan.

It comes as new figures show the eurozone’s private sector contracted in September for the first time in two years.

Markit’s purchasing managers’ index (PMI) of activity dropped to 49.1, from 51.5 last month. A reading below 50 indicates contraction.

On Wednesday, the Bank of England said members of its Monetary Policy Committee had considered a new round of quantitative easing to pump money into the economy.

 

 

Seesaw Action Continues on FTSE Ahead of FOMC Call

An imminent decision from the Federal Reserve had investors locking in profits after Tuesday’s gains

Markets continued their seesaw action on Wednesday, falling back into the red having on Tuesday recouped Monday’s losses. An imminent decision from the Federal Reserve on fresh steps to boost the sluggish economy had investors hanging in limbo and locking in profits after Tuesday’s 2% rally.

The FTSE 100 index closed up 75 points, 1.4% higher at 5,288, while the FTSE 250 index took on 43 points or 0.4% to settle at 10,266.

All eyes are on the conclusion of the two-day meeting of the Federal Open Market Committee, where the central bank is widely expected to announce a bond-buying programme to support the markets and the economy.

With the U.S. economy slowing down and unemployment remaining high, the Fed is expected to unveil an “Operation Twist” where it will swap short-term securities for long-term securities, which should help keep a hold on long-term interest rates.

In London, the minutes of the latest Bank of England Monetary Policy Committee meeting revealed no change in voting on either rates or Quantitative Easing. They did, however, show that Committee members are preparing to step up the QE programme as it is deemed increasingly necessary at some stage in the future. Interest rates, meanwhile, have been indicated to be kept on hold for quite some time to come.

On the FTSE, Tuesday’s news of GDP growth downgrades from the IMF continued to weigh, as did investor caution. Miners saw the brunt of the sell-off, reversing the previous session’s strong performance. Antofagasta (ANTO) was the worst off, down 6.9%, Rio Tinto (RIO) lost 4.2%, and BHP Billiton (BLT) 3.9%.

Beyond miners, oil exploration and production companies also took a red card as the price of crude slipped. Cairn Energy (CNE), BP (BP.) and Tullow Oil (TLW) all lost 2.5% apiece.

On the upside, Lloyds Banking Group (LLOY) led the risers with a climb of 5.6% on the back of reports late Tuesday that the part-nationalised banking group is preparing to sell a £1 billion portfolio of commercial property loans. Royal Bank of Scotland (RBS) was also on the up, closing 1.3% firmer.

 

 

Bloomberg Bets on Carbon Markets

Acquires Clean Energy Data Leader, New Energy Finance.

To paraphrase, the news of the death of a price on carbon has been greatly exaggerated.  A significant proof is Bloomberg’s recent purchase of New Energy Finance, a global leader in providing news, data and analysis on renewable energy, carbon markets, energy efficiency, biofuels, carbon capture and storage, and nuclear power. Bloomberg’s vision is to be the leader in information, analytics and trading architectures to support low‐carbon energy solutions.

“This acquisition is the next step in Bloomberg’s initiative to develop and promote the carbon and clean energy markets,” said Peter T. Grauer, chairman of Bloomberg. “Carbon and clean energy issues touch every segment of the global economy, and are of increasing importance to our customers.”

Guy Turner, director of carbon market research at New Energy Finance, added,

“Global carbon markets are here to stay. This year will see trading volume of around $120 billion, and we expect this figure to grow to approximately $2 trillion by 2020. New Energy Finance’s carbon market models are the most trusted in the world, and working with Bloomberg we will be able to get them where they are needed – into the hands of traders and other market players.”

Since 2004, New Energy Finance has  been developing the data and analytics to bring transparency to an extremely complex market.  They have experience in countries who signed the Kyoto protocol, which has created a price for carbon in the European Union countries that agreed to mandatory carbon reduction.  They also cover the voluntary markets, created to offset carbon emissions of corporations in advance of legislation requiring that they do so. As Michael Liebreich, chairman and CEO of New Energy Finance said,

“…we are seeing a fundamental re-engineering of the world’s energy industry around low carbon architectures, which will take decades, cost trillions of dollars and require the creation of new market instruments. Tying up with Bloomberg will enable us to maintain the market leadership position we have established, developing new services of great sophistication for our clients as the clean energy and carbon markets grow rapidly and become an important part of mainstream investing.”  He added, “I am particularly pleased to be announcing the deal just as the international negotiations in Copenhagen get under way.”

 

 

Europe Banks Have $410 Billion Credit Risk: IMF

The European debt crisis has generated as much as 300 billion euros ($410 billion) in credit risk for European banks, the International Monetary Fund said, calling for capital injections to reassure investors and support lending.

Political squabbling in Europe over ways to fight contagion and delays in implementing agreed measures are raising concerns about the risk of defaults by governments, the IMF said. Banks in turn face “funding challenges” because of investor concern about their potential losses from government bonds they hold, with some relying heavily on the European Central Bank for liquidity, it said.

“A number of banks must raise capital to help ensure the confidence of their creditors and depositors,” the IMF wrote in its Global Financial Stability Report released today. “Without additional capital buffers, problems in accessing funding are likely to create deleveraging pressures at banks, which will force them to cut credit to the real economy.”

The Washington-based IMF yesterday cut its global growth forecast and predicted “severe’ repercussions if policy makers fail to stem the debt turmoil that’s threatening to engulf Italy and Spain. Bank recapitalization, through public injections if necessary, should come in addition to “credible” strategies by governments to reduce their public debt, the IMF said today.

Japan, U.K.

The ECB and peers in the U.K., Switzerland, Japan and the U.S. last week said they’ll provide unlimited three-month money to lenders in three tenders starting October. That was after funding dried up for European banks in general, and French lenders in particular, amid concern Greece is headed for a default.

Credit Agricole SA (ACA) and Societe Generale SA had their long- term credit ratings cut one level this week by Moody’s Investors Service, which cited their reliance on short-term funding and Greek exposure.

The fund said its assessment of the potential credit risks of European banks isn’t a calculation of their capital needs, which would require a “fully fledged stress test.” It said its analysis was based on published data from the European Banking Authority’s stress test and Bank for International Settlements figures.

The IMF also called on the U.S. and Japan to craft fiscal plans for the medium term, “particularly given the many adverse global economic and financial repercussions that would follow from failure to adequately deal with U.S. fiscal problems.”

Emerging Markets

Emerging-market banks are not sheltered from the consequences of weaker global growth, the IMF said. It estimated that their capital adequacy could be dented by 6 percentage points under a scenario that combines several shocks.

Calls by IMF Managing Director Christine Lagarde to recapitalize European banks where shunned by officials from Germany to Spain, with ECB President Jean-Claude Trichet describing the fund’s methodology on capital as different from his own institution’s.

Analysts at Credit Suisse Group AG in a Sept. 15 research note estimated that European banks may have a capital deficit of 165 billion euros at the end of 2012 “given higher regulatory capital demands and funding markets requiring larger capital cushions.”

The IMF analysis measured the size of spillover on banks from credit-related strains in the bond markets of Greece, Ireland, Portugal, Belgium, Italy and Spain and used spreads on credit default swaps.

The IMF said banks’ “spillover” from sovereign debt alone amounts to about 200 billion euros. Adding banks’ holdings of bank assets whose value has also fallen in the crisis countries brings the total as high as 300 billion euros.

To contact the reporter responsible for this story: Sandrine Rastello in Washington at srastello@bloomberg.net

 

 

Utility Demand for CO2 to Jump 82% to Record in Second Half, Tschach Says

Utility demand for carbon permits and credits will surge 82 percent to a record in the six months through the end of the year as lawmakers stop giving most allowances away for free, said Tschach Solutions GmbH.

Demand will amount to 200 million metric tons in the second half of this year, compared with about 110 million tons in the same period of last year, according to a report e-mailed today. There was about 130 million tons of demand in the first half of this year, said Tschach, the Karlsruhe, Germany-based provider of data on carbon markets.

Utilities can buy European Union carbon permits for compliance with greenhouse gas limits or use cheaper United Nations Certified Emission Reduction credits. They receive most of their required EU allowances free of charge in the five years through 2012 and usually sell power two-to-three years ahead of generation. They won’t generally get free permits after 2012 and it’s not likely they will wait for the first auctions of 2013 carbon permits, which are slated for the end of this year, Ingo Tschach, managing director, said today by phone.

Utilities will probably use cheaper CERs from the Clean Development Mechanism for a large portion of their needs, he said. To lock in profit on forward sales of electricity, power generators usually buy fuel and carbon futures.

RWE AG (RWE) needs about 55 million tons in the second half, Tschach estimated. Enel SpA (ENEL) needs about 50 million tons.

RWE is listed as one of the buyers in UN-credit projects that have received 59.3 million tons of credits under the UN- overseen CDM since 2005, according to UN data. Enel is listed as a buyer in projects that have received 175 million tons, the data show.

 

 

Bank of England MPC considers new stimulus for economy

The Bank of England’s latest policy meeting discussed how to give the economy a new boost – but agreed unanimously to hold interest rates.

The MPC’s discussions included reconsidering its decision not to cut rates below 0.5%.

Noting the weakening economic outlook, it also looked at boosting the flow of money through the programme of quantitative easing (QE).

But only one MPC member, Adam Posen, thought that should be done now.

The minutes from the meeting held earlier this month noted a raft of deteriorating economic signs, including slowing retail sales growth, output, exports and a flagging housing market.

The IMF on Tuesday cut its growth forecast for the UK economy from 1.6% to 1.1% for this year.

The MPC noted that inflation was still likely to rise from its current 4.5% to 5%, well above its target of 2%.

But it said it was still expecting it to come down to target in 2012, thanks to the likelihood of a synchronised period of weak global growth, pressured by the eurozone crisis and a US economy beset with its own problems.

More money

Adam Posen has argued for months that a weak economy was a bigger danger than rising inflation and therefore the QE programme should be increased by £50bn, to add to the £200bn already agreed.

QE is the policy of injecting new money into the financial system to try to boost the economy.

There had been speculation that the increasingly uncertain economic outlook might lead other members to join him.

Howard Archer, chief UK and European economist at IHS Global Insight, said this could happen within the next two months: “The minutes of the September MPC meeting are appreciably more dovish, opening the door wide to more quantitative easing by the Bank of England and very possibly sooner rather than later.

“We expect the MPC to approve a further £50bn in quantitative easing during the fourth quarter. A move as soon as October is entirely possible, but we suspect November is more likely. ”

He added that a rate rise looked highly unlikely before 20113.

The Bank of England has held rates since March 2009.

 

 

Lloyd’s of London reports loss after disaster claims

Lloyd’s of London, the world’s largest insurance market, says major catastrophes made the first half of 2011 the most expensive on record.

It saw claims totalling £6.7bn from disasters such as the Japanese tsunami, floods in Australia and the earthquake in New Zealand.

Lloyd’s reported a loss of £697m for the six months to June, against a profit of £628m last year.

However, Lloyd’s said the market was “well-capitalised”.

‘Tough times’

This year already ranks as the second most destructive on record for catastrophe losses after 2005, with the insurance industry as a whole absorbing $70bn in claims, according to Swiss Re, the world’s second biggest reinsurer.

Despite this, Lloyd’s reported it was in good shape financially, with record central assets of £2.47bn, up from £2.23bn last year.

It reported a return on its investments of £548m.

Lloyd’s chief executive, Richard Ward, said: “These are tough times for the insurance industry, but we are well positioned to handle them.”

He warned the rest of the year ahead was likely to be “challenging”, thanks to the uncertain economic environment and the crisis in the eurozone.

 

 

UK government borrowing rises in August

Public sector net borrowing (PSNB) in the UK during August was a higher-than-expected £15.9bn, although previous months’ borrowing was revised down.

The August figure marked a rise of £1.9bn from a year earlier, and was the highest total for an August on record.

It means a third of the way into the fiscal year, cumulative borrowing at £52bn is only 7% less than a year ago.

However, last year’s total borrowing estimate was cut by £5.9bn, mainly due to changes in local government data.

 

 

Greece bailout: European Union troika making ‘progress’

Talks to avert a financial meltdown in Greece have made “good progress”, the European Commission has announced.

Debt inspectors from the EC, European Central Bank, and International Monetary Fund will return to Athens next week for further negotiations.

This so-called troika of inspectors suspended a review of Greece’s austerity programme, which was needed to approve further bailout money.

The troika and Greek finance ministers held a teleconference late on Tuesday.

After the teleconference, the EC said in a statement that a full troika mission “is now expected to come back to Athens early next week to resume the review, including policy discussions.

“Good progress was made” at Tuesday’s talks, the statement said, “and technical discussions will continue in Athens over the coming days.”

The suspension of the troika’s full review of Greece’s progress in meeting its budget reduction measures had unsettled the global financial markets for days.

The suspicion was that Greece was not making progress, jeopardising the release of an urgently-needed 8bn (£6.9bn)euros tranche of aid.

Greece has been under pressure to plug a budget hole of more than 2bn euros to meet the terms of a 110bn-euro bailout from the troika members.

The debt-laden country needs the rescue funds before it runs out of money to pay such things as public wages and pensions.

 

 

Economy enters ‘dangerous phase’

The global economy has entered a “dangerous new phase” of sharply lower growth, according to the International Monetary Fund (IMF).

The organisation warned that continuing political and economic woes in the US and eurozone could force them back into recession.

The IMF says the prognosis for economies in the developed world is “weak and bumpy expansion”.

It predicts their GDP will expand “at an anaemic pace of 1.5% in 2011″.

The IMF believes global growth will shrink to 4% in 2012, from 5% last year, on factors such as “major financial turbulence in the eurozone”.

It slashed its growth projections for the 17-nation eurozone to 1.6% in 2011, down from 2% predicted in June. Next year growth will be 1.1%, down from 1.7%, it forecast.

The US – the world’s largest economy – is likely to have weak growth “for years to come”.

UK worries

And the UK, the growth forecast for 2011 has also been revised downwards, from 1.5% to 1.1%, while the forecast for 2012 was cut to 1.6%, from 2.3%.

“It would be wise for both governments and businesses [in the UK] to develop contingency plans in case such a double dip scenario does emerge,” said John Hawksworth, PwC’s chief economist.

Among the major advanced economies, the IMF now thinks Germany and Canada will be the only countries to grow by more than 2% in 2011.

In 2012, none will grow that fast, except Japan, as its economy rebounds from this year after an earthquake and tsunami ravaged the country.

BBC economics editor Stephanie Flanders points out that the shorter-term growth forecast has been cut for every country listed – with particularly large downward revisions for the US and Italy.

Acting together

The IMF stressed strong leadership would crucial in staving off recession in the US and eurozone.

IMF chief economist Olivier Blanchard said that eurozone countries were lagging in the race to solve the sovereign debt crisis.

He said: “There is a wide perception that policymakers are one step behind the action. Europe must get its act together.”

The perceived weakness in eurozone governments’ response is one of the main factors behind the recent market turmoil.

“Leaders must stand by their commitments to do whatever it takes to preserve trust in national policies and the euro,” the report said.

The IMF’s statements come after credit rating agency Standard and Poor’s downgraded Italy’s debt rating amid mounting concerns about the country’s finances.

And on Monday, the IMF warned Greece to implement agreed reforms or miss an 8bn-euro bailout instalment set for October, viewed as vital to keeping state finances afloat.

“Fragile” financial institutions needed to get private cash to survive over funds from the public purse, or be “restructured or closed”, said the IMF.

In a speech on Tuesday, European Competition Commissioner Joaquin Almunia also warned more banks in the region may need extra cash.

He said: “The worsening of the sovereign debt crisis, its impact on a fragile banking system and the continuing tensions in funding markets all point to the possible needs for further recapitalistion of banks on top of the nine that failed the stress tests earlier this year.”

US concerns

The IMF report also voices concerns about the US economic recovery and the chance it might “suffer further blows” including a weak housing market and worsening financial conditions.

It warns that either of the issues could drag both the US and the euro area into recession.

It suggests that the US needs to devise a plan to “put public debt on a sustainable path and implement policies to sustain the recovery”.

The IMF has also voiced fears that the US is facing what it calls a “very sluggish recovery of employment”.

“Although [US] unemployment is below post-World War II highs, job losses during the crisis were unprecedented and came on top of lacklustre employment performance during the preceding decade,” the report said.

It added that news of the US housing market had been disappointing, with “no end in sight to the overhang of excess supply and declining prices”.

IMF chief economist Olivier Blanchard said that eurozone countries were lagging in the race to solve the sovereign debt crisis.

He said: “There is a wide perception that policymakers are one step behind the action. Europe must get its act together.”

The perceived weakness in eurozone governments’ response is one of the main factors behind the recent market turmoil.

“Leaders must stand by their commitments to do whatever it takes to preserve trust in national policies and the euro,” the report said.

The IMF’s statements come after credit rating agency Standard and Poor’s downgraded Italy’s debt rating amid mounting concerns about the country’s finances.

And on Monday, the IMF warned Greece to implement agreed reforms or miss an 8bn-euro bailout instalment set for October, viewed as vital to keeping state finances afloat.

“Fragile” financial institutions needed to get private cash to survive over funds from the public purse, or be “restructured or closed”, said the IMF.

In a speech on Tuesday, European Competition Commissioner Joaquin Almunia also warned more banks in the region may need extra cash.

He said: “The worsening of the sovereign debt crisis, its impact on a fragile banking system and the continuing tensions in funding markets all point to the possible needs for further recapitalistion of banks on top of the nine that failed the stress tests earlier this year.”

US concerns

The IMF report also voices concerns about the US economic recovery and the chance it might “suffer further blows” including a weak housing market and worsening financial conditions.

It warns that either of the issues could drag both the US and the euro area into recession.

It suggests that the US needs to devise a plan to “put public debt on a sustainable path and implement policies to sustain the recovery”.

The IMF has also voiced fears that the US is facing what it calls a “very sluggish recovery of employment”.

“Although [US] unemployment is below post-World War II highs, job losses during the crisis were unprecedented and came on top of lacklustre employment performance during the preceding decade,” the report said.

It added that news of the US housing market had been disappointing, with “no end in sight to the overhang of excess supply and declining prices”.

 

 

Obama unveils plans to cut US deficit

US President Barack Obama has outlined his plans to reduce the US deficit and to kick-start economic growth.

In a speech at the White House, Mr Obama said that corporations and the wealthy must pay higher taxes.

The aim is to produce savings of more than $3tn (£1.9bn) over the next decade, with roughly half coming from tax increases.

However, Republicans in Congress have already said they will not agree to any plans to increase taxes.

In a televised address from outside the White House, President Obama said if the US did not act, the burden of debt would fall on future generations.

“Washington has to live within its means,” Mr Obama said.

“We have to cut what we can’t afford, to pay for what really matters.”

He said the wealthy and corporations should pay their “fair share” to cut the deficit.

“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” he said. “It’s hard to argue against that.

“It’s not class warfare, it’s math.”

Mr Obama’s plans will go before a congressional deficit-reduction “super-committee” already considering how to cut $1.5tn from the budget deficit.

The committee faces a November deadline to find $1.5tn in savings and is not obliged to accept the president’s ideas.

 

 

Bank of England quantitative easing ‘boosted GDP’

The Bank of England’s purchase of £200bn of assets has been “economically significant”, boosting GDP by as much as 2%, according to the Bank’s Quarterly Bulletin.

The action, known as quantitative easing, could also have raised inflation by 1.5%, the Bank said.

The Bank bought the assets, mainly government bonds, between March 2009 and February 2010.

It used newly created money to fund the deals to try to boost the economy.

However, the Bank warned that there was considerable uncertainty around these estimates and that the precise impact of asset purchases or sales was likely to vary.

News of the figures may fuel speculation that the Bank is to start a new round of quantitative easing to boost the UK’s slow economic growth, which was just 0.2% in the second quarter of the year.

This month, the Monetary Policy Committee (MPC) voted for no change in bond purchases and left interest rates at a record low of 0.5% for the 30th month in a row while inflation stayed at more than double its 2% target figure.

MPC member Adam Posen has repeatedly called for a return to quantitative easing since the beginning of 2011.

In a speech last week, he said: “If we do not undertake the stimulative policy that the outlook calls for, then our economies and our people will suffer avoidable and potentially lasting damage,” he said.

On Monday, data from Markit Economics suggested there had been a slight improvement in household finances in September.

Its monthly index of household finances edged up to 35.1 in September from a record low of 33.2 in August.

 

 

How has Google Managed to be a Carbon Neutral Company since 2007?

“…the carbon footprint of your life on Google is zero,” said Urs Hoelzle, Senior Vice President of Google’s Technical Infrastructure Department.

Despite the fact that Google’s data centers around the world, which run the services for Gmail, YouTube and Google Search, continuously draw almost 260 million watts (which, according to The New York Times, is roughly equivalent to a quarter of the output of a nuclear power plant), Google announced on their official blog site yesterday that they’ve been a completely carbon neutral company.

How is this possible ? Don’t the growing number of “cloud” computing centres and data centres mean a huge energy challenge for the earth ?

A Beyond-Zero Carbon Footprint…

How ?

“The Big Picture” by Google explains being “beyond-zero carbon” by saying that “Our efforts in efficiency, buying clean energy, and purchasing offsets bring our carbon footprint down to zero. We’re going beyond carbon neutral by investing hundreds of millions of dollars in renewable energy projects that create far more renewable energy for the world than we consume as a company.”

Google has increasingly been investing in smart energy, green initiatives, with the more recent ones in this area being its $168 million investment in the Ivanpah solar power tower plant followed by $280 million investment towards creating the largest residential solar financing fund in the United States in conjunction with SolarCity.

Alongwith having invested in utility-scale projects, built to contribute significant amounts of renewable energy to today’s electricity grid, Google has also invested in early-stage companies such as Makani Power and Potter Drilling, which are working towards developing innovative new technologies to in the wind and geothermal energy sectors respectively.

According to figures put forth by Google, the search engine giant has to date invested more than $780 million in the renewable energy sector towards projects that are capable of generating 1.7 GW of power and electricity, which Google estimates as being equivalent to the amount of energy used by 350,000 homes.

The company has also made public the fact that it has put in place a number of special arrangements to buy electricity from wind farms, as a result of which an estimated 25 percent of Google’s 2010 energy needs were reportedly supplied by renewable fuels. The company estimates that this figure will reach 30 percent in 2011.

The Race to “Who’s Greener”

And because of Google’s numerous initiatives towards being greener, including the fact that Google’s data centers use “half the electricity of a typical data center,” it is much smarter to choose Google search and mail services than those hosted by any other server says Google.

In a document released by Google, titled “Google’s Green Computing: Efficiency at Scale”, the company substantiates this claim by saying that, “For a small office of 50 people, choosing Gmail over a locally hosted server can mean an annual per-user power savings of up to 170 kWh and a carbon footprint reduction of up to 100 kg of CO2”

For a more comprehensive understanding of which Google services take up how much energy, figures put forth by the company suggest that about 12.5 million watts of Google’s 260-million-watt total is accounted for by the company’s primary service, i.e., searches, while YouTube accounts for a very small amount.

 

 

Hedge Fund Heavyweight Says Gold Bet Not Over

Gold, platinum and Brent oil will lead gains in commodities as investors seek to protect their assets and shortages emerge, according to Tony Hall, the hedge- fund manager who earned 33 percent for his clients this year.

Gold may climb 21 percent to a record $2,200 an ounce by the end of 2011, platinum may gain 10 percent and Brent could rise 26 percent to $140 a barrel in six months, said the London- based chief investment officer of Duet Commodities Fund Ltd., which manages more than $100 million of assets. Its eight-month gain compares with a mean return of 0.6 percent across commodity hedge funds tracked by HedgeFund.net and beat larger rivals such as Clive Capital LLP and Fortress Commodities Offshore Fund Ltd.

“The fear of recession, the fear of worse economic numbers is weighing on commodities and stopping gains from fundamentals from coming through,” said Hall, 31, who spars as a heavyweight boxer. “We still believe in the gold story. If you believe the world is in trouble or in further economic growth disruption, then gold is a good safe haven. If you believe that the world is going to come out okay, then it’s a good inflation hedge.”

At a time when the MSCI All-Country World Index of global equities declined 9.6 percent this year, the Standard & Poor’s GSCI measure of 24 commodities advanced 2.6 percent, led by silver, gold and energy.

Investors held about $431 billion in raw materials by July, an almost fivefold gain in six years, Barclays Capital says. As equity holders contend with losses of $8.5 trillion since May, speculators made their biggest wagers on higher commodity prices in almost three months in the week to Sept. 6 as they anticipated that even weaker economic growth will mean shortages.

Winning Run

Gold advanced 28 percent to $1,823.48 this year, heading for an 11th consecutive annual gain, the longest winning streak in at least nine decades. It’s the second-best performer in the S&P GSCI behind silver, which rose 32 percent. Gold is trading at 45 times the price of silver, down from a multiple of 84 in 2008. Silver, the precious metal most used in industry, rose more than threefold to $40.71 since the end of that year.

The gold price of $2,200 predicted by Hall would be 15 percent more than the all-time high of $1,921.15 reached Sept. 6. It would still be below the then-record $850 reached in 1980, equal to $2,337 now in inflation-adjusted terms. Bullion had tumbled 5.7 percent from its all-time high by Sept. 16.

“I’d say gold will have a very good run higher, and a very good retracement would be justified,” Hall said. “If we see a retracement back to $1,700, I think at that point would be a good opportunity to get in.”

Arno Pilz

Gold and platinum-group metals, used mostly in jewelry and catalytic converters for cars, were the best performers for Duet in the past two months, said Hall, who has traded commodities for about a decade. The fund also profited from betting against silver in May and June, he said. Silver futures traded on the Comex exchange in New York fell from $49.845 an ounce on April 25 to as low as $32.30 on May 12.

That trading idea came from Arno Pilz, 42, who founded the fund with Hall in July 2010. The former head of metals trading at Lehman Brothers Holdings Inc. oversees the fund’s investments in precious and industrial metals while Hall runs the energy trades. They plan to add an agricultural specialist in second- half 2012 at the earliest and cap total assets at $1 billion.

Pilz, who has traded metals since 1999, has a Master of Philosophy degree in management studies from Oxford University’s Templeton College. He makes his own cider and salami and is building a 1:2 scale Land Rover for his two daughters.

Clive Capital

Hall and Pilz beat larger rivals including Clive Capital, which oversees $4.8 billion and fell 11 percent this year, and the $1.1 billion Fortress Commodities Offshore Fund, which returned about 1.8 percent, according to people with direct knowledge of the funds’ performance.

Duet’s best trade was on Brent crude in the second quarter, Hall said. The contract, traded on ICE Futures Europe in London, gained as much as 34 percent this year as fighting erupted in Libya, which has Africa’s largest oil reserves. The disruption to supplies of light crudes, which yield a higher proportion of more profitable products including gasoline, increased demand for similar grades such as Brent.

Brent costs about $24.34 a barrel more than the West Texas Intermediate grade traded on the New York Mercantile Exchange, a global benchmark, up from about parity in 2009. The premium dropped from $25.93 on Sept. 6 after a 600,000-barrel cargo of Libyan crude was offered for shipment, a sign exports may resume, said three people with direct knowledge of the transaction.

‘New Highs’

Brent slumped 12 percent to $111.27 a barrel since early April because of concern that slower economic growth will curb demand for energy. The Paris-based International Energy Agency cut global oil demand forecasts for this year by 200,000 barrels a day and 400,000 a day for 2012 on Sept. 13, and said stockpiles in developed nations fell to below the five-year average for the first time since the global recession in 2008.

“Eventually the crude fundamentals will come through and become the dominant factor,” said Hall, who holds an economics degree from University of Bath. “We are going to see new highs in Brent over the next six months.”

More than half Duet’s commodity book is expressed through options, with crude and precious metals positions concentrated in periods three to six months ahead, said Hall, who previously worked for Credit Suisse Group AG and Deutsche Bank AG.

Fuel was also the fund’s worst trade, on a view concerning price differentials of gasoil and other products.

“Energy relative value has been the most disappointing part of the portfolio this year, with our view that middle distillates would outperform other products,” he said.

Gasoil Cracks

The so-called cracks, reflecting the spread between the price of the refined product and crude, slumped 31 percent since peaking at $24.17 a barrel on March 16, according to data from PVM Oil Associates, a London-based brokerage. Gasoil is typically used as a heating fuel.

Speculators held 1.275 million net-long futures and options across 18 commodities tracked by the U.S. Commodity Futures Trading Commission in the week ended Sept. 6, the most since the week ended June 14, data compiled by Bloomberg show. They had raised that combined position for four consecutive weeks. They cut their bullish bets by 5.2 percent in the latest week.

Duet is also bullish on platinum, which gained 2.8 percent to $1,819.38 an ounce this year. The metal, mined mostly in South Africa, will trade as high as $2,000 to $2,200 this year, Hall said. Holdings in exchange-traded products backed by the commodity are at a near-record 44.3 tons, valued at about $2.6 billion, data compiled by Bloomberg show.

Platinum Bull

Platinum is trading at a ratio of 2.5 times the price of palladium, compared with a 10-year average of 3.5. The metals are mined together and both are used in autocatalysts.

Platinum supply will fall 21,000 ounces short of demand this year, widening to a deficit of 54,000 ounces in 2012, Barclays Capital estimates. Mining companies are going as deep as 1.4 miles underground to maintain output, pumping chilled air down mine shafts to cool seams as hot as 160 degrees Fahrenheit.

“Platinum looks like great value in the precious metals complex,” Hall said. “Platinum is a store of value, a precious metal and an industrial metal. If the economy picks up we’re going to see bigger demand in catalytic converters.”

 

 

EU finance ministers push back Greek bailout decision

Eurozone leaders will decide in October whether to release the next 8bn euros (£7bn) in bailout loans to Greece.

Speculation about the timing had intensified following a visit to Athens by eurozone and European Central Bank officials earlier this month.

European finance ministers were meeting in Poland on Friday to try to seek a solution to the debt crisis.

Jean-Claude Juncker, Eurogroup chief, said Greece was making “significant” progress on budget reforms.

There will be a meeting of finance ministers in early October, with the funds released about 15 October – assuming there are no hitches.

Demands that Greece accelerate its austerity plans, and divisions among governments and policymakers over support for indebted eurozone members, has sparked turmoil in the financial markets.

The head of the Eurogroup of ministers, Jean-Claude Juncker said he welcomed “the renewed, firm commitment of Greece” to its austerity programme and said they “would decide in October on the next tranche.”

‘Without exception’

A delegation from the eurozone, ECB and International Monetary Fund unexpectedly left Athens on 2 September, delaying the long-awaited confirmation that Greece was meeting the terms of its 110bn euros bailout agreed in May 2010.

The move to delay a decision on the next tranche of Greek aid came after the country’s finance minister Evangelos Venizelos said Athens would meet its austerity plan and default was not an issue.

“The intention is to meet the fiscal targets for this year and next year without delay, without exception and deviations,” he said on arriving in Poland.

But there remains concern that the meeting has not resolved some fundamental issues, such as whether Greece should provide collateral in return for more aid.

Our correspondent in Wroclaw, Chris Morris, said that eurozone leaders remain as divided as ever over whether Greece has done enough to deserve further funds.

Ahead of the meeting, Finland’s minister Jutta Urpilainen played down the chances of resolving a dispute over providing more money to Greece.

Finland wants collateral in return for contributing money to a second Greek bailout.

But Ms Urpilainen said: “Unfortunately I don’t see that we can find a solution tonight.”

And Austria’s finance minister refused to rule out an eventual Greek default.

On arriving for the meeting, Maria Fekter said more bailout money should be advanced to Greece, but “we will have to think about the alternative”.

‘Catastrophic risk’

Such differences have unsettled the US, which has warned that the impact of the eurozone divisions is spreading beyond its borders to global financial markets.

In an unusual step, US Treasury Secretary Timothy Geithner attended what is normally a meeting for European leaders and officials only.

According to the Dow Jones news agency, Mr Geithner warned ministers that the Greek crisis posed a “catastrophic risk” and they should stop the “loose talk” about divisions which have unsettled financial markets.

Mr Geithner reportedly said: “What’s very damaging is not just seeing the divisiveness in the debate over strategy in Europe but the ongoing conflict between countries and the [European] central bank.”

He said that “governments and central banks need to take out the catastrophic risk to markets”.

A run of several days of sharp falls on the stock markets was only halted on Thursday, when leading central banks, including the US Federal Reserve and Bank of England, agreed to flood the financial system with dollars.

The aim is to ensure that the global banking system has enough money to fund day-to-day operations, amid signs that institutions were becoming risk-averse and had begun reining in inter-bank lending.

Some analysts interpreted the central banks’ move as a possible prelude to a Greek default. Pumping liquidity into the banking system would help to ensure it does not freeze after a default, said National Australia Bank’s head of strategy, Nick Parsons.

A problem for some European governments, including Germany and Finland, is that public opinion data shows people are turning against providing funds for further bailouts.

Differences over how the ECB continues funding indebted nations was said to be behind this month’s resignation of the European Central Bank’s chief economist, Juergen Stark.

Despite this backdrop of disagreement, Belgian Finance Minister Didier Reynders said on Thursday that now was not the time “to rebuild walls,” but to use the crisis to give new foundations to political integration in Europe.

But few people believe the debt crisis is over.

In Washington on Thursday, International Monetary Fund managing director Christine Lagarde called for bolder action on both sides of the Atlantic, warning that indecision and “political dysfunction” was pushing the US and Europe back towards the brink.

The developed economies have entered a “dangerous new phase”, she said.

 

 

Stimulus Fatigue Stymies Obama on Jobs Plan

Republican lawmakers are rejecting President Barack Obama’s $447 billion job-creation plan in its entirety and expressing skepticism about its pieces, creating doubt about whether it can overcome obstacles in Congress.

As Obama tries to rally public support behind tax breaks and spending on schools and bridges, the reaction on Capitol Hill indicates that only a few fragments of the plan may become law — most likely tax cuts to promote consumer demand and hiring. Many Republicans dismiss Obama’s proposal as a warmed- over version of the 2009 stimulus law they opposed.

“I just don’t see much Republican support in the Senate for hardly anything that’s been out there so far, and especially when they put the pay-fors forward,” said John Thune of South Dakota, the fourth-ranking Republican in the Senate. “I mean, that’s just a complete non-starter.”

Republicans, who have ideas about how to lower unemployment by limiting regulation and expanding domestic oil production, aren’t ceding ideological or political ground to the administration. Beyond that, the Senate’s Democratic leader isn’t rushing to bring Obama’s proposal to the floor as he focuses on other legislation such as disaster assistance. Also, some rank-and-file Democrats have complained about the tax increases in the bill.

Obama proposes paying for the measure with a cap on some deductions and exclusions for high-income taxpayers, along with tax increases for private equity firms, oil and gas companies and corporate jet owners. Democrats and Republicans have objected to the cap on tax breaks, and the other revenue-raising proposals haven’t advanced in the past.

‘Pass This Bill’

With 14 months until he faces re-election and a 9.1 percent unemployment rate, the president has been traveling across the country telling the public to press Congress to “pass this bill,” though the bill itself is likely to be carved up.

“We’ve got to tell Congress to do their part,” Obama said in Raleigh, North Carolina, on Sept. 14. “You’ve got some Republicans in Congress, they like to talk about how ‘We’re in favor of America’s job creators.’ Well, you know what, if you’re in favor of America’s job creators, this is your bill.”

House Speaker John Boehner said in a Washington speech yesterday that some of Obama’s proposals “offer opportunities for common ground.” He wasn’t specific, and he didn’t signal that House leaders felt any urgency to advance the plan.

“Let’s be honest with ourselves,” said Boehner, an Ohio Republican. “The president’s proposals are a poor substitute for the pro-growth policies that are needed to remove barriers to job creation in America.”

Entire Package

The White House has been pressing for passage of the entire bill. Obama political adviser David Axelrod said on ABC’s Good Morning America Sept. 13 that the administration is “not in a negotiation to break up the package” and Republicans shouldn’t consider it an “a la carte menu.”

Still, White House Press Secretary Jay Carney told reporters later in the day that Obama wouldn’t veto partial measures. If Congress were to “send a portion of the American Jobs Act, the president would of course not veto it,” Carney said. “He would sign it and then he would return to press the Congress to get the job done.”

The package’s elements with the best chance of making it to the president’s desk are tax cuts, in part because letting the current payroll tax cut lapse would raise taxes for workers, lawmakers in both parties said. Representative Mike Simpson, an Idaho Republican, predicted that a payroll tax cut would ultimately pass.

Obama wants workers to pay 3.1 percent of wages up to $106,800 in Social Security payroll taxes, down from 4.2 percent this year and 6.2 percent in a typical year. He has proposed a similar cut to the employer’s side of the payroll tax for the first $5 million of a company’s wages and a complete payroll tax holiday for the first $50 million in increased payroll in 2012.

Skepticism

Some Republicans, including Thune and Representative Scott Garrett of New Jersey, are skeptical of the payroll tax cuts. Representative Kevin Brady, a senior Republican on the House Ways and Means Committee, said rebates and tax cuts designed to stimulate consumer demand in 2001, 2008, 2009 and 2011 didn’t work as intended.

“We’re taking a hard look at the payroll taxes from the standpoint that the last four consumer rebates — the two Bush ones and the two Obama ones — have been economically very disappointing,” he said. “They just haven’t performed.”

House Republicans haven’t said how they might package the payroll tax cuts when they write legislation. They might pair them with provisions the White House opposes, such as restrictions on regulation or cuts in entitlement spending.

Representative Ron Kind, a Wisconsin Democrat, questioned whether the payroll tax cut for employers would prompt much hiring by small businesses.

‘Just Not’ Hiring

Employers “are just not going to hire until consumer demand” improves, he said. The cuts in employer payroll taxes may mean “better cash flow” for struggling small businesses and help them avoid layoffs, he said. “But I don’t think it’s going to result in a lot of new hires on the employer side.”

Brady, who represents suburbs near Houston, said the idea that might garner the most Republican support would be Obama’s proposal to extend through 2012 the ability for businesses to write off 100 percent of some equipment purchases.

“For small businesses especially, private business investment like buying new equipment, new buildings, new technology, that has a direct correlation with jobs and hiring,” Brady said.

Obama’s Democratic allies, including Senator Robert Menendez of New Jersey, note that Republicans have backed infrastructure investments, payroll tax cuts and a job-training program used in Georgia.

“To me, there’s a lot of this that should be an easy lift, but certainly those are three that come — off the top of my head — that Republicans are actually advocates of,” he said.

Deficit Issue

Some Republicans may support money for roads and bridges, Simpson said, though he added that his colleagues look warily on new spending as long as the U.S. has a large budget deficit.

Democratic Senator Ben Nelson of Nebraska, who faces a tough re-election contest in 2012 in a Republican-leaning state, said he opposes the tax increases and would reserve judgment on Obama’s spending proposals.

Republicans plan to focus some of their attacks on the idea that Obama is trying to spur economic growth in the months leading up to the reelection campaign. Instead, they say, Congress should focus on proposals such as a tax code overhaul that would promote long-term growth.

“We don’t need temporary anything,” said Representative John Campbell, a California Republican. “We need new permanent policies: tax policies, deficit policies, and regulatory policies that people can count on so that they can make longer- term decisions.”

Garrett, the New Jersey Republican, said Obama’s broad rhetoric is better than his substance.

“The devil is in the details,” he said. “And I have yet to see any details I am actually signing onto.”

 

 

Banking Sector Strength Helps FTSE Edge Higher

After Monday’s falls, an apparent rebound from the London-listed banks helped the FTSE 100 register gains once again Tuesday

After a weak start, the FTSE 100 edged back into positive territory in afgternoon deals as banks staged a cautious rebound, particularly in Europe, and as Wall Street edged marginally high on lower-than-expected import prices.

By close of play, the FTSE 100 was up 45 points or 0.9% at 5,174, while the FTSE 250 index added 27 points or 0.3% to settle at 10,011.

Across the pond, August U.S. import prices dropped by 0.4% compared with July’s prices, a smaller decrease than the expected 1.0% reading but the second drop in the last three months. The data indicates low inflationary pressures exist in the current economy, though investors will get a better idea of the inflationary picture when the producer and consumer price index data are released later this week. Despite last month’s decline, import prices were still 13% higher, year over year.

On this side of the Atlantic, German chancellor Angela Merkel stated how the euro needs to be stabilised and was critical of the notion of a Greek bond default. Merkel, however, emphasised that such stabilisation will be a “very long, step-by-step process.”

In London, banks attempted to repair the damage of Monday’s slump, with Royal Bank of Scotland (RBS), Barclays (BARC) and Lloyds Banking Group (LLOY) the top three performers on the large-cap index, climbing 5.3%, 4.7% and 4.2%, respectively.

Other strong performers included Essar Energy (ESSR), Eurasian Natural Resources (ENRC) and BP (BP.), which each added between 1.6% and 2.7% as natural resources sectors attracted bargain-hunters and risk-hungry investors after recent weakness.

Bucking the trend was Cairn Energy (CNE), which dropped 8.6% after the company suffered further disappointment in its controversial summer campaign exploring for oil and gas offshore Greenland. The Edinburgh-based explorer said an exploration well at the Eqqaa block had failed to yield commercial quantities of oil and gas, the second dry well after another prospect on the Lady Franklin Block proved fruitless.

Despite this apparently positive trend, the situation remains pretty dire on the markets, with sentiment continnuing to teeter on each eurozone announcement and rumour.

 

 

Barratt Developments hails ‘year of recovery’

Barratt Developments, the country’s largest homebuilder, says it has had its best result in three years helped by a rise in average selling prices.

It reported a pre-tax loss of £11.5m for the year to June, including £54.2m of exceptional charges relating to financing and reorganisation.

Stripping these charges out, the company made an underlying profit of £42.7m for the year to June.

Its average selling price rose 2.3% to £178,300.

Barratt said it expected to make further progress in a tight UK housing market.

The company’s chief executive, Mark Clare, said: “This has been a further year of recovery for the group.

“We have made considerable progress in rebuilding profitability – by optimising selling prices, improving operational efficiency and securing new higher margin land.”

The company said the mortgage market was holding back demand for newly built properties, saying that there was a limited number of lenders and that borrowers were typically being asked for a 20% deposit, rather than a 10% deposit for older properties.

It said the outlook for the housing market remained challenging, particularly outside London and the south east of England.

 

 

US retail sales stagnate in August

US retail sales failed to increase in August compared with the previous month, adding to evidence of an economic slowdown.

The zero growth rate was worse than expected, and the rate for July was also revised down by the US Commerce Department, from 0.5% to 0.3%.

A fall in car sales weighed down on the headline figure. Excluding cars, sales rose by just 0.1% in the month.

Compared with a year earlier, August sales were 7.2% higher.

‘Hunkering down’

Sales have now recovered by 17% since the bottom of the recession in early 2009.

Department store sales continued to suffer, according to the data, falling 0.3% in the month, making them down 0.7% for the year.

“The consumer reacted to the debt ceiling, the downgrade and the equity market swoon by basically hunkering down and not spending,” said Tom Porcelli, senior economist at RBC Capital Markets in New York.

“This is not a good sign for an economy that is struggling.”

Consumption comprises some 70% of economic activity in the US, and the weak retail sales data could indicate that economic growth will see a sharper-than-expected slowdown.

Inflation picture

Meanwhile, separate data from the Bureau of Labor Statistics showed that factory output prices were also unchanged in August.

The figure, which was actually slightly above expectations of a 0.1% fall for the month, was held down by falling petrol prices.

Core prices – which exclude volatile energy and food costs, and are closely watched by the Federal Reserve as an indicator of long-term inflation trends – rose by 0.1%.

“[The retail sales data] show the slowdown in the economy is real, and it’s working its way into the inflation picture,” said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

“The economy is losing a bit more momentum from earlier this summer. It’s a broad-based slowdown, and that’s pivotal.”

 

 

Commission president Barroso to put forward eurobonds

European Commission president Jose Manuel Barroso has said he will put forward moves to tackle the eurozone debt crisis, which he called “the most serious challenge of a generation”.

He said he would urge the 17 eurozone nations to issue joint bonds, allowing them to borrow money collectively.

Eurobonds have been backed by Italian Finance Minister Giulio Tremonti and investor George Soros.

However, Germany has repeatedly expressed its opposition to the idea.

His comments came ahead of an emergency conference call between German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou due later on Wednesday.

The three are expected to discuss how to address recent market turmoil, prompted by fears of an imminent Greek debt default.

‘Federalist moment’

“I want to confirm that the Commission will soon present options for the introduction of eurobonds,” he said.

“Some of these could be implemented within the terms of the current treaty, and others would require treaty changes.”

However, Mr Barroso emphasised that the measure on its own was not enough to solve the eurozone debt crisis.

He said Europe needed a “federalist moment” to rescue it.

“This is a fight for the economic and political future of Europe… this is a fight for integration itself,” he said.

Speaking to the European Parliament, Mr Barroso said that the political process in the eurozone – dominated as it is by the heads of the 17 member governments – was too slow for impatient markets.

He argued that the solution to the crisis would have to involve the “Community method” – implying more centralised decision-making.

‘Interesting development’

Meanwhile, in a surprise reversal of traditional roles, five big developing countries are to discuss providing financial support to Europe.

The leaders of Brazil, Russia, India, China and South Africa (BRICS) are to meet at the annual World Bank and International Monetary Fund (IMF) summit next week, according to Brazilian finance minister Guido Mantega.

Christine Lagarde, head of the IMF, called it an “interesting development” and “acceptable hypothesis” for the Fund.

“But if they limit themselves to buying bonds deemed safe by everyone, like the German and British, they wouldn’t be taking much risk,” she told Italian newspaper La Stampa.

“My hope is that if interventions like this take place, that they’ll be large and not limited to certain states.”

China’s president, Wen Jiabao, said that his country stood ready to help, but only if the eurozone got its act together.

“The governments of all countries must truly shoulder their responsibilities and deal properly with their own affairs,” he said, speaking at the World Economic Forum at Dalian in China.

 

 

UK unemployment total rises sharply to 2.51 million

The number of people unemployed in the UK rose by 80,000 to 2.51 million in the three months to July, official figures have shown.

This is the largest increase in nearly two years, the Office for National Statistics (ONS) said. The jobless rate now stands at 7.9%.

Youth unemployment also rose sharply, by 78,000 to 973,000.

The total claiming Jobseeker’s Allowance rose by 20,300 in August to 1.58 million.

The number of people in employment in the economy fell in the three months to July, by 69,000 to 29.17 million.

Private sector

“Clearly this is a very unwelcome set of figures. Any increase in unemployment is something we really don’t want to see happen,” said Employment Minister Chris Grayling.

He said the data would “reinvigorate” the government’s “determination” to take steps to get the economy growing and create private sector jobs.

The government is looking to the private sector to offset job losses in the public sector resulting from its wide-ranging programme of spending cuts, designed to reduce the UK’s debt levels.

Mr Grayling reiterated the government’s determination to continue with its programme of cuts, as the alternative of borrowing more money was not a credible solution.

Analysts said the unemployment figures reflected weak economic growth.

“Today’s data provide further evidence that the fading of the UK’s economic recovery is having increasingly severe effects on the labour market,” said Samuel Tombs at Capital Economics.

“Continued rises in unemployment in the coming months seem likely.”

However, some argued that, given the current economic environment, the figures were not as bad as could have been expected.

“The biggest surprise has been the resilience of the labour market given how weak growth has been,” said Ross Walker at the Royal Bank of Scotland.

The UK economy grew by 0.2% between April and June.

Wages rises

The total number of unemployed men rose by 39,000 to 1.45 million in the three months to July, while the number of women out of work increased by 41,000 to 1.06 million, the highest figure since the three months to April 1988.

The latest figures for public sector employment show a fall of 110,000 between March and June to 6.04 million. This is the largest fall since comparable records began in 1999.

The number of people employed in the private sector increased by 41,000 to 23.13 million.

The ONS figures also showed that total pay in the three months to July rose by 2.8%. Excluding bonuses, pay climbed by 2.1%.

This figure is watched closely as it shows wage inflation in the economy. One reason the Bank of England has given for keeping interest rates at record lows is that inflationary pressures are largely temporary and external, and are not being exacerbated by rising wages.

 

 

Greece Has 98% Chance of Default on Euro-Region Sovereign Woes

Greece has a 98 percent chance of defaulting on its debt in the next five years as Prime Minister George Papandreou fails to reassure investors his country can survive the euro-region crisis.

“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”

It costs a record $5.8 million upfront and $100,000 annually to insure $10 million of Greece’s debt for five years using credit-default swaps, up from $5.5 million in advance on Sept. 9, according to CMA. Greek bonds plunged, sending the 10- year yield to 25 percent for the first time.

German Chancellor Angela Merkel said she won’t let Greece go into “uncontrolled insolvency” as politicians try to limit contagion to other euro members. Papandreou’s pledge to adhere to deficit targets that are conditions of the European Union and International Monetary Fund’s bailout were undermined by data showing his country’s budget gap widened 22 percent in the first eight months of the year.

The default probability for Greece is based on a standard pricing model that assumes investors would recover 40 percent of the bonds’ face value if the nation fails to meet its obligations. CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated credit- swaps market, lowered its recovery assumption to 38 percent late yesterday, which would give Greece a 95 percent chance of default.

Economy to Shrink

Greece’s government now expects the economy to shrink more than 5 percent this year, more than the 3.8 percent forecast by the European Commission, as austerity measures deepen a three- year recession. Papandreou approved a plan to help repair the budget deficit at the weekend amid swelling resistance from Greeks.

Greece’s 10-year bond yield rose 111 basis points, or 1.11 percentage points, to 24.65 percent as of 1:55 p.m. in London, after earlier climbing to a euro-era record of 25 percent. The two-year note yield increased 662 basis points to 76.17 percent, after rising to an all-time high.

Greek stocks fell, with the ASE Index tumbling as much as 1.2 percent to the lowest since 1995 and down more than a third from July 22.

The risk of contagion beyond Greece weakened the euro and boosted benchmark German bunds. The common currency fell toward its weakest level since 2001 against its Japanese counterpart, declining 0.6 percent to 104.99 yen.

Sovereign Record

An index measuring the cost of default protection on 15 European governments to a record. European bank debt risk also jumped to the highest ever amid speculation French lenders will be downgraded because of their holdings of Greek bonds.

The Markit iTraxx SovX Western Europe Index of credit- default swaps climbed one basis points to 354, an all-time high based on closing prices. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers increased two basis points to 316, while a gauge of subordinated debt risk was up seven basis points at 557, according to JPMorgan Chase & Co.

“The contagion impact of a default will be severe, because next in the firing line will be Italy, Spain and it will take in the whole of the European banking sector too,” Suki Mann, a strategist at Societe Generale SA in London, wrote in a note yesterday. “This trio are already under intense pressure, but it will get much worse.”

Euro-Region Nations

Credit-default swaps on Portugal, Italy and France rose to records, according to CMA. Portugal jumped nine basis points to 1,224, Italy rose four basis points to 510 and France was up 7.5 basis points at 196.5.

Germany’s government is debating how to support its nation’s banks should Greece fail to meet the budget-cutting terms of its rescue package, three coalition officials said Sept. 9. Merkel said in an interview with Berlin-based Inforadio that avoiding an “uncontrolled insolvency” was her “top priority” and that the region’s most indebted country is taking the right steps to getting its next bailout payment.

Credit-default swaps on BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s largest banks, surged to all- time highs on bets they’ll have their ratings cut by Moody’s Investors Service this week.

French Banks

Swaps on SocGen were 14 basis points higher at 448.5, Credit Agricole increased 9.5 to 331.5 and BNP Paribas rose 16 basis points to 321, according to CMA.

Moody’s placed the three banks’ ratings on review in June to examine “the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels,” the rating company said at the time. Downgrades are likely as the review period concludes, said people with knowledge of the matter, who declined to be identified because the information is confidential.

A basis point on a credit-default swap protecting 10 million euros ($13.6 million) of debt from default for five years is equivalent to 1,000 euros a year. An increase signals declining perceptions of credit quality.

Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

 

 

UK CPI inflation rate rises to 4.5% in August

The UK government’s targeted rate of inflation rose in August, following higher prices for clothing and footwear, petrol and energy.

The rate of Consumer Prices Index (CPI) inflation rose to 4.5% from 4.4% in July, according to figures from the Office for National Statistics (ONS).

The Retail Prices Index (RPI) measure increased to 5.2% from 5%.

The Bank of England’s target rate for CPI is 2%, and it expects inflation to return to target in the next two years.

The Bank argues that inflation is above target primarily because of the rise in VAT to 20% at the start of this year and past increases in global energy prices.

Separate figures from the ONS showed that the UK’s trade deficit in goods and services was £4.45bn in August, unchanged from July.

The deficit on trade in goods was £8.92bn, while the surplus on services was £4.47bn.

Computer games

The ONS said clothing and footwear had provided the biggest uplift to prices, with the 3.7% monthly increase a record between July and August.

Petrol and heating costs also contributed to higher overall prices.

Downward pressure from transport services, particularly the cost of flying, helped to offset some of these price rises.

Air fares rose by 11% on the month, but this was less than the record 16% rise seen a year earlier.

Recreation, particularly computer games and games consoles, saw prices fall between July and August.

Interest rates

Many analysts think the rate of CPI inflation may rise further, possibly touching 5%, before falling back towards the end of the year or at the beginning of next year.

“The rate is likely to move higher in coming months as utility bills continue to increase, putting further pressure on already-strained household budgets,” said Chris Williamson, chief economist at Markit.

“However, inflation should start to fall by the end of the year, and drop significantly next year as those factors which have driven the rate up this year, such as January’s hike in VAT from 17.5% to 20%, high oil and food prices and the depreciation of sterling all move into reverse.”

Jonathan Loynes at Capital Economics said: “August’s consumer prices figures brought further hope that the peak in inflation is close.

“We still expect inflation to be well below its 2% target at the end of next year.”

Earlier this summer, three of the nine members of the Bank’s Monetary Policy Committee were voting to increase interest rates in order to combat rising prices.

However, weaker economic growth in the UK and concerns about the strength of the global economic recovery meant that all nine members voted for rates to stay at a record low of 0.5% last month. Any increase in rates is seen by many as too risky given the fragile state of the economy.

 

 

Global stock markets down on debt fears as euro falls

US shares have opened down, following falls in European and Asian markets on fears that Greece may default.

A series of news reports that Germany may be preparing for an “orderly default” by Greece also sent the euro lower.

German officials sought to shore up confidence on Monday, saying the stability of Greece and the euro was “the common goal”.

Bank shares were hardest hit, with France’s BNP Paribas down 14%.

The Dow Jones and S&P 500 indexes both opened about 1% lower.

By midday, London’s FTSE 100 was down 2.3%, France’s Cac 40 had shed 4.2% and Germany’s Dax was 3.2% lower. The declines followed heavy falls in Asia, where Hong Kong ended 4% down.

The euro fell to a 10-year low against the yen, and investors poured money into German bonds in a flight to safety.

The latest crisis of confidence in the markets came amid worries that Germany had lost patience with Greece – and other heavy indebted eurozone nations – and might not help future bailouts.

Germany’s Economy Minister Philipp Roesler said in a newspaper article at the weekend that an “orderly default” by Greece could no longer be ruled out.

On Monday, adding to the tensions, the general secretary of German Chancellor Angela Merkel’s junior coalition partner suggested that Greece could leave the eurozone.

“In the final analysis, one also cannot rule out that Greece either must, or would want to, leave the eurozone,” Christian Lindner, the general secretary of the Free Democrats (FDP), said in a television interview.

This followed Friday’s surprise resignation of the European Central Bank’s (ECB) chief economist, Juergen Stark.

His departure was seen as a sign of divisions within the ECB and among eurozone leaders over what to do about Europe’s debt crisis.

On Monday, a spokesman for Mr Roesler, who is also vice-chancellor, tried to dampen the impact of his newspaper comments.

“Our common goal is the stability of the euro and we want Greece to stay in the euro,” the spokesman said.

At the same news conference, Mrs Merkel’s spokesman said that Germany “assumes that Greece is doing everything it can” to implement strict austerity measures to battle its deficit woes.

“Our goal is quite clear: we want to stabilise the eurozone as a whole,” he said.

But stock markets remained deep in the red, especially French banks’ shares, which are among the most exposed to Greek debt.

France’s two other big banks, Societe Generale and Credit Agricole, were down 8%. In Germany, Deutsche Bank fell 9% and Commerzbank 6.5%.

UK banks escaped relatively lightly, helped by the release of the Vickers report on breaking up UK banks and a belief among some investors that the recommendations may be watered down.

HSBC was down 2.5%, Lloyds and RBS fell 1%, and Barclays was 0.5% lower.

Investors flee

The euro fell to 104.09 yen, its lowest since June 2001. The euro was also down against the dollar.

Germany’s cost of borrowing for 10-year bonds fell to historic lows on Monday, as investment funds fled riskier assets.

The yield – or interest rate – indicated by the price of German 10-year bonds fell to 1.709% from 1.770%.

Satoshi Tate, a currency dealer at Mizuho Corporate Bank, said: “We are watching Greece and only Greece.

“Conditions are getting very serious and everyone is worried how the issue will unfold,” he added.

Marc Ostwald, market strategist at Monument Securities, added: “With German officials seemingly in destructive overdrive, as per all the public talk of preparing for a Greek default and even a Greek euro exit, markets can hardly be blamed for the latest charge for the bunker and tin hats.”

 

 

What to Expect from the Week Ahead

Next week, investors will be reviewing plenty of Friday news on the eurozone debt situation and looking at U.K. bank regulation, inflation figures and retail data

A combination of financial regulation developments, upcoming eurozone debt decisions and key inflation and trade statistics from China and the developed economies will be keeping investors busy in the second full week of September.

Markets will wake up on Monday to the outcome of the G7 finance ministers meeting in Marseille this Friday. Having started midafternoon on Friday, the meeting is most likely going to be dominated by eurozone debt talk and economic recovery worries. A number of parties, including host country France and the new IMF chief Christine Lagarde, have called for a need for the developed economies to commit to boosting growth. In the run up to the meeting there has been speculation that a form of coordinated monetary easing might come as a result of the meeting, though political pressure in the eurozone and the U.S., as well as the United State’s newly-announced $447 billion jobs package, might make such a decision difficult to negotiate.

Closer to home, the U.K. Independent Commission on Banking is due to release its final report on the British banking system on Monday. The recommendation to ring-fence large banks has been one widely commented on proposal, and one that is endorsed by the Chancellor. The fine print and the implementation schedule for the changes are likely to attract attention, as investors evaluate how the need to isolate core retail from riskier bank businesses will impact the already troubled U.K. banking sector, particularly Royal Bank of Scotland (RBS) and Barclays (BARC)

Also on Monday, China will kick off the week in macroeconomic announcements with its August trade data and the signs of global demand for exports, which it typically points to. Other highlights on economic calendars include August’s inflation data from the U.K., the eurozone and the U.S. on Tuesday, Wednesday and Thursday as well as last month’s American and British retail sales on Wednesday and Thursday, respectively. Meanwhile, industrial production data for July from the eurozone and for August from the U.S. is scheduled for Wednesday and Thursday.

Expectations for the U.K. retail sales figures are gloomy, following weak retail surveys recently released by both the British Retail Consortium and the Confederation of British Industry. “The likelihood is that consumers will be very cautious in their spending over the coming months, which will limit overall growth prospects appreciably given that consumer spending accounts for some 65% of GDP,” says Howard Archer, European economist with IHS Global Insights.

In synchrony with the U.K. retail figures, blue chip retailers Next (NXT) and Kingfisher (KGF) will provide the markets with interim figures on Wednesday and Thursday, respectively. These announcements aside, next week will be relatively light on corporate news.

 

 

Banks in U.K. Should Shield Clients From Crisis

British banks should be required to insulate consumer units from their investment banks to shield customers and taxpayers from the consequences of a financial crisis, according to a government-appointed commission.

Banks with consumer and securities units will have to separately capitalize them by 2019 under proposals made today in a 360-page report by the Independent Commission on Banking. The plans will cost as much 7 billion pounds ($11 billion), the report said. U.K. bank shares fell.

“The commission believes that ring-fencing would achieve the principal stability benefits of full separation but at lower cost to the economy,” the commission said in the statement. “The U.K. retail subsidiaries would be legally, economically and operationally separate.”

The government last year asked John Vickers, 53, a former Bank of England chief economist, to chair a commission considering ways to enhance competition and reduce the risks posed by the financial sector. Since 2007, the British state has been forced to spend, pledge and loan 850 billion pounds to rescue British banks, according to the National Audit Office.

Chancellor of the Exchequer George Osborne welcomed the final recommendations, the government said in an e-mailed statement.

“The chancellor considers it to be an impressive report and an important step towards a new banking system that supports lending to businesses and families, supports the economy and jobs, but doesn’t cost the taxpayer billions of pounds when it goes wrong,” the statement said.

Legislation by 2015

Osborne said he will legislate by the end of the current parliamentary session in 2015, confirming his support for firebreaks.

“John Vickers has set out a timetable,” Osborne told reporters today. “I intend to stick to his timetable.”

Once the recommendations are implemented, the so-called ring-fenced units will include all checking accounts, mortgages, credit cards and lending to small- and medium-sized companies, the report said. As much as a third of U.K. bank assets, or about 2.3 trillion pounds, will be included, the document said. Trading and investment banking activities will be excluded from the ring-fence.

“Barclays will be the bank that is hit the most by this,” followed by Royal Bank of Scotland Group Plc (RBS), said Shailesh Raikundlia, a banking analyst at MF Global Ltd. in London. Both London-based Barclays and Edinburgh-based RBS operate investment banks.

Banks Dropped

RBS led declines in U.K. bank stocks, falling 4 percent to 20.65 pence at 8:40 a.m. in London trading, while Lloyds fell 2.4 percent to 30.29 pence and Barclays declined 2.7 percent to 140.1 pence. All three banks have dropped by more than 50 percent since the ICB’s first report in April. The Bloomberg Europe Banks and Financial Services Index fell 3.9 percent as Germany prepared plans to shore up banks if Greece defaults.

The commission stuck to its argument that Lloyds be forced to sell additional branches beyond the 632 required by European Union regulators.

Rather than detail how this should be done, the commission recommended that the government negotiate with Lloyds to create a “strong challenger” bank with at least 6 percent of the consumer checking account market with a planned sale of its branches. That’s 1.4 percentage points more than Lloyds agreed to sell in 2009 after receiving state aid.

There is “a real danger” that Lloyds’s current asset program “will fall back into the range of small banks that have not exerted a strong competitive constraint in the past,” the report said.

‘Fragile Recovery’

Giving banks more than seven years to comply with the new rules, “puts to rest any fears about how these reforms might interfere with the process of economic recovery,” Vickers told BBC Radio 4’s “Today Programme”. “We do have a fragile economic recovery at the moment.”

Ring-fenced banks should have an independent board, the report said. Unless the protected part of the bank is the majority of the lender, most directors in the insulated bank should be independent non-executives, it said. The protected lender will make its own disclosures to regulators, it said.

HSBC Holdings Plc (HSBA), Barclays, Lloyds, RBS, Santander U.K. Plc and Nationwide Building Society should hold more than 3 percent extra capital, on top of the 7 percent recommended by the Basel Committee on Banking Supervision under the so-called Basel III agreement, the report said. Co-operative Bank, Clydesdale Bank and the lender that Lloyds is selling should hold 1 percent to 3 percent extra.

‘Greedy Bankers’

“Smaller ring-fenced banks should have correspondingly smaller ring-fenced buffers,” the report said.

The requirements should be seen as a minimum, and could be boosted by the 2.5 percent surcharge for globally important banks, in line with Basel III recommendations, the report said.

“Simply creating a firewall is a best a weak gesture and at worst a pointless act which will not in any material way impact the behavior or culture at the top of the banks where this crisis was born,” said David Fleming, national officer of the Unite trade union, which represents bank workers. “Greedy bankers” will find ways to maneuver around, and lobby against these reforms,” he said.

 

 

Bank shares lead falls on US and European stock markets

Sharp falls in banking shares have led US and European stock markets lower as concerns continue about the strength of the world economy.

The US Dow Jones index dropped 1.7%, which in turned pulled European shares lower. German shares fell 2.7% while UK shares declined 1.5%.

This was despite President Barack Obama’s new $450bn (£282bn) jobs plan.

The resignation of the European Central Bank chief economist also rattled investors.

Reuters reported that Juergen Stark’s departure was over disagreements about the central bank purchasing the debt of struggling eurozone economies.

The ECB has recently been buying up the debt of Spain and Italy – something historically opposed by many of the German policymakers as it may increase the potential risk on the ECB’s own balance sheet.

Some argue that bond buying also discourages governments from taking action on their deficits.

Bank losses

The share falls come at the end of another week of volatility in the stock markets, with shares swinging wildly between gains and losses on a daily basis.

Bank stocks were among the major decliners on Friday as investors continue to worry about their exposure to bad debt.

The rate that banks lend to each other – a measure of the confidence they have in each other’s balance sheets – is at the highest it has been since July 2009.

Deutsche Bank fell 4.5%. In the UK, Royal Bank of Scotland and Barclays dropped 8%.

France’s Societe Generale was 10% lower and Credit Agricole was down 7%.

And the euro fell 1.5% against the US dollar, to $1.3724.

The G7 group of leading economies is meeting in Marseille to consider a “coordinated response” to the faltering global economy.

 

 

US exports hit record high in July

US exports hit a record high in July, pushing the country’s trade deficit down to its lowest level in three months, official figures have shown.

Led by strong overseas sales of manufactured goods, US exports rose 3.8% to $178bn (£111bn), said the Commerce Department.

At the same time, imports fell 0.2% to $222.8bn, helped by a fall in the price of oil reducing the cost of the US’s crude imports.

The trade gap fell 13.1% to $44.8bn.

The figures will be welcome news for President Barack Obama, who is set to give a speech on job creation later.

Official figures last week showed that no new jobs were created in the US in August, leaving the unemployment rate at 9.1%.

President Obama has previously said that he wants to double US exports by 2014 to help boost employment.

‘Keeping momentum’

The rise in exports was led by record shipments to countries in Central and South America.

However, the US’s trade gap with China widened 1.1% to $27bn, the largest imbalance since September 2010.

Gary Thayer, economist at Wells Fargo Advisors, said that while the July export figure was strong, how August performed was now key, as it was last month that the global economy started to contract.

However, Pierre Ellis, senior economist at Decision Economics, was more upbeat.

“There’s enough strength abroad going into this apparent slowdown to keep the momentum going,” Mr Ellis said.

 

 

UK interest rates stay on hold at 0.5%

UK interest rates have been held at a record low of 0.5% by the Bank of England’s Monetary Policy Committee (MPC).

Concerns about the strength of the economic recovery meant economists had expected rates to remain unchanged.

The Bank also said it would not be extending its £200bn programme of quantitative easing.

Earlier, Bank figures showed that savers have missed out on £43bn due to low interest rates.

However, mortgage borrowers have gained £51bn.

Weak data

Policymakers have come under increased pressure after Chancellor George Osborne admitted on Tuesday that the economy had weakened and that short-term hopes for growth had been revised down in recent weeks.

Official data showed the economy grew by 0.2% between April and June, down from 0.5% in the first three months of the year.

There are growing concerns that the economy may slow even further in the current quarter, particularly in light of weak economic data in recent weeks.

Leading indicators such as manufacturing and services PMIs (purchasing managers’ indexes) suggest growth is slowing further.

Figures on the service sector, which accounts for about 75% of economic output, indicated that activity suffered its biggest monthly fall in a decade in August.

As a result, some analysts have suggested the Bank may be looking at restarting its quantitative easing programme, which involves pumping money into the economy to try to boost demand.

However, Ian McCafferty, chief economic adviser to the CBI business group, said: “Although recent data has brought further evidence of slower economic activity and business confidence has weakened, it is not clear that this requires an immediate policy reaction.

“We hope the UK economy will be on a firmer footing by next year, when a lower inflation rate will bring some relief for households.”

Incomes

Those who rely on the interest on savings for an income, such as some pensioners, have suffered as a result of low rates. However, many families with mortgages have benefited.

The Bank rate was cut to 0.5% in March 2009, and has remained there ever since.

The £43bn of losses savers have had to bear, comes from comparing their income before and after the Bank cut rates to 0.5%.

But because savings in banks and building societies are outstripped by mortgages, mortgage borrowers have gained by a wider margin.

They have paid £51bn less in monthly interest, the figures show.

 

 

FTSE Outperforms Global Peers as Commodities Rally

Natural resource stocks led the U.K. blue chip index higher as investors picked up battered stocks, while Whitbread cheered results

After tanking on Monday, London-listed shares headed north once again on Tuesday—outperforming European peers—as investors came back to buy equities beaten down heavily in the prior day’s correction.

The FTSE 100 index took on 54 points or 1.1% to 5,157, but the FTSE 250 index, which more closely represents the broader U.K. economy, slipped 13 points lower to close down 0.1% at 10,071.

An announcement from the Swiss National Bank that it will no longer tolerate the Swiss franc rising above 1.20 per euro and that its will buy unlimited quantities of foreign currency weighed heavily on its domestic currency. Gold futures meanwhile edged up towards $1,900 an ounce.

Eurozone debt fears were the main culprit of Monday’s market drop, but while European investors tentatively bought back into riskier assets, U.S. investors, returning from a long Labor Day weekend, hit the sell button. Catching up on the weekend’s intensified eurozone fears, Wall Street was almost 2% weaker at the time of writing, exacerbated by U.S. economig growth concerns. The New York Stock Exchange early Tuesday put into effect its “Rule 48,” which aims to smooth trading in a session expected to be turbulent.

The Institute for Supply Management’s service-sector index increased by 60 basis points month over month to 53.3% in August, countering expectations of a decrease to 51.0%. The overall index is still down from its 2011 high of 59.7% in February. Meanwhile, the Conference Board’s employment trends August index fell by 0.3% to 100.8 compared with July’s reading of 101.0, marking the fourth time in the last five months the index has decreased. Speculation exists as to whether jobs growth would be enough to bring down the unemployment rate.

Returning to the U.K., a strong showing from natural resource plays and leisure stocks led the top tier index higher.

The top performer was Whitbread (WTB), which raced 7.3% ahead after publishing robust quarterly earnings. The hotel and restaurant group also also issued a new private debt placement for £156.4 million to fund its expansion plans.

In the second quarter, Whitbread sales rose 12.9% year-on-year, with like-for-like sales up 4.8%.

The strong figures, despite the weak consumer environment, perked up other consumer-facing stocks, such as Tesco (TSCO), up 3.7% by close of play, Morrison Supermarkets (MRW), 2.2% firmer, and InterContinental Hotels (IHG) 1.2% ahead.

The main upward lift on the FTSE 100 came from the index’s oil and metals extractors. Fresnillo (FRES) and Randgold Resources (RRS) ticked up 3.9% and 3.0%, respectively, as gold trickled higher. Other related securities also outperformed, with Xstrata (XTA) and Vedanta Resources (VED) up 1.9%-2.2% and commodities trader Glencore (GLEN) closing 2.3% firmer as investors sought out previously-hard-hit stocks. In the broader natural resources sector, Essar Energy (ESSR) and oil heavyweights BP (BP.) and Royal Dutch Shell (RDSB) gained 1.7%-2.5% apiece.

In contrast to this apparent bullish market sentiment, the relative strength of defensives signalled investors’ apprehension. Imperial Tobacco (IMT), BAE Systems (BA.) and GlaxoSmithKline (GSK) took on 1.8%-3.2%.

 

 

Swiss National Bank acts to weaken strong franc

The Swiss National Bank (SNB) has set a minimum exchange rate of 1.20 francs to the euro, saying the current value of the franc is a threat to the economy.

The SNB said it would enforce the minimum rate by buying foreign currency in unlimited quantities.

The move had an immediate effect, with the euro rising from about 1.10 francs before the announcement to 1.21 francs.

It is the latest attempt by the central bank to weaken its currency, which has been at export-damaging record highs.

The SNB has previously said that it would increase available deposits to commercial banks, as well as cut interest rates.

The Swiss government has also said it would increase its spending by 2bn francs to help boost the domestic economy.

‘Utmost determination’

In a statement, the SNB said: “The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.

“The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20.

“The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

The Swiss stock market, the Zurich SMI, rose 4% after the announcement, with exporters the biggest risers.

‘Grand scale’

The European Central Bank issued a short statement saying the decision had been taken by the Swiss National Bank “under its own responsibility”.

Jeremy Cook, chief economist at World First, said the resulting currency movement was “the single largest foreign exchange move I have ever seen”.

Against the franc, the euro climbed 9%, the dollar rose 7.7% and sterling gained 7.8% within minutes of the announcment.

“This dwarfs moves seen post-Lehman Brothers, 7/7, and other major geopolitical events in the past decade,” Mr Cook said.

“The Swiss have had enough. This is intervention on a grand scale.

“This turns up the heat on the eurozone and other economies who have benefited from weakening their currency in the past couple of years.”

 

 

Carbon will mature as inflation hedge

(Reuters) – The $126 billion global carbon market will mature so that investors will use it as a hedge against equities and inflation, Bache Commodities Ltd.’s emissions trading head told Reuters in an interview.

Crude oil or gold have often been used to hedge against inflation risk or equities, as investors believe they can offer some protection against rising consumer prices.

“The carbon market is expanding on a rapid basis,” said Andrew Ager, head of emissions trading at Bache Commodities Ltd.

“As the U.S. gets cap-and-trade legislation and the Australian bill is passed, the market could mature to become a similar commodity to oil in the way it is used by hedgers as a strategy,” he added.

The EU’s flagship emissions trading scheme (EU ETS) began in 2005. Prices for permits traded under the scheme, called EU Allowances (EUAs), are the global benchmark for emissions markets.

EUAs frequently correlate to oil and German power prices, as well as natural gas and coal. A sign of the relatively young market’s development is that these markets have started to look at carbon prices for direction.

“There’s now a situation where oil, coal and gas traders are looking at carbon prices for direction. That’s a complete 180 (degree turn),” Ager said.

“Say you have a portfolio of mining shares, it is possible to use carbon as a hedge as part of your portfolio. (Carbon) has even correlated with copper quite strongly recently. As people look at copper as an indicator of industrial growth, it makes sense.”

Reuters estimates show EUA prices have shown a weekly correlation of 0.75 with copper since November 1, and 0.85 in the corresponding period the previous month.

GROWTH

The European Union’s executive Commission is aiming for the world’s major emissions trading schemes to link by 2020.

Progress toward this goal is being hampered by U.S. cap-and-trade legislation’s slow progress through the Senate and reduced expectations for a legally binding climate treaty in Copenhagen next month.

“I hope to see a global carbon market sooner than 2020. There is at least a framework for a future market. Regulation may get stricter, there will be foibles and quirks but the underlying (market) structure is there,” Ager said.

Ager expects London to continue its reign as the hub of the global carbon market, flanked by a U.S. exchange and an Asian/Antipodean exchange.

An Australian carbon scheme is scheduled to start in July 2011. The government gained bipartisan political backing for its revised carbon-trade plan on Tuesday, but some opposition members still threaten to vote against it or try to have the Senate vote, expected on Thursday, delayed until February 2010.

“You do need something to push the southern hemisphere. You need that link up for a 24-hour market,” Ager said.

Major metal market player Bache Commodities expanded into emissions trading by opening a desk in London in June. Ager heads a team of three emissions traders.

(Reporting by Nina Chestney; Editing by William Hardy)

 

 

Stocks, Oil Drop as Dollar Strengthens on U.S. Jobs, Europe Debt Concerns

Stocks fell for a third day, while oil slid after U.S. job growth stalled last month and amid concern Europe’s sovereign-debt crisis will worsen. The Dollar Index headed for its longest winning streak in eight months and German bunds advanced, driving 10-year yields to a record low.

The MSCI All Country World Index sank 1.2 percent at 4:04 p.m. in Tokyo. Standard & Poor’s 500 Index futures slid 0.6 percent, after the gauge’s 2.5 percent drop on Sept. 2 in the U.S., where markets are closed today for a holiday. Crude lost 1.4 percent in New York. The dollar climbed 0.4 percent to $1.4152 against the euro. The yield on German 10-year bunds reached a low of 1.967 percent.

Taiwan Semiconductor Manufacturing Co. paced losses in Asia after the chipmaker said its customers’ confidence in the global economic recovery is weakening. A report on Sept. 2 showed payrolls were unchanged last month, and data tomorrow may that show the U.S. service industries grew at the slowest pace in more than a year. An election loss for German Chancellor Angela Merkel’s party in her home state fueled concern opposition is growing to bailouts for debt-saddled European nations.

The recent data confirmed “that the U.S. economy had slowed down in the last quarter and with all the political uncertainty, really hit a wall in August,” Sean Fenton, who helps manage about $1 billion at Tribeca Investment Partners in Sydney, said in a Bloomberg Television interview. “And given the uncertainty in Europe, the real question now is: does that soft patch extend further, and how serious has been the impact on businesses and consumers?”

The Stoxx Europe 600 Index lost 1.8 percent after only nine of its members posted gains. It plunged 2.4 percent on Sept. 2. The MSCI Asia Pacific Index lost 2.6 percent, set for the biggest drop since Aug. 19. The Asian gauge is valued at 11.9 times estimated earnings, after reaching a 33-month low of 11.8 times last month.

Asian Stocks Slump

Japan’s Nikkei 225 Stock Average fell 1.8 percent, Australia’s S&P/ASX 200 Index retreated 2.4 percent, while South Korea’s Kospi Index was the region’s worst performer, down 4.4 percent. Investors should be “underweight” in global equities, UBS AG said in a report.

Komatsu Ltd. sank 5.4 percent in Tokyo after Citigroup Inc. cut its rating on the world’s second-largest maker of construction and mining equipment. Taiwan Semiconductor lost 1.3 percent after Chairman and Chief Executive Officer Morris Chang said the weakening global economy will impact the chip market.

Cnooc Ltd. (883), China’s largest offshore energy explorer, dropped 9.6 percent after oil leaks at a field operated by partner ConocoPhillips forced the company to cut its output estimate. Hutchison Whampoa Ltd., which owns ports in Germany and Spain, sank 2.5 percent. Shares of the two companies also trade today without the right to a dividend payment.

China Services

Commodity suppliers and shipping companies declined after a Chinese services-industry index fell to a record low of 50.6 in August, fueling concern growth in the world’s fastest-growing major economy is slowing. The Shanghai Composite Index retreated 2 percent.

The S&P 500 slumped 2.5 percent on Sept. 2, dragging the gauge to a 0.2 percent weekly loss, after the Labor Department reported the weakest payrolls reading since September 2010. The median economist forecast was for growth of 68,000. Treasury 10- year notes surged after the report, sending yields 14 basis points lower to 1.99 percent. There will be no trading of Treasuries for the Labor Day holiday today.

“It was a scary report,” said Dan North, chief U.S. economist at Euler Hermes ACI in Owings Mills, Maryland in an interview on Bloomberg Television. “When you get to negative job growth, which we’re very close to now, it means you’re already in a recession.”

Obama’s Plan

President Barack Obama is set to address Congress Sept. 8 to outline plans for boosting hiring and economic growth as Republicans criticize him for his policies, including rules and regulations on business.

The Institute for Supply Management’s non-manufacturing index fell to 51 last month, the lowest since January 2010, from 52.7 in July, according to the median of 59 forecasts in a Bloomberg News survey ahead of the Sept. 6 release. A reading of 50 is the dividing line between expansion and contraction.

The Dollar Index rose 0.3 percent, set for its first five- day winning streak since Jan. 7. The U.S. currency climbed to the highest since Aug. 11 versus the euro. Europe’s shared currency weakened 0.5 percent to 108.53 yen.

The Social Democrats, Germany’s main opposition party, took 36.1 percent to win yesterday’s election in Mecklenburg-Western Pomerania, while Merkel’s Christian Democratic Union had 23.3 percent, ZDF television projections showed. The result means Merkel’s national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts.

‘Risk-Off Scenario’

European sovereign-debt risk rose to a record on Sept. 2, amid bickering over Greece’s bailout. The world economy is entering a “new danger zone” amid Europe’s debt difficulties, World Bank President Robert Zoellick said in Beijing on Sept. 3.

“The U.S. economy is sluggish, the European debt concern is not going away in a hurry, so market sentiment is not going to improve for a very long time,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland, New Zealand. “This week is certainly a risk-off scenario.”

Strikes in Italy

The yield on 10-year Italian bonds climbed 10 basis points to 5.38 percent today. Prime Minister Silvio Berlusconi faces down a general strike tomorrow as he seeks parliamentary backing for a 45.5 billion-euro ($65 billion) austerity plan to show investors he’s serious about taming Italy’s finances.

Britons’ confidence in the outlook for employment weakened “sharply” in August as the number of job vacancies declined, Lloyds Bank Corporate Markets said today. The pound weakened 0.4 percent to $1.6152, adding to the 0.9 percent retreat last week, its biggest weekly loss since June.

The won depreciated 0.6 percent to 1,068.84 per dollar, the most in two weeks. Malaysia’s ringgit weakened 0.5 percent to 2.9795 against the U.S. currency. Data today may show inflation accelerated in Indonesia and Taiwan, while a separate report this week may indicate consumer prices climbed at a slower pace in China, according to Bloomberg News surveys.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan increased to 160.5 basis points, Royal Bank of Scotland Group Plc prices show. The risk benchmark is headed for its highest close since Aug. 26, after dropping 8.6 basis points last week, according to data provider CMA, which is owned by CME Group Inc. and compiles credit-default swap prices quoted by dealers in the privately negotiated market.

Oil, Metals

Oil for October delivery fell as much as 1.6 percent to $85.04 a barrel in electronic trading on the New York Mercantile Exchange before trading at $85.07. The contract dropped 2.8 percent to $86.45 on Sept. 2. There will be no Nymex floor trading today.

Crude also slipped as Exxon Mobil Corp. and Royal Dutch Shell Plc returned workers to some oil and natural gas platforms after Tropical Storm Lee moved out of the Gulf of Mexico. The storm shut 60 percent of Gulf oil production and 44 percent of natural gas output, according to the Bureau of Ocean Energy Management, Regulation and Enforcement.

Copper for three-month delivery retreated as much as 0.9 percent to $8,990.25 a metric ton on the London Metal Exchange, extending a two-day loss. Nickel slipped 0.7 percent, aluminum lost 0.6 percent, while tin dropped 1.2 percent.

 

 

Solar May Produce Most of World’s Power by 2060, IEA Says

 Aug. 29 (Bloomberg) — Solar generators may produce the majority of the world’s power within 50 years, slashing the emissions of greenhouse gases that harm the environment, according to a projection by the International Energy Agency.

Photovoltaic and solar-thermal plants may meet most of the world’s demand for electricity by 2060 — and half of all energy needs — with wind, hydropower and biomass plants supplying much of the remaining generation, Cedric Philibert, senior analyst in the renewable energy division at the Paris-based agency, said in an Aug. 26 phone interview.

“Photovoltaic and concentrated solar power together can become the major source of electricity,” Philibert said. “You’ll have a lot more electricity than today but most of it will be produced by solar-electric technologies.”

The solar findings, set to be published in a report later this year, go beyond the IEA’s previous forecast, which envisaged the two technologies meeting about 21 percent of the world’s power needs in 2050. The scenario suggests investors able to pick the industry’s winners may reap significant returns as the global economy shifts away from fossil fuels.

The 17 members of the Bloomberg Large Solar Energy Index have a combined market value of about $27 billion compared with the $2.2 trillion of the MSCI World Energy Index’s 119 member companies.

Under the forecasted scenario, which Philibert will set out in more detail at a conference in Kassel, Germany, on Sept. 1, most heating and transport will switch from dirtier fossil fuels to cleaner electric power. Carbon dioxide emissions from the energy sector would fall to about 3 gigatons per year compared with about 30 gigatons this year.

 

 

Stock markets rise on hopes of more US Fed stimulus

Stock markets and gold have rallied, while the dollar has fallen, as markets anticipate further stimulus measures by the US Federal Reserve.

European markets were up 1%-2% by early afternoon, while gold hit a new record.

The Fed’s chairman, Ben Bernanke, is widely expected to discuss further stimulus actions at a keynote speech in Jackson Hole, Wyoming, on Friday.

This may involve more “quantitative easing” – buying up US debt to inject more cash into the financial system.

The Fed has already carried out two rounds of quantitative easing (QE), to stabilise the 2008-09 financial crisis, and more recently to boost the flagging recovery.

Earlier this month, the US central bank also took the unusual step of saying that it expected to keep short-term interest rates close to zero until 2013.

The second round of QE and the interest rate commitment were hinted at by Mr Bernanke when he spoke at last year’s Jackson Hole gathering of central bankers.

Dollar vs gold?

The price of gold briefly rose above the $1,900 an ounce mark for the first time during Asian trading hours, setting a new all-time high of $1,913.50.

Gold, which is viewed by investors as a haven investment, has been boosted both by anticipation of QE – which is expected to erode the value of the dollar – as well as recent signs of weakness in the US and European economies.

“If they push through with more stimulus, gold could rise even further,” said Colin Whitehead of Fat Prophets.

He explained that a fresh stimulus package would mean that the US would have to print more money to boost liquidity in the markets, which in turn could see the US currency weaken further.

“The underlying driver of gold prices is the depreciating US dollar value,” he said, “so the more money they print, the stronger gold gets.”

However, following the open in Europe stocks rallied strongly, while the gold price fell back somewhat, with the London morning price fixing at $1,886.50 an ounce.

Analysts say that the previous round of QE boosted share prices, as investors sought to reinvest the cash received in return for debts sold to the Fed.

Meanwhile, the dollar fell against most currencies in Tuesday morning trading.

The euro rose 1.2 cents against the dollar, to $1.448, although some of the gains were due to industry surveys that revealed that eurozone manufacturing and services were not performing as badly as expected.

Libya uncertainty

Meanwhile, oil prices also rose in Tuesday morning trading, because of continued fighting in Libya and expectations that official figures will show a decline in US crude stockpiles.

Brent was up 38 cents to $108.74 a barrel, while US light crude advanced 95 cents to $85.66.

“It could take months before oil can start to flow again from Libya,” said John Vautrain, oil analyst at energy consulting firm Purvin & Gurtz.

“I think there was a lot of euphoria on Monday. But the whole country is not completely pacified yet and we don’t have an organised government. A lot is lacking.”

 

 

Gold hits record high of $1,900 on global growth fears

The price of gold has briefly risen above the $1,900 an ounce mark for the first time.

The price rise was driven by concern about the global economic recovery and the anticipation of further expansion of the supply of dollars by the US Federal Reserve.

The precious metal rose 0.9% to $1,913.50 an ounce in Asian trading.

It later fell back, as optimism returned and stock markets rallied after the open of trading in Europe.

Fears of a slowdown in the US and the debt crisis in Europe have spurred demand for gold, which is seen as a safe investment in times of uncertainty.

“For the time being investors are happy looking at gold as safe haven in these troubled times, and will continue to do so until we see something positive and sustainable.” said Darren Heathcote of Investec Australia.

Dollar vs gold?

Analysts said demand for gold was also being driven by speculation that the US Federal Reserve may announce new stimulus measures in a bid to boost the economy.

Central bank governors from across the globe are scheduled to gather for their annual meeting at the Jackson Hole summit later this week.

There is growing speculation that Ben Bernanke, the governor of the US central bank, may announce fresh stimulus measures in his speech at the summit.

This may include a third round of “quantitative easing” (QE), by which the Fed buys up US government debts, and thereby introduces more dollar cash into the financial system.

“The idea for QE2 was conceived during the Jackson Hole summit last year,” Ong Yi-Ling of Phillip Futures told the BBC.

“So the markets are hoping similar measures could be announced at this year’s speech, and that is spurring demand for gold.”

Colin Whitehead of Fat Prophets added: “If they push through with more stimulus, gold could rise even further.”

He explained that a fresh stimulus package would mean that the US would have to print more money to boost liquidity in the markets, which in turn could see the US currency weaken further.

“The underlying driver of gold prices is the depreciating US dollar value,” he said, “so the more money they print, the stronger gold gets.”

Libya uncertainty

Oil prices also rose in early Tuesday trading, as fighting continued in Libya, and because of expectations that official figures will show a decline in US crude stockpiles.

Brent was up 64 cents to $109 a barrel, while US light crude advanced 91 cents to $85.62.

“It could take months before oil can start to flow again from Libya,” said John Vautrain, oil analyst at energy consulting firm Purvin & Gurtz.

“I think there was a lot of euphoria on Monday. But the whole country is not completely pacified yet and we don’t have an organised government. A lot is lacking.”

Oil prices were also buoyed by a more positive tone in stock markets during morning trading in Europe.

The London, Paris and Frankfurt markets all rose 1%-2% in the first hour of trading, while the gold price fell back from its new high to below $1,900 again.

 

 

What to Expect from the Week Ahead

Fragile market sentiment, manufacturing GDP data, and earnings from a torrent of commodity companies will keep those staying at their desks busy

Unfortunately, investors find themselves pretty much where they were a week ago, in turbulent times with little visibility, except headline U.K. markets are now over 6% lower. The key question on most minds–what will Europe do about its debt crisis?–did not receive an answer deemed satisfactory by the markets at the eurozone summit this week.

With peripheral debt concerns still pending, new economic data extending growth worries to the E.U.’s German engine and seasonally light trading volumes, the ride next week is likely to be bumpy once again.

As markets spiralled into the red zone in the last two trading days of this week, the few bulls that had come seeking bargains earlier on scattered. Going into next week, the widespread sentiment seems to be one in which even low valuations are not sufficient to make some troubled sectors, notably EU financials, attractive.

“We can certainly argue that equities are cheap,” commented Dominic Rossi, global CIO at Fidelity International, recently. However, he added that it’s important to recognise that while equities are cheap, they are cheap for a reason and they may stay cheap for a while longer. “I’m not expecting equity markets to go back to the highs we saw earlier this year soon and frankly wouldn’t be surprised if over the course of the next few months we see some further pressure with the lows of a couple of weeks ago being retested,” he said.

A torrent of economic statistics could catalyse investment disdain in the upcoming days. In Europe, German and eurozone Purchasing Managers Indices for August will hit markets on Tuesday, as will the German ZEW Survey. The PMIs are powerful forward-looking indicators and could provide insight into the likelihood of a double-dip recession on the continent. Given that a number of key financial institutions downgraded their global growth forecasts this Thursday, it is unlikely that this month’s manufacturing and services surveys will make for a joyful read.

Later in the week, key economic announcements will come from the U.S., including durable goods orders for July, as well as any revisions of the June numbers, on Wednesday, and the weekly jobless claims count on Thursday.

Friday will bring revised second-quarter GDP figures for both the U.S. and the U.K. Investors will be looking for any changes to the headline numbers, as well as more detail on how the various contributors to national growth have been holding up.

Against this background, a big corporate earnings week is on the cards. No less than 15 FTSE 100 companies are scheduled to update the market. There is a wide selection of mining and energy giants among them, including Essar Energy (ESSR) and Petrofac (PFC) on Monday, Antofagasta (ANTO) and Cairn Energy (CNE) on Tuesday, BHP Billiton (BLT) and Tullow Oil (TLW) on Wednesday, Glencore (GLEN) and Kazakhmys (KAZ) on Thursday.

As U.K. large caps bombard investors with results, the question of which blue chip has strong growth prospects combined with a soft share price could move up on investors’ agenda. Ahead of their interim reports, each of BHP Billiton, Diageo (DGE), IMI (IMI) and WPP (WPP) are trading between 10% and 32% below Morningstar’s fair value estimates.

Monday
U.K. Corporate Announcements
Amlin (AML) interims, Essar Energy interims, Petrofac interims, SOCO International (SIA) interims
International Economic Announcements
U.S.: Chicago Fed National Activity Index for July

Tuesday
U.K. Corporate Announcements
Antofagasta interims, Cairn Energy interims, G4S (GFS) interims, Hochschild Mining (HOC) interims, Persimmon (PSN) interims, Segro (SGRO) interims, Spectris (SXS) interims, Spirax-Sarco Engineering (SPX) interims, John Wood Group (WG.) interims
U.K. Economic Announcements
BBA Mortgage Lending for July, CBI Industrial Trends for July
International Economic Announcements
Eurozone: German and eurozone’s Flash PMI Manufacturing and Services for August; German ZEW Survey for August
U.S.: New Home Sales for July, Richmond Fed Manufacturing Survey for August, ICSC-Goldman Store Sales

Wednesday
U.K. Corporate Announcements
Admiral Group (ADM) interims, BHP Billiton preliminaries, Carillion (CLLN) interims, Derwent London (DLN) interims, Filtrona (FLTR) interims, Melrose (MRO) interims, Serco Group (SRP) interims, Tullow Oil interims, UNITE Group (UTG) interims, WPP interims
U.K Ex-dividend Date
FTSE 100: Eurasian Natural Resources Corporation (ENRC), InterContinental Hotels Group (IHG)
FTSE 250: WS Atkins (ATK), BBA Aviation (BBA), Brewin Dolphin Holdings (BRW), Capital & Counties Properties (CAPC), Catlin Group (CGL), Fidessa Group (FDSA), Lancashire Holdings (LRE), Rotork (ROR), UBM (UBM)
International Economic Announcements
U.S.: Durable Goods Orders for July, FHFA House Price Index for June, weekly Mortgage Bankers’ Association’s Purchase Applications

Thursday
U.K. Economic Announcements
Aegis Group (AGS) interims, Aggreko (AGK) interims, AMEC (AMEC) interims, Diageo preliminaries, Exillon Energy (EXI) interims, Glencore International interims, Hansteen Holdings (HSTN) interims, Hunting (HTG) interims, IMI interims, Kazakhmys interims, Petropavlovsk (POG) interims, Premier Oil (PMO) interims, Salamander Energy (SMDR) interims, SIG (SHI) interims
U.K. Economic Announcements
Nationwide Consumer Confidence for July, CBI Distributive Trades for August
International Economic Announcements
U.S.: Weekly jobless claims, weekly Bloomberg Consumer Comfort Index

Friday
U.K. Corporate Announcements
Alliance Trust (ATST) interims, Berendsen (BRSN) interims, Kenmare Resources (KMR) interims, Yule Catto & Co (YULC) interims
U.K. Economic Announcements
Second-quarter revised GDP
International Economic Announcements
Japan: CPI for July
Eurozone: M3 Money Supply for July
U.S.: Second-quarter revised GDP, University of Michigan’s Consumer Sentiment for August, Second-quarter Corporate Profits

 

 

House sellers drop prices for the second month in a row

House sellers have dropped their asking prices for the second month in a row, the property website Rightmove says.

Sales have been held back by the reality gap in the market, with asking prices rising for most of this year while selling prices have been flat.

However, Rightmove says asking prices dropped by 2.1% this month after a 1.6% fall in July.

The average asking price of £231,543 is now 14% higher than the average £203,528 selling price.

That selling figure comes from the government’s own monthly house price survey, produced by the Department for Communities and Local Government (DCLG).

The gap between asking prices and selling prices is even wider if data from other house price surveys is used.

The Halifax puts the cost of the average home at £163,981, and the Nationwide puts it at £168,731, so sellers and their estate agents could be overpricing their properties by as much as 41%.

“We’re in a ‘limbo-land’, where a restricted number of motivated sellers are trying to match themselves up with the similarly restricted number of financially capable buyers,” said Miles Shipside of Rightmove.

“In many parts of the country, transaction levels are limited to the number of sellers who are willing to price aggressively below the competition and can afford to do deals,” he added.

‘Tight-fisted lenders’

The new realism gripping would-be house sellers was highlighted by another property search website, Zoopla.

It said 39% of all homes currently up for sale had had their prices cut at least once since being put on the market.

The average price cut is £18,500, or 7% of the original asking price, Zoopla said.

A year ago, the average price reduction was 6%, and they affected 32% of the homes for sale at the time.

Nicholas Leeming of Zoopla said: “Vendors continue to have to lower prices due to weak buyer demand.”

“Sluggish economic growth has hit buyer confidence and tight-fisted lenders are currently making it impossible for swathes of would-be buyers to benefit from the price reductions,” he said.

 

 

Inflation figures to raise rail fares by 8% average

Rail commuters are facing ticket rises of around 8% next year, following the release of latest inflation figures.

July’s RPI inflation figure determines the rise in regulated fares, like season tickets.

RPI inflation for July was unchanged at 5%, meaning the average season ticket will rise by around 8%, although some companies may charge more.

Rail Minister Theresa Villiers said “difficult decisions” on fares had been taken due to the budget deficit.

The rises are part of the government’s agenda to reduce the cost to the taxpayer of running the rail network.

For the last few years the formula for fare increases has generally been RPI inflation plus 1%, but for the next three years it is RPI plus 3%.

The formula affects regulated fares, such as season tickets and long-distance off-peak tickets. Some fares will go up by far more than the 8% average, because train companies are allowed to increase fares by another 5% on top, as long as that is balanced with reductions elsewhere.

Edward Welsh, corporate affairs director at the Association of Train Operating Companies (Atoc), said all the extra money raised will go to the government and not train companies.

‘Difficult times’

He told BBC Radio 4′s Today programme the “good news” was that the money would help to sustain investment in the railway network.

“It’s about ensuring that there is money there to pay for improvements for more trains, for better stations, for faster services – and that’s what passengers want,” he said.

Earlier, an Atoc spokesperson said companies knew these are “difficult financial times for many people”.

But that many fares needed to rise above inflation for the next three years to help pay for more trains, better stations and faster services.

“Increasing the money raised from fares will mean that taxpayers contribute less to the running of the railways, whilst ensuring that vital investment can continue,” the spokesman added.

There are some exceptions to the formula. Scotrail is sticking to the RPI+1% formula and Merseyrail will use RPI+0%.

A combination of more people travelling, above-inflation fare rises and cost-cutting has led to rail users’ contributions to the railways rising from £5bn in 2006/07 to £6.6bn in 2010/11 – over the same period the amount contributed by taxpayers has fallen £6.3bn to £4bn.

Campaigners are due to protest at London’s Waterloo station about the price rises.

“Affordable rail travel is vital for passengers, for the environment and for our workforce,” said Alexandra Woodsworth from the Campaign for Better Transport.

She added: “These massive fare rises will be a disaster for people already struggling with rising costs, and risk pricing those on lower incomes out of jobs in our major cities.

‘Long-term solution’

“The country simply can’t afford fare rises on such a punitive scale. It’s time to burst the bubble on inflation-busting fare hikes.”

But the rail minister said the scale of the deficit meant that the government “has had to take some very difficult decisions on future rail fares but the long-term solution is to get the cost of running the railways down” in order to “get a better deal for passengers and taxpayers”.

She added that revenue from fares enables the government to “continue to deliver much-needed improvements on the rail network, improving conditions for passengers and helping to strengthen economic growth”.

 

 

UK inflation accelerates in July

The UK government’s targeted rate of inflation rose in July, figures show.

The rate of Consumer Prices Index (CPI) inflation rose to 4.4% from 4.2% in June, although the Retail Prices Index (RPI) measure was unchanged at 5%.

Bank of England governor Mervyn King is writing another letter to the chancellor to explain why CPI inflation remains well above the 2% target rate.

The governor must write a letter every three months if CPI is more than one percentage point above the target.

The Bank of England said last week that it remained confident that inflation would return to its target level in the next two years.

The Office for National Statistics (ONS) said the main contributors to inflation came from financial services, clothing and footwear, furniture, household equipment and housing rent.

It was the biggest annual increase in prices of clothing and footwear since records began in 1997.

The ONS said another big contribution came from fees for financial services, which rose in July but had fallen in the same month last year.

The main downward pressure on inflation came from food and non-alcoholic drinks.

 

 

Markets rise as Merkel and Sarkozy set to meet

Global shares have consolidated gains made on Friday after debt fears in the eurozone and the US caused turmoil on global markets last week.

New York’s Dow Jones index opened up 1.5%, while Paris’s Cac, Frankfurt’s Dax and London’s FTSE 100 all rose 1%.

Asian markets closed higher on better-than-expected Japanese growth figures.

Investors are now looking ahead to a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy on Tuesday.

Markets were buoyed on Friday by US retail sales figures that beat analysts’ expectations, and on Monday by data showing the Japanese economy contracted at an annualised rate of 1.3% between April and June, a much smaller amount than had been expected.

The two sets of figures have “allowed for a collective sigh of relief across the global investment community”, said Jane Foley at Rabobank International.

“A calmer tone has settled over the markets after last week’s turmoil.”

As a result, investments perceived as safe during times of economic uncertainty slipped.

The Swiss franc fell almost 3% against both the US dollar and the euro, pushed lower by reports that the Swiss National Bank was planning to set a temporary target range for the currency against the euro, following sharp rises in its value in recent weeks.

Gold also continued its retreat, falling to $1,739 an ounce from last week’s record high of $1,793.

Eurozone bonds

The French and German leaders will be discussing longer-term solutions to the eurozone debt crisis, which has threatened to engulf Italy and Spain.

Even France, the bloc’s second-biggest economy, was drawn into the crisis last week amid rumours, which were denied on all sides, that it could lose its top-ranked credit rating.

Figures released on Friday also showed that economic growth in the country came to a standstill between April and June.

The adoption of so-called eurozone bonds as part of closer economic union between the 17 countries that make up the bloc was widely reported as being central to the two leaders’ discussions on Tuesday.

These bonds would, in effect, be IOUs issued to investors backed by the eurozone as a whole, rather than individual countries.

Italian Finance Minister Giulio Tremonti has described the bonds as the “master solution” to the debt crisis.

However, Berlin has strongly denied that the idea will be on the agenda.

“The German government has said on numerous occasions that it does not believe eurobonds make sense and that’s why they will not play any role at tomorrow’s meeting,” said government spokesman Steffen Seibert.

Following this statement, Mr Sarkozy’s office confirmed that eurobonds would not be discussed with Mrs Merkel.

German Finance Minister Wolfgang Schaeuble had already ruled out the introduction of eurobonds as long as individual countries conduct their own economic policy.

Tougher austerity

Policymakers are looking for longer-term solutions to the debt crisis, to help calm nervous investors.

Even France, the bloc’s second-biggest economy, was drawn into the crisis last week amid rumours, which were denied on all sides, that it could lose its top-ranked credit rating.

Figures released on Friday also showed that economic growth in the country came to a standstill between April and June.

The adoption of so-called eurozone bonds as part of closer economic union between the 17 countries that make up the bloc was widely reported as being central to the two leaders’ discussions on Tuesday.

These bonds would, in effect, be IOUs issued to investors backed by the eurozone as a whole, rather than individual countries.

Italian Finance Minister Giulio Tremonti has described the bonds as the “master solution” to the debt crisis.

However, Berlin has strongly denied that the idea will be on the agenda.

“The German government has said on numerous occasions that it does not believe eurobonds make sense and that’s why they will not play any role at tomorrow’s meeting,” said government spokesman Steffen Seibert.

Following this statement, Mr Sarkozy’s office confirmed that eurobonds would not be discussed with Mrs Merkel.

German Finance Minister Wolfgang Schaeuble had already ruled out the introduction of eurobonds as long as individual countries conduct their own economic policy.

Tougher austerity

Policymakers are looking for longer-term solutions to the debt crisis, to help calm nervous investors.

The European Central Bank’s decision last week to begin buying Spanish and Italian government bonds, while welcomed by the markets, is seen as an attempt to address the symptoms of the crisis rather than its causes.

Italy announced tougher austerity measures designed to reduce its budget deficit on Friday, while Spain has also said it will speed up spending cuts.

After heavy stock market losses during the previous week, European investors regained some composure last week. The Dax index was down less than 4%, the Cac lost 2% while the FTSE gained almost 1.5%.

The improved performance was largely due to a number of policy announcements in Europe and the US:

• On Thursday night, France, Italy, Spain and Belgium banned short-selling of some stocks in an attempt to stabilise markets

• On Friday, Italian Prime Minister Silvio Berlusconi said the country would adopt emergency budget cuts worth 20bn euros ($29bn; £18bn) next year and 25bn euros the year after through a mixture of privatisations, spending cuts and tax changes
• On Thursday, Mr Sarkozy and Mrs Merkel said they would meet to discuss eurozone financial governance

• On Wednesday, the US Federal Reserve said it would keep interest rates at their current low levels until at least 2013

• On Sunday night, the European Central Bank said it would buy bonds from Italy and Spain after emergency talks on the debt crisis.

 

 

No QE3 for Now

U.S. WEEK IN REVIEW: After a very volatile week in the markets, indicators remained consistent, and no third round of easing appears to be looming

I find it hard to believe as I write this that the S&P 500 is down a mere 1.7% for last week after the recent S&P downgrade of U.S. government debt. And with all the stunning up-and-down days, we ended the week with a fairly typical weekly rate of change in stock market prices. U.S. Government bonds were one of the best-performing assets last week, seemingly thumbing their noses at S&P. While psychologically devastating, the downgrade didn’t change much from a practical standpoint. I’m hopeful this will prove to be another “Y2K” moment–a wildly anticipated and prepared-for calamity turning out to be a nonevent. Furthermore, the downgrade didn’t provide investors with any news that wasn’t already blatantly obvious to investors and consumers alike.

Fed Vows to Hold Rates–No QE3 for Now
Thank goodness the Fed didn’t give in to the market and implement QE3, which I think would have proved ruinous by continuing to buoy commodities and financial markets at the expense of consumers. They did offer to try to keep current low rates through mid-2013, ending debate on what they meant by an “extended period of time.” The Fed also reduced its outlook for the economy.

But as I said in last week’s column, now is not the time to give up on this economy. The healthy–if not necessarily robust–data continue pouring in. After the positive jobs report from two weeks ago, we added a nice monthly retail sales report for July last week along with another improvement in the initial unemployment claims report. Weekly retail sales held up well, even in the face of awful market headlines. Positive earnings continued last week too, as results from Cisco (CSCO) and certain retailers, especially at the high end, helped lift the market. Gasoline prices are dropping as well; the national average price of gasoline fell back to $3.62 from its May high of $3.99 with a slight upward detour in July. Coming with some cooler weather and discount prices, the back-to-school season could be better than expected for consumers.

Consumers Not Giving Up the Ghost Yet
After the positive batch of same-store retail sales for July, I wasn’t surprised that the more comprehensive government retail sales report showed a very healthy growth rate for July at the same time that May and June numbers were also revised upward. Between June and July total sales grew 0.5% (6% annualised), while sales compared to a year ago were up a healthy 8%. Even excluding auto sales, which many correctly guessed would help the report, sales grew at the same 0.5% rate. Gasoline sales, aided by higher prices, also helped the overall growth rate by over 0.1%

Because of the annual changes in the retail sales calendar of promotions, massive seasonality factors, and weather issues, I prefer to look at retail sales on a year-over-year basis. I also like to look at a three-month moving average rather than just one month’s worth of data that can be subject to a lot of the special factors mentioned above. I also exclude autos (an earlier monthly report is the feeder report used to compile GDP reports) and gasoline (volatile prices that get adjusted out in the final inflation adjusted GDP report). On this basis it’s hard to claim consumers are running for the hills just yet.

By category, things were relatively consistent; most categories grew at about the 0.5% average for the month. Gasoline stations, electronics stores, and miscellaneous did better than the average, while sporting goods, books, and the hobby category declined, as did building materials. I suspect the demise of Borders and the rise of e-book readers like the Kindle will continue to hurt the books category. Building materials were coming off a double-digit, weather-induced swing the previous month. Only the restaurant figures, showing a 0.1% decline, were at all disturbing. I’d expected a small gain based on warm weather in July, which tends to favor restaurants. Apparently higher gas prices trumped warm weather again. Based on strong grocery store sales and weak restaurant sales, I suspect consumers opted to eat in this month. Nevertheless, it’s disappointing to see slowing restaurant sales, because that’s a decent forecaster of short-term consumer confidence and employment (no job, no quick run to Mickey D’s for lunch). With gas prices backing off again in August and weather staying hot, maybe restaurant sales will look better in August.

Despite Market Volatility, Weekly Sales Still Look Good
The really short-term (weekly) and volatile International Council of Shopping Center data softened just a touch but still looked positive, not far off previous levels and above the 2011 average of 3.0%.

I usually prefer to look at this set of data on a four-week moving average basis to wipe out weird weather or promotions or even changing dates for sales tax holidays. The four-week moving average data look even better than the results above. However, I wanted to pinpoint what happened the week where all hell broke loose in the financial markets. As this table shows, consumers didn’t panic as much as Wall Street.

 

 

Strong End to a Turbulent Week on European Markets

A final Friday flourish helped the FTSE and other European markets return moderate weekly gains that bely the extreme volatility

After a week of extreme volatility and despite slowdowns in the French and Greek economies, European markets closed decisively higher Friday after banks got a boost from a ban on short sales.

Belgium, France, Italy and Spain introduced a 15-day ban on the short-selling of certain banking and insurance stocks, and each of the four countries’ leading indices closed at least 4% higher on Friday. In London, in spite of no short-selling ban in the U.K., the FTSE 100 registered a 3.0% increase that put the blue-chip index back in the black for the week as a whole. Friday’s 157-point climb to 5,320 put the index up 1.5% on the week.

Stocks reversed an early morning drop and then fought to hold on to gains as investors sought out attractive valuations and weighed improved economic data from the U.S.

Retail sales in the U.S. climbed in July by the most in four months as consumers purchased more petrol, electronics, and other merchandise despite facing a persistently high unemployment rate. Because retail sales approximate consumer spending, which is typically a major force behind economic growth, the figure shows consumers are holding up in the face of a weak labour market. With that said, the early reading for the Thomson Reuters/University of Michigan consumer sentiment index plunged to 54.9 from 63.7 at the end of July.

U.S. businesses increased their inventories in June by far less than expected, showing their reluctance to stock up as they anticipate weak demand in the coming months. Goods held by manufacturers, retailers and wholesalers rose by 0.3% in June, compared with the 1.0% increase expected by economists.

In the U.K., with all sectors having taken a hammering over the past fortnight, just one stock remained in the red. Randgold Resources (RRS) suffered for a second consecutive session as investors stepped away from gold’s perceived safety and instead went on the hunt for attractive valuations elsewhere. But after the sell-off of recent sessions, even the ‘safe haven’ stock only dipped 0.2% in Friday’s rebound market.

Top of the FTSE leaderboard were Inmarsat (ISAT) and Weir (WEIR), both of which had been hampered separate from the broader negative market sentiment and on Friday were once again attracting bargain-hunters. Global satellite firm Inmarsat closed up 9.7% while engineering solutions provider Weir took on 6.5%.

Natural resources plays also remained in demand, as on Thursday, with Kazakhmys (KAZ) and Essar Energy (ESSR) taking on 6.3% apiece.

 

 

Vitol Ranks Ahead of JPMorgan as CO2-Credit Developer

Vitol Group, the world’s largest independent oil trader, was ranked as 2010’s most productive developer of projects yielding tradable emission credits, according to a survey by Bloomberg New Energy Finance.

Vitol Group’s Carbon Resource Management sought credits last year for projects that may yield 11.1 million metric tons of United Nations-overseen greenhouse gas credits through 2020, according to the ranking. Climate Change Capital Ltd. and JPMorgan Chase & Co. (JPM)’s EcoSecurities unit tied for second place, with projects that may yield 8.7 million tons and 8.6 million tons, respectively, in the period. The margin is statistically too close to call, according to a New Energy Finance statement.

Energy traders and banks have bought project developers to create credits under the Clean Development Mechanism and Joint Implementation programs instead of starting from scratch, said Marisa Beck, a London-based analyst for New Energy Finance. “Bigger players are better placed to manage these projects because they can diversify the risks and achieve economies of scale,” she said today in an interview.

New Energy Finance used public data to assess the performance of companies seeking credits last year. The CDM is the second-biggest greenhouse gas market by traded volume after the European Union cap-and-trade program. Factories and power stations in the EU can use CDM credits as a cheaper alternative for compliance than permits sold by nations. They range from wind farms in China to industrial gas-cutting plants in Brazil.

Market Prices

Certified Emission Reduction credits from the program for delivery in December, the industry benchmark, fell 0.2 percent to 11.90 euros ($16.50) a metric ton on the ICE Futures Europe exchange in London as of 11:20 a.m. They earlier today traded as high as 11.96 euros a ton, their most expensive intraday level since Nov. 25. Prices have fallen 1.3 percent from a year ago as slow economic growth curbed demand.

Fourth in the ranking was Tokyo-based Eco Asset Inc., with 7.2 million tons, while Barclays Plc (BARC)’s Tricorona Carbon Asset Management unit was fifth, with 6.5 million tons, according to New Energy Finance. Noble Carbon Credits, a unit of Singapore- based Noble Group Ltd. (NOBL), was sixth, with 5.1 million tons expected.

Vitol, based in Geneva, said last month it increased its stake to 100 percent of Carbon Resource Management as part of a strategy to develop emission-reduction projects after 2012. Terms of the deal weren’t disclosed.

Risks of Credits

Carbon Resource Management didn’t make last year’s rankings by New Energy Finance. Barclays’ Tricorona unit was ranked third last year, while JPMorgan’s EcoSecurities was fifth.

JPMorgan purchased EcoSecurities for about $206 million in 2009, while London-based Barclays bought Tricorona for about $141 million in June last year.

New Energy Finance adjusted expected credits for risks, including the chance the project would not be registered by the CDM executive board, the possibility the supply of credits would be delayed by regulators and the likelihood of operating risks, according to the report.

 

 

Carbon will mature as inflation hedge

(Reuters) – The $126 billion global carbon market will mature so that investors will use it as a hedge against equities and inflation, Bache Commodities Ltd.’s emissions trading head told Reuters in an interview.

Crude oil or gold have often been used to hedge against inflation risk or equities, as investors believe they can offer some protection against rising consumer prices.

“The carbon market is expanding on a rapid basis,” said Andrew Ager, head of emissions trading at Bache Commodities Ltd.

“As the U.S. gets cap-and-trade legislation and the Australian bill is passed, the market could mature to become a similar commodity to oil in the way it is used by hedgers as a strategy,” he added.

The EU’s flagship emissions trading scheme (EU ETS) began in 2005. Prices for permits traded under the scheme, called EU Allowances (EUAs), are the global benchmark for emissions markets.

EUAs frequently correlate to oil and German power prices, as well as natural gas and coal. A sign of the relatively young market’s development is that these markets have started to look at carbon prices for direction.

“There’s now a situation where oil, coal and gas traders are looking at carbon prices for direction. That’s a complete 180 (degree turn),” Ager said.

“Say you have a portfolio of mining shares, it is possible to use carbon as a hedge as part of your portfolio. (Carbon) has even correlated with copper quite strongly recently. As people look at copper as an indicator of industrial growth, it makes sense.”

Reuters estimates show EUA prices have shown a weekly correlation of 0.75 with copper since November 1, and 0.85 in the corresponding period the previous month.

GROWTH

The European Union’s executive Commission is aiming for the world’s major emissions trading schemes to link by 2020.

Progress toward this goal is being hampered by U.S. cap-and-trade legislation’s slow progress through the Senate and reduced expectations for a legally binding climate treaty in Copenhagen next month.

“I hope to see a global carbon market sooner than 2020. There is at least a framework for a future market. Regulation may get stricter, there will be foibles and quirks but the underlying (market) structure is there,” Ager said.

Ager expects London to continue its reign as the hub of the global carbon market, flanked by a U.S. exchange and an Asian/Antipodean exchange.

An Australian carbon scheme is scheduled to start in July 2011. The government gained bipartisan political backing for its revised carbon-trade plan on Tuesday, but some opposition members still threaten to vote against it or try to have the Senate vote, expected on Thursday, delayed until February 2010.

“You do need something to push the southern hemisphere. You need that link up for a 24-hour market,” Ager said.

Major metal market player Bache Commodities expanded into emissions trading by opening a desk in London in June. Ager heads a team of three emissions traders.

(Reporting by Nina Chestney; Editing by William Hardy)

 

 

Gold Tops $1,700 for First Time on U.S. Rating

Gold climbed above $1,700 an ounce for the first time after Standard & Poor’s cut the top U.S. credit rating, fueling a slump in equities and the dollar amid concern that the global economy is slowing.

Futures for December delivery jumped as much as 4 percent to a record $1,718.20 an ounce on the Comex in New York and traded at $1,712.90 an ounce at 11:47 a.m. Mumbai time. Silver futures climbed as much as 5.7 percent. Spot gold soared as much as 3.1 percent to $1,715.75 an ounce, also an all-time high.

Prices have surged 21 percent in 2011, gaining for an 11th year, as the sovereign debt crisis and a faltering economy boost haven demand. While George Soros sold most of his gold in the first quarter, John Paulson, who made $15 billion betting against subprime mortgages, is still the biggest investor in the largest exchange-traded fund backed by bullion. Goldman Sachs Group Inc. raised its price forecasts in a report released today.

“There’s just a pessimism or nervousness that’s associated with economies and currencies of these major nations,” Gavin Wendt, director at Sydney-based Mine Life Pty Ltd., said by phone. “At a time when investors are nervous of currencies, they’re nervous of equities, they’re nervous of everything, the only place for them to park their money is gold.”

S&P cut the long-term rating one level to AA+ from AAA on Aug. 5 while keeping the outlook at “negative,” criticizing the nation’s political system for failing adequately to address deficit reduction. Equities sank today, extending the market’s rout, as the dollar and oil slid.

Equity Slump

About $5.4 trillion in global equity value has been erased since July 26, according to Bloomberg data, after Europe’s debt crisis worsened, reports on U.S. manufacturing and consumer spending showed the world’s largest economy was slowing and a political impasse over the budget deficit brought the American government to the brink of default.

The S&P 500 slumped 7.2 percent last week for its worst plunge since November 2008, during the final four months of the bear market that wiped out 57 percent of the index. Still, stronger-than-forecast government data on employment growth sparked a 1.5 percent rebound in the index on Aug. 5 before the rally faded as speculation of the reduction in the U.S. rating swirled through the market.

“It’s not just one of the safe havens, it’s the safe haven,” Wendt said, referring to gold. “Typically, in times of stress it would be the U.S. dollar and probably gold but with these circumstances, it’s really putting a line through the U.S. dollar.”

Goldman, Dollar

Goldman Sachs Group Inc. (GS) raised its futures forecasts to $1,645 an ounce, $1,730 an ounce and $1,860 an ounce on a three- month, six-month and 12-month horizon as it expects real U.S. interest rates to stay lower for longer. The previous estimates were $1,565, $1,635 and $1,730 an ounce, it said in a report.

“We continue to recommend long-trading positions in gold,” the bank said.

The dollar dropped to a record low versus the Swiss franc and slid for a second day against the yen. The dollar traded at 75.64 centimes from 76.74 in New York on Aug. 5. The U.S. currency weakened to 77.84 yen from 78.40.

Gold may advance as investors seek gold over U.S. Treasuries as a haven, according to David Lennox, a resource analyst at Fat Prophets.

“People, having rolled into U.S. Treasuries on Thursday evening, suddenly saw that there’s still a concern with Treasuries and they’ve just gone back to gold,” Lennox said by phone from Sydney. “It’s just that kneejerk reaction back to the absolute, probably, safe haven and that’s gold.”

Treasury Yields

Treasury 10-year yields dropped to 2.51 percent today. The two-year Treasury note yield was at 0.26 percent, down three basis points, while the rate on 30-year notes was three basis points lower at 3.82 percent.

The U.S. rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, New York-based S&P said Aug. 5.

Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred.

In India and China, the largest and second-biggest bullion consumers, gold futures climbed to a record.

China, India

Futures for October rose as much as 2.2 percent to an all- time high of 25,180 rupees per 10 grams on the Multi Commodity Exchange of India Ltd. and traded at 25,090 at 11:42 a.m. in Mumbai. Gold in Shanghai climbed as much as 3.7 percent to 356.20 yuan a gram, the highest level ever.

“It’s a very painful time for the investor, where to put money, and that’s the reason why gold prices are outshining,” said Kunal Shah, head of commodity research at Nirmal Bang Commodities Pvt., from Mumbai. “It’s the safe haven appeal.”

Holdings in exchange-traded products backed by gold climbed 2.94 metric tons to a record 2,185.5 tons on Aug. 5, data compiled by Bloomberg show, gaining for the 10th session.

Silver for September delivery surged as much as 5.7 percent to $40.40 an ounce on the Comex and traded at $39.945. The metal for immediate delivery rose 4.2 percent to $39.9594.

Palladium for September delivery dropped 1.8 percent to $728.75 an ounce after falling as much as 3.9 percent in New York. Platinum for October delivery gained 0.3 percent to $1,723.50 an ounce.

 

 

Global stock markets slump on eurozone debt fears

Global shares have dropped sharply for the second day as fears about the eurozone debt crisis intensified.

New York’s Dow Jones index fell more than 3% in early trading, while Frankfurt’s Dax and London’s FTSE 100 indexes dropped almost 3.5%.

European Commission President Jose Manuel Barroso’s warning that the sovereign debt crisis is spreading spooked the markets.

Meanwhile, the price of gold hit a new record high of $1,677 an ounce.

More weak jobs data from the US also raised concerns about the strength of the economic recovery there.

Banks were hit particularly hard, with Lloyds Banking Group down 9.9% and Royal Bank of Scotland falling 7% in London, Societe Generale losing 6.9% in Paris and Commerzbank dropping 6.8% in Frankfurt.

Miners also suffered, with Vedanta Resources slumping 9.5% and Xstrata and Eurasian Natural Resources falling more than 8% in London.

The oil price also slumped on fears that a weaker global recovery would hit demand. US light crude fell by more than $4 a barrel, or almost 5%, to $87.63. London Brent fell by almost $5 a barrel to $108.85.

‘Exceptional circumstances’

In a letter to European governments, Mr Barroso warned that the eurozone debt crisis was spreading beyond the so-called periphery nations of Greece, Portugal and the Republic of Ireland.

He said markets “remain to be convinced that we are taking appropriate steps to resolve the crisis”.

He called on them to give their “full backing” to the euro, and urged leaders to take swift action to implement the changes to the European Financial Stability Fund (EFSF) agreed at last month’s summit of eurozone leaders.

The EFSF is essentially Europe’s rescue fund, which leaders agreed should be able to buy government debt in “exceptional financial market circumstances”.

Reports suggested that the European Central Bank (ECB) had already begun buying government bonds to help support countries with high borrowing costs.

At a press conference to announce the bank was keeping eurozone rates on hold at 1.5%, ECB President Jean-Claude Trichet merely said the process of buying bonds was “ongoing” and fully transparent.

Higher rates

Mr Trichet’s and Mr Barroso’s comments came as fears grew that Spain and Italy may be dragged into the debt crisis.

On Thursday, the interest rate, or yield, that Spain had to agree to pay to raise 2.2bn euros ($3.1bn; £1.9bn) for three years rose sharply to 4.8% from 4% at a similar bond auction in early June.

This reflects heightened concerns about Spain’s ability to repay its debts.

Spain also said it had suspended a bond auction due for 18 August.

However, analysts said demand for Thursday’s bond issue was strong and despite the rise in rates, suggested 4.8% was a sustainable rate of interest for Madrid to pay.

Yields in the secondary market, on Italian government bonds as well as Spanish, did not move significantly higher despite the auction.

In Italy, Prime Minister Silvio Berlusconi continued his attempts to calm the markets, which began with a speech on the economy to parliament on Wednesday.

Mr Berlusconi met union leaders and employers’ representatives, and pledged a number of measures to try to increase confidence in the Italian economy.

 

 

Italy ‘to default’ but Spain may ‘just’ escape

Debt-laden Italy is likely to default, but Spain might just avoid it, according to the British think tank, the Centre for Economics and Business Research.

With the countries weighed down by debt, the think tank modelled “good” and “bad” economic scenarios for both.

It found that Italy will not avoid default unless it sees an unlikely big jump in economic growth.

However, it said, “there is a real chance that Spain may avoid default”.

Even though Italy has managed to run tight budgets, and has vowed to eliminate its deficit by 2014, the economy needs a significant boost in growth.

But its economy grew by just 0.1% in the first quarter of 2011 and further growth is expected to remain sluggish.

On Wednesday, Italian Prime Minister Silvio Berlusconi addressed parliament, saying the economy was “strong” and the nation’s banks “solvent”.

But many economists believe that the eurozone’s third largest economy risks being engulfed in the debt crisis.

In a report published on Thursday, the CEBR calculated that Italy’s debt would rise from 128% of annual output to 150% by 2017 if bond yields stay above the current 6% and growth remains stagnant.

“Even if the cost of borrowing goes back down to 4%, the growth rate is so anaemic that we see the debt-GDP ratio remaining at 123% in 2018,” said Doug McWilliams, the CEBR’s chief executive.

The conditions in Spain are better because its debt is much lower. Even under the “bad” scenario, Madrid’s debt ratio would climb to no higher than 75% of national output.

“Fingers crossed but there is a real chance that Spain may avoid default and debt restructuring, unless it gets dragged down by contagion,” Mr McWilliams said.

“Realistically, Italy is bound to default, but Spain may just get away without having to do so,” he said.

 

 

Interest rates unchanged until 2012, say economists

A majority of economists polled by the BBC expect interest rates to remain unchanged until next year.

Of the 32 forecasters, who are also regularly polled by the Treasury, 26 predicted that rates would not rise this year, and three predicted there would be no rate increase until 2013.

More than half expected the Bank rate to rise from its record low of 0.5% to at least 1.5% by the end of 2012.

An announcement on interest rates will be made at 1200 BST.

Chances

The Bank rate has now been at a record low for more than two years.

This has hit savers, but it has made home loans cheaper, ensuring some can continue to meet their mortgage payments despite considerable pressure on their household finances.

Minutes from its July meeting showed the Bank of England’s Monetary Policy Committee (MPC) voted seven to two in favour of holding rates at 0.5%.

Policymakers said there was a reduced chance of a rise in interest rates in the near term, given recent economic weakness.

Estimates

The MPC, which meets every month to set UK interest rates, is made up of nine members: the governor, two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the chancellor.

However, the Treasury also gauges opinion by seeking the views of 35 leading economists.

The BBC has gathered the forecasts of most of them, or somebody from their organisation, regarding interest rates.

The highest proportion – 12 in total – expected rates to first go up in the first quarter of 2012, of which eight specified rates rising in February.

Six expected rates to rise in the final quarter of this year, with one at the other end of the spectrum forecasting no change until the second quarter of 2013.

There was a range of views regarding Bank rate predictions for the end of 2012.

Thirteen of those economists asked expected it to be at 1.5%. The next most popular prediction was 1%, but forecasts ranged from 0.5% to 2.5%.

The results are in marked contrast to a similar poll of 22 economists in April, in which 14 predicted interest rates would go up in August 2011, and 12 said the Bank rate would be at 1% by the end of the year.

Mortgages

The widespread expectation of little movement in interest rates has led to falling mortgage rates for homeowners.

The reduction in the price of fixed-rate mortgages is being driven by a fall in swap rates, upon which the deals are partially based.

The average five-year fixed-rate deal has fallen to 5.02%, the lowest level since before the credit crunch, according to financial information service Moneyfacts.

But one campaign group has claimed that the value of UK savings has been eroded by £50bn in the past year because of inflation and low interest rates.

The Save Our Savers group wrote last month to each member of the Bank of England’s rate-setting committee urging them to raise the Bank rate to help pensioners and encourage saving.

Those asked in the BBC research were: Peter Dixon, of Commerzbank; Hetal Mehta, of Daiwa Capital Markets; Howard Archer, of IHS Global Insight; Alan Clarke, of Scotia Capital; James Knightley, of ING Financial Markets; Azad Zangana, of Schroders Investment Management; Sarah Hewin, of Standard Chartered Bank; Blerina Uruci, of Barclays Capital; Peter Spencer, of the Item Club; David Smith, of Beacon Economic Forecasting; Scott Corfe, of CEBR; Ross Williamson, of Capital Economics; George Buckley, of Deutsche Bank; Allan Monks, of JP Morgan; Jamie Dannhauser, of Lombard Street Research; Neil Prothero, of EIU; David Meenagh, of Liverpool Macro Research; Melanie Baker, of Morgan Stanley; Alexander Pefanis, of HSBC; David Kern, of the British Chamber of Commerce; Adrian Paul, of Goldman Sachs; Simon Kirby, of NIESR; Ross Walker, of the Royal Bank of Scotland; Nick Bate, of Bank of America; Philip Rush, of Nomura; Nishit Mittal, of UBS; Sunita Bali, of Experian Economics; Peter Warburton, of Economic Perspectives; Samuel Slama, of Societe Generale; Ragini Madan, of Cambridge Econometrics; David Muir, of the CBI; Anne O’Kelly, of Citigroup; and Thomas Springbett, of EC.

 

 

Poor U.S. Data Offsets Debt Relief Gains

Below-expectations reading of the U.S. ISM Manufacturing index wiped out early-trade enthusiasm spurred by Washington’s debt deal

Signs that U.S. Republicans and Democrats have struck a last-minute deal and could prevent a national debt default, failed to support European equity markets above breakeven as soft manufacturing data weighed.

At the end of trade on Monday, the U.K. FTSE 100 index had fallen 0.7% or 41 points to 5,774, while the FTSE 250 index tumbled 1.1% or 126 points to 11,426.

Late on Sunday evening, U.S. President Barack Obama announced that Democrats and Republicans had reached an agreement in their fiscal deficit negotiations. The expectations that the deal will pass a vote in Congress and rule out the worst-case scenario of a U.S. default lifted market spirits in early trade today.

Despite this knee-jerk reaction, what the debt deal would mean for the U.S. economy going forward as well as how it will be received by credit rating agencies remains an issue of debate.

“Any downgrading of debt would have been likely to be a short-term problem as there is no other market as large and liquid as the U.S. for investors to switch into,” commented Jeremy Tigue, manager of Foreign & Colonial Investment Trust.

“There is a risk that an excessively austere U.S. budget deal will bring the U.S. economy to a ‘sudden-stop’. On balance though, it seems unlikely to us that any budget deal will jeopardise growth much during a presidential election year,” was the reaction of David McCraw, manager of Edinburgh US Tracker Trust plc.

As investors debated the impact of the U.S. debt debacle, .disappointing macroeconomic data took hold of market sentiment and ultimately sent equities into negative territory. The U.S. Institute for Supply Management’s manufacturing purchasing managers’ index dropped to 50.9 in July from a June reading of 55.3. The July tally was also nearly four points lower than the expected 54.6 reading. The decrease could be attributed to slowing short-term domestic demand, though prior uncertainty of the debt-ceiling outcome also was a potential contributing factor.

Meanwhile, the Markit/CIPS Manufacturing Purchasing Manager’s Index for the U.K. in July stood at 49.1–below the expansion/recession cut-off point of 50. This is the first time in two years that this indicator has shown contraction in U.K. manufacturing, while new orders declined at the fastest rate since May 2009.

“Following the sprint run earlier this year, we are hoping that the manufacturing sector is merely moving into a slower but steady marathon pace as conditions prove to be increasingly challenging and threats remain,” said David Noble, chief executive officer at the chartered institute of purchasing & supply

Elsewhere in Europe, July’s Eurozone Manufacturing Purchasing Managers Index was confirmed at a sluggish 50.4, just 0.4 basis points above 50, and the German PMI Manufacturing Index for July was revised down to 52 from 52.1.

Faced with the downbeat economic news, London-listed risky assets lost ground. Heavyweight financials Lloyds Banking Group (LLOY) and Royal Bank of Scotland (RBS) were the biggest blue-chip losers, down 4.3% and 5.0%, respectively, ahead of announcing results later this week.

Signs of economic softness in the U.S. took a toll on the performance of U.S.-focused support services firm Wolseley (WOS), down 3.9%, while expectations of budget cuts from Washington lead to a 3.0%-3.2% loss in defence contractors Smiths Group (SMIN) and BAE (BA.) Systems

With growth concerns aplenty, miners Kazakhmys (KAZ), Lonmin (LMI) and Vedanta Resources (VED) too joined the list of fallers, down 2.4%-2.9%.

On the flipside, HSBC Holdings (HSBA) bucked the banking sector trend and moved 3.1% forward after the bank’s second-quarter results surprised on the upside. Interim results in Intertek (ITRK) and Hammerson (HMSO) were also well-received and the companies gained 3.9% and 1.4%, respectively.

 

 

UK GDP figures show slower growth of 0.2%

Growth in the UK economy slowed in the three months to 30 June, partly because of the extra bank holiday in April.

Gross Domestic Product (GDP) grew by 0.2% in the second quarter, according to the Office for National Statistics, down from 0.5% in the previous quarter.

The ONS said growth had also been slowed by some other one-off factors, including the Japanese tsunami.

Chancellor George Osborne said the growth was good news, but Ed Balls accused him of choking the recovery.

‘Safe haven’

“The positive news is that the British economy is continuing to grow and is creating jobs,” said Mr Osborne.

“And it is positive news too that at a time of real international instability we are a safe haven in the storm.”

But shadow chancellor Ed Balls said that the slowdown was a serious problem for the government and it should take steps to boost growth.

“These figures show that last year’s recovery has been recklessly choked off by George Osborne’s VAT rise and spending review,” he said.

“The economy has effectively flat-lined for nine months and this is very bad news for jobs, living standards, business investment and for getting the deficit down.”

Mr Balls has called on the government to reverse the increase in VAT that took effect at the beginning of the year.

The think tank the Institute for Public Policy Research (IPPR) was also critical of the level of growth.

“Last June, the OBR [Office for Budget Responsibility] predicted GDP would grow by 2.6% in 2011, but even if the economy gets back on track in quarters three and four this year, it will barely reach 1.2%,” said IPPR director Nick Pearce.

“Outside of London, in particular, the recession continues to be felt and the UK economy might as well still be in recession, even if technically it isn’t.”

The ONS highlighted a number of special events in the second quarter that may have affected the GDP figures.

They were: the additional bank holiday for the royal wedding, the wedding itself, the after-effects of the Japanese earthquake and tsunami, the first phase of Olympic ticket sales and the record warm weather in April.

The ONS estimated that without these one-off factors, GDP would have been 0.5 percentage points higher.

Not all of the one-off factors were negative. Warm weather in April, for example, boosted spending on hotels and restaurants, but reduced spending on domestic fuel.

Nonetheless, analysts say that the ONS statement that GDP would have grown by 0.7% without one-off factors is good news.

“Given the comments from the ONS, this is a better-than-hoped-for report, but with confidence remaining weak and household finances under major pressure the underlying trend remains subdued,” said James Knightley at ING Financial Markets.

“Nonetheless, with firms still looking to hire and invest… we remain hopeful of a gradual acceleration in GDP growth over the next 12 months.”

The breakdown of sectors contributing to GDP shows it was a relatively strong quarter for the services sector.

Services as a whole grew 0.5% compared with the previous quarter, which is important because the sector makes up more than 75% of GDP.

Transport, storage and communication contributed particularly strongly to the growth of the services sector.

Production fared less well, contracting 1.4% from the previous quarter, with mining and quarrying down 6.6%.

Agriculture declined by 1.3% while construction grew 0.5%, recovering after two weak quarters.

“What seems to have driven this is a stellar bounce-back in services output after the Easter fall, but 0.2% growth is nothing to get the champagne corks popping,” said Alan Clarke at Scotia Capital.

“The biggest drag on growth at the moment is inflation and that’s eating into household disposable income and holding back consumer spending.”

 

 

Carbon Credits Explained

A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon or equivalent into the world’s atmosphere”

Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one ton of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.

The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than those used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world.

 

 

CERs and CDM Explained

CERs
Certified Emission Reductions (CERs) are a type of emissions unit (or carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE under the rules of the Kyoto Protocol. CERs can be used by Annex 1 countries in order to comply with their emission limitation targets or by operators of installations covered by the European Union Emission Trading Scheme (EU ETS) in order to comply with their obligations to surrender EU Allowances, CERs or Emission Reduction Units (ERUs) for the CO2 emissions of their installations. CERs can be held by governmental and private entities on electronic accounts with the UN.

CERs are either long-term (lCER) or temporary (tCER), depending on the likely duration of their benefit. Both types of CER can be purchased from the primary market (purchased from original party that makes the reduction) or secondary market (resold from a marketplace). At present, most of the approved CERs are recorded in CDM Registry accounts only. It is only when the CER is actually sitting in an operator’s trading account that its value can be monetized through being traded. The UNFCCC’s International Transaction Log has already validated and transferred CERs into the accounts of some national climate registries , although European operators are waiting for the European Commission to facilitate the transfer of their units into the registries of their Member States.

EU ETS
The European Union Emissions Trading Scheme (EU ETS) also known as the European Union Emissions Trading System, is the largest multi-national emissions trading scheme in the world. It was launched in 2005 and is a major pillar of EU climate policy. The EU ETS currently covers more than 10,000 installations with a net heat excess of 20 MW in the energy and industrial sectors which are collectively responsible for close to half of the EU’s emissions of CO2 and 40% of its total greenhouse gas emissions.

Under the EU ETS, large emitters of carbon dioxide within the EU must monitor and annually report their CO2 emissions, and they are obliged every year to return an amount of emission allowances to the government that is equivalent to their CO2 emissions in that year. In order to neutralize annual irregularities in CO2-emission levels that may occur due to extreme weather events such as harsh winters or very hot summers.

 

 

U.S. Rating Warning Dampens Risk Appetite

Equities were out of favour once again on Thursday as investors looked to perceived safe havens after a Moody’s U.S. credit rating announcement

The eurozone sovereign debt stories that have been dominating the headlines, alongside BSkyB and News Corp, have been joined by a hiatus of concern surrounding the U.S. debt situation after Moody’s announced it has put the U.S.’s coveted AAA credit rating on watch for a downgrade late Wednesday.

Equities were hit globally after the continuing impasse between the U.S. administration and Republican Congressmen over raising the debt ceiling sparked the warning from Moody’s.

In London, the FTSE 100 index dropped 60 points to close 1.0% lower at 5,847, while the FTSE 250 index lost 77 points or 0.7% to 11,767.

Ahead of the results of the European Banking Authority’s bank stress tests, due Friday evening, financials were largely under pressure, though the results are expected to only spell positive news for U.K. banks, which have already undergone more rigorous stress tests. Concern that some European banks may be more fragile and any negative news could have a knock-on effect across the sector still weighed.

HSBC (HSBA), Barclays (BARC) and Standard Chartered (STAN) shed 0.6%-1.1% apiece, but Lloyds Banking Group (LLOY) ticked up 3.2%, thanks to a recommendation upgrade by analysts at investment bank Goldman Sachs.

Tamara Burnell, head of financial institutions/sovereign research at M&G, this afternoon likened the EBA’s bank stress tests to a driving test, explaining that passing the test doesn’t mean you’re a good driver. “The real test of whether anyone trusts you is whether people are prepared to get in the car with you. So whether or not banks pass the 5% Core Tier 1 stress test hurdle, the real test is whether investors and depositors trust them with their money over the long term, and there’s a long way to go before the European banks rebuild their reputation after a series of offences such as speeding, failing to indicate and poor steering.”

In other banking news, results from J.P. Morgan Chase (JPM) beat earnings estimates, posting profit up 13% in the second quarter to $5.4 billion. The bank posted a 7% increase in revenue on a managed basis to $27.41 billion, building hope among investors for other financial institutions’ quarterly reports due in the next week. J.P. Morgan’s investment banking operations were highly profitable, more than compensating for mortgage-related expenses and weakness in retail banking.

Financials aside, investors were largely shunning risk on Thursday, shifting assets from equities to gold, the price of which hit a new record high of $1,590.5 per troy ounce. Precious metals miners Fresnillo (FRES) and Randgold Resources (RRS) climbed 4.9% and 0.5%, respectively.

Associated British Foods (ABF) was another outperformer, 2.3% firmer after management said the company is on track to meet full-year guidance.

Elsewhere, in macroeconomic data, the U.S. Labor Department reported that new claims for unemployment benefits dropped 22,000 to a seasonally adjusted 405,000 last week, beating an expected reduction of 3,000 new claims. However, Minnesota suffered a government shutdown in which 11,500 state employees filed for benefits, tempering the decrease in new claims. Economists believe net job growth will occur only when the weekly figure for new claims falls below 400,000.

Meanwhile, the Commerce Department said that June retail and food services sales increased by 0.1% from May to $387.79 billion, beating an expected decline of 0.2%. Separately, manufacturers and wholesalers saw prices of goods and materials decline in June, down a seasonally adjusted 0.4%, the Labor Department reported. The figure was worse than economists’ expectations of a 0.2% decrease and marks the first drop in production costs since June 2010.

 

 

Oakmount and Partners – Landfill Methane Avoidance CER Generation Project – China, India & South Africa

Oakmount and Partners Ltd is proud to offer its clients an exclusive opportunity to purchase pre-issue Certified Emission Reductions, guaranteed delivery via CERPA, resulting from a landfill methane avoidance initiative spanning China, India and South Africa. 

• Location: China, India & South Africa
• Carbon Credit Program: Municipal Solid Waste Landfill Methane Avoidance (MSW-PoA)
• Expected profit per CER: £4.94[1]
• Profit uplift per annum: 15.15%
• Minimum Investment Level: £9780
• CER delivery date: 2013
• The contract for purchase is known as a Certified Emission Reduction Purchase Agreement (CERPA). The Purchaser signs a CERPA with the Seller, which offers a guarantee of delivery of CERs.

As the project reduces greenhouse gases in the atmosphere, MSW-PoA will produce Certified Emission Reductions (CERs) which are eligible for compliance under the European Union Emissions Trading Scheme (EU ETS).

Acting in a fund-raising capacity in support of this project, Oakmount and Partners offers investors the opportunity to purchase a limited amount of pre-issue carbon credits at an early stage alongside our main partners. These pre-issue carbon credits are bought at a lower rate during the accreditation process. The purchase of these pre-issue credits raises vital funds in the initial stages of project development, and the early stage investor is rewarded at the end certification point where the credit will fetch a significantly higher price than its pre-issue value.

 This project also offers significant socio-economic benefits:

• Preventing environmental degradation which threatens the health and safety of a community (e.g. compromising access to safe drinking water)
• Enhancing the capacity of the natural environment to provide adequate ecosystem services (e.g. flood mitigation)
• Contributing towards a clean living environment via effective solid waste management
• Adding local employment and community development via innovative waste management systems

 Project overview

 Municipal solid waste landfills are the third-largest source of human-related methane emissions. Landfill gas is created as solid waste decomposes in a landfill. This gas consists of about 50% methane, about 50% carbon dioxide, and a small amount of non–methane organic compounds. Methane gas is considered the second largest contributor to global warming due to the drastic increase of its concentration in the atmosphere in the last two centuries. It is estimated that methane gas has a global warming potential 21 times greater than carbon dioxide.

China, India and South Africa are 3 rapidly developing nations that generate significant levels of municipal solid waste responsible for large volumes of methane. China’s total waste output has reached 180 million tonnes of solid waste annually, expanding as fast as its economy, at about 8-10% a year. Rapid industrialisation and population explosion in India has led to the migration of people from villages to cities and has encouraged a national total of nearly 45 million tonnes of solid waste per year. In South Africa, nearly 15 million tonnes of solid waste generated annually accounts for over 4% of the country’s carbon footprint.

The Municipal Solid Waste Landfill Methane Avoidance initiative (MSW-PoA) utilises methane avoidance technologies deployed at several landfill sites throughout China, India and South Africa. MSW-PoA will implement composting and aeration technologies to minimise the methane generation potential of landfill waste to a point where the methane formation potential is substantially reduced to generate emission avoidance. MSW-PoA is being accredited under the Kyoto Protocol’s Clean Development Mechanism and will produce Certified Emissions Reductions (CERs) as a result of generating a reduction in greenhouse gas emissions.

Oakmount & Partners and Carbon 350 Limited

An ethical investment and carbon trading specialist, Oakmount and Partners can offer unparalleled experience, information and access to ethical investments and the carbon market. Oakmount and Partners is working alongside Carbon 350 Limited in the development of the MSW-PoA Project.

Carbon 350 Ltd is an Emissions Brokerage, Project Financier and Project Developer headquartered in London. Carbon 350 specializes in: 1) The brokerage of carbon credits; 2) The forward sale of carbon credits from CDM (Clean Development Mechanism) and JI (Joint Implementation) projects, directly to compliance buyers within the European Union’s Emissions Trading Scheme; 3) Financing CDM and JI Projects through the provision of equity, the advance placement of carbon credits and the provision of debt finance; and 4) The development and accreditation of CDM and JI Projects in Non Annex 1 Countries (the developing world) and developing Annex 1 Countries (Eastern Europe).

 Investment process

• Each pre-issue carbon credit is £16.30. They are available in increments of 200 starting from 600 credits. Minimum investment: £9780
• The contract for purchase is known as a Certified Emission Reduction Purchase Agreement (CERPA). The Purchaser signs a CERPA with the Seller, which offers a guarantee of delivery of CERs.
• The accreditation process takes approximately 36 months from the project start date. This process is fully underway and initial delivery of CERs will occur early 2013. The pre-issue carbon credits then become validated CERs. The Purchaser can then sell on these carbon credits at the full CER status price at that time.

For further information regarding this opportunity please contact Head of Trading – David Hyman on 0207 718 0127 or alternatively david.hyman@oakmountpartners.co.uk

---

[1] Using BarCap predicted 2013 price €24, converted at £/€ rate €1.13.

 

 

Don’t Expect Great Stock Returns Anytime Soon

Full valuation levels and economic uncertainty could weigh down equity returns for the remainder of 2011

Investors hoping for incredible returns from their equity portfolios were likely sorely disappointed by the second quarter’s uninspiring results. Well they better get used to it. With stocks looking fully valued, corporate profitability already high, and seemingly unending economic uncertainty, equity returns don’t look poised to repeat the impressive run of the last few years.

Right now, stocks look almost exactly fairly valued according to our stock research team. That means that on average, shares are trading for what we reckon they are worth. This isn’t great news for value investors (like us) who are hunting for stocks that are trading for less than their intrinsic value. The hope in buying cheap shares is that over time the market will realise that those companies are worth more than they are trading for and that eventually the share price will converge with the fair value. This will give investors who got in at the ground floor a very nice return. If you think a firm is worth £1 and it is selling for £0.50, that is a pretty easy bet to make. You can potentially double your money as the stock price converges, and you get to participate in the organic growth of the company if its prospects improve over time.

Buying at a discount also gives investors a margin of safety if something goes wrong. You might think that a stock is worth £1, but what if it is actually only worth £0.80? If you bought at a deep enough discount, you’d still get a respectable return even if you were overly optimistic.

Is Any Value Left?
That discount and margin of safety are hard to find in the marketplace right now. And not only is the broad market fairly valued, so are the underlying sectors. With the exception of financial services and communications services (which look about 10% undervalued), there aren’t any obvious pockets of value. Sure, there are some individual stocks that look cheap (35 stocks currently have a Morningstar Rating for stocks of 5 stars) but investors with broad market exposure are paying £1 for £1.

Conditions Not Ripe for Optimism
So at today’s levels, investors shouldn’t expect a huge run-up in prices just to catch up to current conditions. Instead returns are going to be dependent on how quickly firms can expand their cash flow and how much investors are willing to pay for that cash flow.

Rising earnings are hardly a fait accompli. Corporate profitability has already had an incredible run since the depths of the recession. The slashing of labour costs, restructurings, emerging-markets growth, and some other factors have helped boost earnings at a much faster rate than that of the broader economy. But as I discussed in April, these factors aren’t sustainable, and finding new growth will be a challenge. Labour and other costs can only be cut so much before it is impossible to run a business.

And it shouldn’t be a big secret to anyone who has been following the economic news during the last few months that the recovery has slowed down in the first half of 2011. Some of the slowdown may very well be from temporary factors such as the Japan earthquake and tsunami, and growth might return in the back half of the year. But even if there is some bounceback, the economy isn’t going to be growing by leaps and bounds. Unemployment is still very high, housing remains shaky, and consumers are still in the painful process of paying off debt and cleaning up their personal balance sheets. These aren’t the conditions that are going to suddenly create a surge in the intrinsic value of firms.

Another option for improved returns could be that investors would suddenly be willing to pay more for cash flows today out of hopes that earnings will increase at a faster rate in the future. Generally speaking, this would imply a boost to the market’s outlook. Given that many of the economy’s problems could take decades to truly sort out, I’m not optimistic on a sudden burst of optimism.

Margin of Safety Lacking
There are also a number of things that could go wrong and derail the stock market. Will Greek debt woes evolve into an international banking crisis? Will a failure to lift the debt ceiling send the U.S. into default? Could another spike in commodity prices sidetrack the recovery? There are also plenty of questions that we don’t even know about yet. Often the next crisis is one that people aren’t even considering right now. Investors demand that margin of safety to protect themselves against these unknown questions. But that safety is harder to find.

So what to do? This environment underscores the importance of good security selection. The days when all stocks were so cheap that you could make a decent return buying almost anything are long gone. Investors will need to build their own margin of safety by doing careful research and picking stocks that are trading at a reasonable discount to fair value.

Bearish markets editor Bearemy Glaser is the worry-prone alter-ego of markets editor Jeremy Glaser.

 

 

FTSE Edges Higher as BSkyB, Miners Bounce Back

News Corp.’s withdrawal of its bid for BSkyB saw the shares edge up above 700p again, while miners attracted buyers following China data

After a morning of hovering around breakeven, the U.K. stock market jumped into action in afternoon trade as News Corp. withdrew its bid for BSkyB and the Ben Bernanke offered the Fed’s support for further easing.

At the end of the session, both the top tier and mid-cap indices closed up 0.6%, with the FTSE 100 38 points firmer at 5,906 and the FTSE 250 index 65 points ahead at 11,843. Wall Street was in fine fettle at last check, averaging gains of 1.2%, while Asian markets this morning also enjoyed a solid session.

China’s economy grew at a faster-than-expected pace in the second quarter of 2011, data released this morning revealed, expanding 9.5%. The report helped to quell concerns that recent monetary tightening by Chinese authorities could restrict economic activity, and demand for natural resources in particular. Other data showed June industrial production improved 15.1%, well above expectations for a 13.7% increase, while monthly retail sales jumped 17.7%, surpassing an expected 17% rise.

In afternoon trade, Ben Bernanke accompanied the latest FOMC meeting minutes with comments indicating the Fed continues to support the idea of further quantitative easing if the U.S. economy is deemed to require it. Bernanke reported to the House Financial Services Committee that the central bank is examining several untested means to stimulate growth if conditions become worse. One option on the table is a third round of quantitative easing. The Fed is also considering giving more explicit guidance to the notion that rates will remain low for an extended period. Alternatively, the central bank could reduce the 0.25% rate it pays to banks on their reserves, a move that would put downward pressure on short-term rates. Bernanke emphasised that easing was not the only course of action being considered and that the Fed’s next move could be to tighten policy.

In London, an easing in concern over demand for metals encouraged investors to pick up mining stocks, particularly given the slight battering they’ve taken over the past few sessions.

Fresnillo (FRES), Randgold Resources (RRS) and Kazakhmys (KAZ) made up three of the top four FTSE 100 performers, up 5.6%, 4.3% and 4.0%, respectively.

The FTSE leaderboard was topped by Burberry (BRBY), which jump 6.5% after the luxury retailer’s management increased its full-year sales forecast after posting better-than-expected first quarter results. The fashion group’s revenues surged 34% in the first quarter, boosting guidance for the wholesale division to achieve sales in the first half in the high teens. CFO Stacey Cartwright said analysts at the lower-end of the company’s full-year profit range are likely to now increase estimates.

But the main news of the day surrounded BSkyB (BSY), shares in which ended the day 2.0% higher, having at one point been almost 5% lower immediately following the announcement that News Corp. (NWS) has withdrawn its bid for the U.K. broadcaster. The shares trade more than 100p higher than their pre-bid levels but substantially lower than their near-850p highs achieved in the wake of News Corp’s bid, before the News of the World debacle kicked in. despite today’s news, expectations are that it’s just a matter of time before the Murdochs return. “As the current furore fades into the past, we wouldn’t be surprised to see News Corp return with another bid,” says Morningstar equity analyst Allan Nichols. “News Corp still wants full access to BSkyB’s growing free cash flow and it has a large pile of cash to deploy.” Nichols added that none of this drama has changed BSkyB’s fundamentals.

 

 

Brent Crude Falls in London on European Debt, U.S. Credit-Rating Review

Oil fell in London on speculation the U.S. may face a credit-rating downgrade and that European leaders won’t be able to contain the region’s financial crisis.

Brent crude fell as much as 0.9 percent, halting a two-day rally, after Moody’s Investors Service put the U.S. rating under review as talks to raise its $14.3 trillion debt limit stalled, while concern grew that the European crisis is spreading. West Texas Intermediate oil gained in New York after a report yesterday showed U.S. inventories declined.

“Persistent worries about the euro zone’s economic stability continue to weigh heavily on Brent,” said Myrto Sokou, a London-based analyst at Sucden Financial Ltd. “WTI crude oil is getting some support from the weaker U.S. dollar.”

Brent for August settlement fell as much as 0.9 percent to $117.73 a barrel and was at $118.40 at 10:25 a.m. on the ICE Futures Europe exchange in London. The August contract expires today. The more actively traded September futures were down 43 cents at $117.42 a barrel.

Oil for August delivery on the New York Mercantile Exchange was at $98.53 a barrel, up 48 cents. The contract yesterday rose 62 cents to $98.05, the highest close since July 7. Front-month Brent, the European benchmark, traded at a premium of $19.87 a barrel to U.S. futures, compared with a record close of $22.29 on June 15.

Moody’s put the U.S. on review for the first time since 1995 as talks to raise the country’s $14.3 trillion debt limit stall, adding to concern that political gridlock will lead to default. The American government has held its Aaa credit rating with Moody’s since 1917.

Gold Rallies

“With the failure of the U.S. government to solve the debt ceiling issue and Moody’s warning of a credit rating downgrade, uncertainty levels are high,” David Wech, head of research at Vienna-based researcher JBC Energy GmbH, said in a note today.

Gold rallied to a record after Moody’s announced the credit review and U.S. debt-ceiling talks stalled. Immediate-delivery bullion climbed as much as 0.5 percent to an all-time high of $1,589.80 an ounce.

The Energy Department said yesterday U.S. crude stockpiles declined 3.1 million barrels last week to 355.5 million. Supplies were projected to drop 1.5 million barrels, according to a Bloomberg News survey. The industry-funded American Petroleum Institute said in a separate report on July 12 that inventories rose 2.34 million barrels.

Gasoline Demand

The country’s gasoline demand slumped 293,000 barrels last week to 9.02 million barrels a day, the Energy Department said. That’s the lowest since the week of May 6. Overall U.S. oil consumption averaged 18.9 million barrels daily in the period to July 8, down 1.4 percent from the same time a year ago.

Gasoline supplies fell 840,000 barrels to 211.7 million last week, the report showed. A 500,000-barrel gain was projected, according to the survey. Distillate inventories, a category which includes heating oil and diesel, rose 2.97 million barrels to 145 million, compared with a median forecast for a 500,000-barrel increase.

BP Plc said its Valhall and Hod platforms off Norway remained shut after a fire at Valhall earlier this week.

Valhall was producing about 60,000 barrels a day before the closure and Hod a “few thousand barrels,” Jan Erik Geirmo, a BP spokesman in Norway, said in a phone interview.

The outage may support Brent crude prices today because it adds to the “current supply shortage premium from the region,” ANZ’s Natalie Robertson said.

 

 

Southern Cross set to shut down and stop running homes

Care home operator Southern Cross is set to shut down after landlords owning all 752 of its care homes said they wanted to leave the group.

“It is currently envisaged that the existing group will cease to be an operator of homes,” the firm said.

Southern Cross added that the landlords were still committed to providing continuity of care to its 31,000 residents.

Trading in the company’s shares has been suspended.

The Darlington-based Southern Cross and its landlords and creditors are a month into a four-month restructuring period, which was agreed in crisis talks in June.

The statement said that the details of the restructuring were not yet settled and there was still a possibility of further changes.

It had been expected that some of the landlords would leave the group, leaving Southern Cross operating with between 250 and 400 homes, but now it appears that the group is to disappear altogether.

‘Regret’

The process began when the UK’s biggest care home operator said it was unable to pay its rent bills to its landlords.

The statement said that little or no value would be left for the shareholders.

“We regret the loss of value which shareholders have experienced,” Southern Cross chairman Christopher Fisher said.

About 250 of the homes will immediately begin to be transferred to other operators.

The owners of the rest of the homes are still finalising their plans, but they may end up using the existing Southern Cross back-office staff and some of its management.

‘Worrying’ time

“We anticipate that the period of uncertainty which we have been experiencing will now draw to a close,” Mr Fisher added.

But Michelle Mitchell at Age UK, said that despite the promises about continuity of care, “this has been a really worrying few months for Southern Cross residents and their families, with these latest developments only adding to their concern”.

Labour MP John Mann called on the government to intervene to make sure that care home residents were not forced to move.

“No resident should be forced to move out of their home and in the big sell-off there must be no cherry picking of the better properties,” said Mr Mann, who has four Southern Cross homes in his constituency.

“Government intervention is needed now so that resident needs are put first and to prevent an even greater disaster from unfolding.”

Fee question

Martin Green, chief executive of the English Community Care Association, said the collapse of Southern Cross showed there were serious problems with the funding of care in the independent sector.

“I think the Southern Cross issue which has come to a head today, is very much an issue that other providers are facing because of the levels of resource that they have to deliver care on,” he told BBC Radio 4′s You and Yours programme.

“Fees are a really big issue and we’ve had several years of nil increases, and of course we’ve had inflation rates running at 4-5%.”

David Rogers, chairman of the Local Government Association’s Community Wellbeing Board, said: “Councils take the welfare of care home residents extremely seriously and throughout this process that has always been their priority.”

“It’s greatly reassuring, and testament to the good work which has been going on behind the scenes and the resilience of the care home system, that a solution has been found which will hopefully avoid major upheaval for the vulnerable people involved.”

 

 

Factbox: Carbon trading schemes around the world

(Reuters) – Companies and governments around the world are turning to emissions trading as a weapon to fight climate change and join a global carbon market worth $142 billion last year.

Under cap-and-trade schemes, companies or countries face a carbon limit. If they exceed the limit they can buy allowances from others. They can also buy carbon offsets from outside projects which avoid greenhouse gas emissions, often from developing countries.

Following is a list of established and proposed schemes:

ESTABLISHED SCHEMES

1. Kyoto Protocol: Mandatory for 37 developed nations, excluding the United States which never ratified the pact.

Launched: 2005

Covers: All six main greenhouse gases.

Target: Five percent average cut in 1990 emissions in 2008-2012 first phase.

How it works: Rich countries cut greenhouse gases at home or buy emissions rights from one other — if one country stays within its target it can sell the difference to another emitting too much. Or they can buy carbon offsets from projects in developing countries under Kyoto’s clean development mechanism.

The present round of the Kyoto Protocol expires in 2012 and the future of the scheme after that date is still uncertain as U.N. climate talks flounder.

2. European Union Emissions Trading Scheme:

Launched: 2005

Covers: Nearly half of all EU carbon emissions. Mandatory for all 27 EU members.

Target: 21 percent cut below 2005 levels by 2020

How it works: Member states allocate a quota of carbon emissions allowances to 11,000 industrial installations. Companies get most permits free now but many electricity generators will have to pay for all these from 2013.

Companies can buy carbon offsets from developing countries if that works out cheaper than cutting their own emissions.

3. New Zealand emissions trading scheme

Launched: July 1, 2010. Mandatory.

Covers: Forestry started first. Electricity, industrial process emissions and transport pollution were included from July. Waste to start in 2013. Agriculture to start 2015.

Target: The government has pledged to cut greenhouse gas emissions between 10 and 20 percent by 2020 on 1990 levels.

How it works: Emissions units are allocated based on an average of production across each industry. From July 1, 2010, to January 1, 2013, emitters have the option of paying a fixed price of NZ$25 per metric ton of carbon, and will only have to surrender 1 unit for every 2 units of emissions. Such assistance will be gradually phased out.

4. Northeast U.S. states’ Regional Greenhouse Gas Initiative (RGGI) Launched: January 2009

Covers: carbon from power plants in 10 northeast states. New Jersey to withdraw by end of year. Allows offsets from five different types of clean energy projects including capturing methane from landfills and livestock manure.

Target: 10 percent cut below 2009 levels by 2018

5. Japan: Tokyo metropolitan trading scheme

Launched: April 2010

Covers: Around 1,400 top emitters

How it works: Tokyo city sets emissions limits for large factories and offices to meet by using technology like solar panels and advanced fuel-saving devices.

Target: Japan aims to cut emissions by 25 percent by 2020 from 1990 levels. Government hopes to pass a climate bill which includes a national trading scheme have faded after the Fukushima nuclear accident took precedence.

Japan is also pushing ahead with a bilateral offsets scheme by backing CO2 reduction projects in developing nations.

PROPOSED

1. Australia: Carbon Pollution Reduction Scheme (CPRS)

Likely to adopt the largest emissions trading scheme outside Europe next year after more than a decade of trying.

Covers: 60 percent of Australia’s carbon pollution apart from exempted agricultural and light vehicle emissions.

How it works: 500 companies will pay a A$23 per metric ton carbon tax from next year, rising by 2.5 percent a year, moving to a market-based trading scheme in 2015.

Target: National aim to cut greenhouse gases by 5-25 percent below 2000 levels by 2020, depending on what other countries commit to.

2. Californian climate change law

Launch: Could be delayed by a year to 2013 [ID:nN1E75S28I]

Covers: Economy-wide emissions, from power plants, manufacturing and, in 2015, transportation fuels.

How it works: Would give away most of its credits to polluters in the early years of the plan.

Target: Cut the state’s emissions to 1990 levels by 2020.

3. Western Climate Initiative (WCI)

Launch: January 2012 but likely delayed

Covers: California, Canada’s British Columbia and Quebec.

Target: Cut emissions 15 pct below 2005 levels by 2020

How it works: Emitters such as power plants would have to buy offsets to cover their emissions. Transport would be included in 2015.

5. South Korea emissions trading scheme

Launch: Between 2013 and 2015

Covers: About 470 companies that emit more than 25,000 metric tons of carbon dioxide annually and are collectively responsible for 60 percent of the country’s emissions. All sectors to be covered.

The government wants the bill to be passed before September to start the scheme from 2015. It bowed to industry pressure by increasing free carbon permits and softening penalty rules for non-compliance in a bid to get parliamentary approval.

Target: Government has set a 2020 emissions reduction target of 30 percent below forecast “business as usual” levels.

6. Taiwan

Launch: Possibly 2011

Covers: Nearly 270 companies responsible for more than half of Taiwan’s greenhouse gas pollution have agreed to supply emissions data to the government to help it launch a carbon offset scheme.

Legislation to limit emissions has struggled to get through parliament since the government introduced a bill in 2008.

Target: Taiwan aims to cut CO2 to 2005 levels by 2020.

7. India: Perform, Achieve and Trade system.

Launch: Three-year rollout period set to start in September. Trading slated to start from 2014.

A mandatory energy efficiency trading scheme covering eight sectors responsible for 54 percent of India’s industrial energy consumption.

How will it work? Annual efficiency targets will be allocated to firms. Tradeable energy-saving permits called Escerts will be issued depending on the amount of energy saved during a target year.

Target: India has pledged a 20-25 percent reduction in emissions intensity from 2005 levels by 2020.

(Sources: Reuters, Point Carbon)

 

 

U.S. Jobs Disappointment Ends Market Rally

Stocks on both sides of the Atlantic reversed their recent upward trend Friday amid severe disappointment with U.S. non-farm payrolls

The UK benchmark index edged higher in early trade, extending its climb above 6,000 points, but disappointment at the afternoon release of the U.S. jobs report saw a sharp reversal of market fortunes.

The FTSE 100 index closed 64 points lower at 5,991, a drop of 1.1%. After a strong start to the week, the top tier ended the week flat, having lost its 6,000-point crown. The FTSE 250 index fell 94 points or 0.8% to 12,074 on Friday.

Market sentiment had been optimistic ahead of June’s non-farm payrolls data, after a positive reading of private sector employment on Thursday. But Friday’s report sent markets tumbling the Labor Department reported that the unemployment rate increased to 9.2% in June, with only 18,000 nonfarm payrolls added last month, a fraction of the 125,000 increase that economists had expected. Fewer jobs were added in June than in April or May, which saw revised payrolls increase by 217,000 and 25,000, respectively. The unemployment rate, which is at its highest since December 2010, stoked fears among traders that the two-year-old recovery continues to limp along.

Meanwhile, U.S. wholesale inventories increased by 1.8% in May, a full percentage point higher than the expected gain and higher than April’s reading of 1.1%. It marked the largest inventories increase in seven months, with motor vehicle inventories turning in the largest gain in more than five years. The overall rise in inventories can be attributed to a recent drop in sales, leaving more goods in warehouses.

Financials—particularly banks—had extended gains in morning trade but Man Group (EMG), RSA Insurance Group (RSA) and Old Mutual (OML) were the only broader sector players left above breakeven by close of play, up 1.5%, 0.4% and 0.2%, respectively. Instead, Lloyds Banking Group (LLOY), Barclays (BARC) and Royal Bank of Scotland (RBS) fell back 2.6%-3.5% in afternoon trade as investors shunned risk assets.

Mining stocks were also under pressure. Antfagasta (ANTO), Vedanta Resources (VED) and Kazakhmys (KAZ) dropped 3.8%-4.5%.

A fifth of FTSE 100 constituents managed to avoid the red, most of them attracting investors to their defensive characteristics. British American Tobacco (BATS), GlaxoSmithKline (GSK) and Severn Trent (SVT) took on 0.8%, 0.7% and 0.1%, respectively.

The focus for next week will be second quarter earnings, proving shareholders to assess their investments’ progress. On the macroeconomic front, the U.S. debt ceiling is likely to remain in the spotlight ahead of the August 3 deadline.

 

 

Is ‘Unlocking’ Your Pension a Good Idea?

PERSPECTIVES: Receiving a tax-free lump sum portion of your pension isn’t necessarily as sweet an offer as it sounds, says Technical Connection

Pension Unlocking
“Would you like to receive 50% of your pension fund as a tax-free lump sum now?”

In these cash-strapped times, it is the sort of question to which few people would respond negatively. But that does not mean it is a good idea.

There are a variety of schemes that have been promoted which claim to hand back half your pension fund for you to use however you want. They all appear to work by:

1. Transferring your pension funds to a new pension scheme;
2. Arranging for the new scheme to invest the monies in a single unquoted company; and
3. Lending you half of the original transfer value via the company on an unsecured basis, with no scheduled payment of capital or interest before retirement.

Further details are hard to come by, as the promoters are very coy about revealing information.

In June, the Financial Services Authority issued a consumer warning about these ‘pension unlocking’ schemes. It said:

– “The promotional material for the schemes we have seen does not state the exact level of fees or charges, so there is a good chance that you are likely to end up with less money than you started with.”

– “The schemes claim that no tax is payable from the money you take as cash. However, it is not clear what rules the schemes are relying on to make this claim. Anyone who accesses money from their pension, either via a loan or other ways outside of the normal allowed methods, runs the risk of having to pay unauthorised payments charges. These can be up to 70% of the value of the loan.”

– “Seek independent financial advice and ensure you and your financial adviser understands how these schemes work and what they mean for you.”

Later in the month unconfirmed reports said that the Pensions Regulator had stepped in and appointed independent trustees to six ‘unlocking’ pension schemes.

These schemes are, to say the least, provocative. If you feel tempted, do talk to a financial adviser first. There may be other, less dangerous ways of accessing some of your pension monies.

Pension Transfers
The Pensions Minister, Steve Webb, has been in the headlines of late, warning about pension transfers. What is concerning him in particular are:

– Transfer incentives. Some employers with final salary pension schemes are offering the scheme members special deals to transfer out of the scheme. These include temporary enhancements to transfer values and/or direct cash payments to transfer. HMRC’s view is that any incentive payment received by the member is to be treated as earnings, subject to both income tax and national insurance contributions.

– Pension increase exchanges. This is a more subtle deal. The employer offers a higher pension and/or a cash payment in exchange for the member giving up their rights to future pension increases.

These offers are by no means an exercise in employer largesse. What the employer is trying to do is reduce their pension liabilities at an acceptable cost to the business. If you are offered such a deal, you should never accept it without seeking expert independent advice. There may be occasions where the deal makes sense, but often the package seems to rely on the scheme member’s lack of detailed pension knowledge.

For example, what increase in pension would you expect for a 65-year-old married man who gave up 3% pension increase in exchange for a level pension? Based on current annuity rates, the answer in round numbers is 50%.

Enhanced transfer offers are frequently made available for a short period only. In pensions, as elsewhere, ‘buy now while stocks last’ merits a cautious approach.

Disclaimer: All views expressed in this third party article are those of the author(s) alone and not necessarily those of Oakmount and Partners. Oakmount and Partners are not responsible for the comments nor will it be liable in any way for any information provided by the author.

 

 

Greece Clouds Europe, but Germany Outperforms

Q2 ROUND-UP: European equities turned in a muted performance in the second quarter but Germany continued to lead the way

European equities turned in a muted performance in the April-June quarter. Investor caution reigned on account of sovereign debt concerns relating mainly to Greece but also other nations such as Ireland, Spain, and Portugal.

In the three-month period, Britain’s FTSE gained 0.6% on a total return basis (assuming reinvested dividends), while France’s CAC was roughly flat. Germany’s DAX, however, outperformed other key markets, rising 3.3%.

Several mixed cues tugged stocks in different directions with sovereign debt risks and the still lingering effects of the Japanese earthquake offsetting largely positive moves on Wall Street.

The German index, however, was helped by strength in heavyweights such as Adidas (ADS), BASF (BAS), MAN (MAN) and Merck KGaA (MRK), which rose between 6% and 22%, offsetting weakness in banks, utilities, and technology firms.

Elsewhere, stocks traded in a small range for the most part in April and May, but in June concerns in Greece came to a head after the debt-straddled nation, which has already been banished from private markets, required emergency financial assistance to service its immediate obligations.

The European Union and the International Monetary Fund demanded Greece implement spending cuts if it is to get emergency funds–a move the Greek parliament finally voted in favour of, despite widespread domestic protests.

Financial stocks were hit badly as speculation over their exposure to the debt of several troubled European nations continued.

Barclays (BARC), Crédit Agricole (ACA), Royal Bank of Scotland (RBS), and Société Générale (GLE) erased between 5% and 10%. Lloyds Banking Group (LLOY) plunged more than 15% during the quarter as weak earnings and a muted outlook weighed on investor sentiment.

After seeing a brisk rise at the start of the year, commodity prices came under pressure after data showed the U.S. economy could be slowing down, coupled with concerns of a slowdown in China as well.

Weakening metal prices took a toll on miners such as industry leader BHP Billiton (BLT), which declined 2.9%, while smaller players like Xstrata (XTA), Anglo American (AAL), Lonmin (LMI) and Vedanta (VED) fell between 5% and 13%.

Automakers turned in a mixed performance, as some were more affected by supply-chain issues arising from the Japanese disaster in March. BMW (BMW) rose 12% in Germany, Audi (NSU) lost 3%, while Daimler (DAI) was flat.

Meanwhile, shares of Finnish mobile maker Nokia (NOK1V) plunged over 25% as it battled supply-chain woes along with a fast-declining market share in the face of competition from Apple’s (AAPL) iPhone and smartphones based on Google’s (GOOG) Android operating system.

 

 

Markets anticipate Nasdaq/LSE tie-up

LONDON, Jul (Reuters) – The London Stock Exchange (LSE.L) should consider a tie-up with Nasdaq OMX to secure its place as a global competitor, after its failed bid for Canadian group TMX made it vulnerable as a takeover target, investors and market participants said.

Nasdaq has been in the spotlight since the LSE pulled its $3.5 billion (2.1 billion pounds) bid for Toronto stock exchange operator TMX, leaving the LSE without a partner at a time of frenzied takeover activity among global exchanges.

“The LSE needs to do something, because as the other exchanges get bigger they get smaller, which can only lead to them being swallowed up,” said a senior trader at an international broker in London.

A source close to the firms said that Nasdaq — lead by veteran Robert Greifeld — has not yet opened talks with the LSE, whose Chief Executive Xavier Rolet only took the helm at the centuries-old exchange in 2009.

But it could come under pressure to do so if shareholders approve Deutsche Boerse’s $10 billion bid for NYSE Euronext this Thursday, opening the way for the creation of world’s top exchange group.

“The LSE is being marginalised and if Deutsche Boerse/NYSE goes ahead, I wonder how much resistance the LSE will have to a bid,” said a managing director at a global investment bank.

Deutsche Boerse needs shareholder approval before it and its merger partner NYSE Euronext can turn their attention to European competition authorities, who are closely watching every move of the rapidly integrating industry.

Nasdaq tried to derail the Boerse/NYSE deal in April by launching a higher counterbid of $11.2 billion for NYSE, prompting a rejection from Nasdaq’s hometown rival.

But U.S. regulators shot down the plan in May, fearing the merger would have given the combined group a monopoly.

That left Nasdaq on the sidelines, sparking speculation it might launch what would amount to the third bid for LSE in its history, after a Canadian consortium of banks and funds known as the Maple Group scuppered the LSE’s bid for TMX.

Nasdaq became the fifth firm to bid for the LSE in less than a decade in 2006, when it offered 9.50 pounds a share, but the offer was immediately rejected by LSE management.

It then raised its bid to 12.43 pounds a share in its second approach in November 2006, but the offer was again resisted by LSE’s bosses before being voted down in early 2007.

LSE shares have risen 22 percent to a year-high of 10.48 pounds since Nasdaq’s NYSE bid was knocked back more than six weeks ago. They were trading 1.8 percent higher by 1:18 p.m.

“I think it (an approach) is likely. (Greifeld is) an ambitious guy with a track record. I think there is pressure for some cross-border activity, and more pressure than there was,” said one large LSE shareholder.

There has been a swathe of exchange deals in the past six months, even if few are still live.

“Exchanges need to consolidate to generate economies of scale and enable them to compete more aggressively,” said Andrew Bowley, managing director, head of electronic trading at Nomura.

The LSE and Nasdaq both declined to comment.

 

 

Almost 10 percent of European insurers fail stress tests

LONDON (Reuters) – Nearly 10 percent of European insurers would need to raise fresh capital in the event of a severe economic shock accompanied by a plunge in share prices, tumbling interest rates and a property market crash, European insurance regulator EIOPA said on Monday.

Thirteen insurers would in that scenario rack up a collective 4.4 billion euro (3.8 billion pounds) capital shortfall relative to the minimum required under the European Union’s proposed Solvency II regime, the watchdog said as it unveiled the results of a stress test aimed at gauging the sector’s financial resilience.

EIOPA did not name the companies, but said the small size of the shortfall compared with the sector’s 425 billion euro surplus before the stress tests are applied demonstrated the industry was financially robust overall.

“This shows that overall the European insurance industry has a good shock absorber in its capital position,” EIOPA chairman Gabriel Bernardino told reporters.

“Now each company will have an analysis of the areas where they are more exposed, and they can take action.”

Bernardino said it was “not appropriate” to identify the companies facing a potential capital shortfall, as the Solvency II capital rules the stress tests are based on could change before they are introduced in 2013.

“The take-away is that there isn’t going to be a rush to raise equity. The status quo will be maintained,” said Investec analyst Kevin Ryan.

Insurers emerged from the 2008 financial crisis in better shape than banks, but a small number of failures in the sector has spurred regulators to scrutinise it more closely for fear a major insurance collapse could endanger the financial system.

EIOPA’s banking counterpart, the EBA, will later this month publish the results of a stress test of European lenders which will name the institutions that are found to be financially weak.

EIOPA also said six European insurers would face a collective capital shortfall of 2.5 billion euros in a separate shock scenario involving a surge in sovereign bond yields.

However, the industry’s exposure to bonds issued by critically-indebted peripheral euro zone nations at risk of default is “manageable,” EIOPA’s Bernardino said.

Allianz, Europe’s biggest insurer, said its Solvency II capital thresholds were determined by an internal model which was both more accurate and tougher than the approach adopted by EIOPA.

“For all insurers working with internal models, own results will provide a clearer picture than the EIOPA figures,” an Allianz spokeswoman said.

The stress tests “confirm the robustness of the European insurance market and its ability to withstand severe stress scenarios,” said CEA, the European insurers’ lobby group.

 

 

FTSE Enjoys Strongest Run in 10 Months

Greece relief and a surprising turn in U.S. manufacturing data helped top-tier UK equities achieve their strongest run since September 2010

Stocks extended their winning streak into the month of July, completing a full week of gains, bolstered by hopes for at least a temporary resolution to Greece’s default woes and an encouraging manufacturing report from the U.S. on the final session of the week.

The FTSE 100 index closed up 44 points or 0.7% at 5,990, having come within a whisker of 6,000 in intraday deals. The UK benchmark has rallied over 5% over the past five sessions in the strongest run since September 2010. The FTSE 250 on Friday took on 106 points or 0.9%, bringing its weekly rise to 4.4% in total.

London-listed miners struggled in morning trade after China’s purchasing managers index fell to an 11-month low, further fuelling metal demand concerns. PMI data from Europe and the UK followed suit, with both reporting the weakest readings since 2009. But in afternoon trade the U.S. ISM reading provided an extra boost to market sentiment ahead of the Independence Day holiday.

The closely followed ISM factory index unexpectedly rose in June, pointing to an expansion in the manufacturing sector. The index came in at 55.3 last month, up from May’s disappointing 53.5 and much higher than the 51.8 reading expected by economists. The report also showed strength in employment and pointed to easing cost pressures.

In London, financials continued their new-found strength, with ICAP (IAP) topping the leaderboard, up 5.1%, followed consecutively by Lloyds Banking Group (LLOY), Barclays (BARC) and Royal Bank of Scotland (RBS), each up 3.2%-3.7%.

Miners had largely recovered by close of play so that Eurasian Natural Resources (ENRC) and Antofagasta (ANTO) ended the session 2.4% and 1.9% higher, respectively.

On the flipside, Randgold Resources (RRS) was the worst off on the FTSE 100, down 1.5% as the price of gold continued it decline.

 

 

Greece crisis: S&P downgrades Greek credit rating

Standard & Poor’s has downgraded Greece’s credit rating yet again, partly due to what it sees as the rising risk of the country having to restructure its private sector debts.

The rating agency downgraded Greece to CCC from B and said it would consider any such restructuring as a default.

Last week, the Greek parliament passed tough austerity measures to secure further financial aid.

However, there is a growing sense that a debt restructuring is inevitable.

German and French banks have already agreed in principle to roll over loans to Greece in order to give the country more time to repay its debts.

This could involve effectively reinvesting the proceeds of maturing Greek debt into newly-issued bonds.

Standard & Poor’s said that, depending on the circumstances, it viewed “certain types of debt exchanges and similar restructurings as equivalent to a payment default”.

The options laid out so far for restructuring Greek debt would constitute such a default, it said.

Shares in European banks lost ground following the downgrade.

In the UK, Royal Bank of Scotland and Lloyds Banking Group both lost about 2.3%, in France Credit Agricole and Societe Generale fell about 2%, while in Germany Commerzbank slipped 1.7%.

Fresh bail-out

Over the weekend, eurozone finance ministers approved the latest tranche of emergency help for the Greek economy.

They will release 12bn euros (£10.4bn, $17.4bn) in the next two weeks to help Greece meet spending commitments and avoid defaulting on its huge debts.

Last week, the Greek parliament passed tough austerity measures demanded by the European Union (EU) and International Monetary Fund (IMF).

MPs backed the measures despite angry protests on the streets of Athens.

Last May, the EU and IMF provided 110bn euros in emergency loans to Greece, and agreed last month to provide another 120bn euros in loans to try and help the country though its debt crisis.

 

 

Four-Day Rally Puts FTSE Flat in Second Quarter

The top tier’s strongest rally in almost four months brought the second-quarter performance in flat overall as investor risk appetite returned

A final flurry of activity saw the FTSE 100′s performance over the second quarter of 2011 come in flat, with the market 0.4% weaker over the first half of the year. The UK’s benchmark index hit its best run in almost four months on Thursday, having steered clear of the red for four consecutive sessions, with optimism about an imminent solution—albeit temporary—to Greece’s default risk.

The FTSE 100 index took on 90 points to close 1.5% higher at 5,946, while the FTSE 250 index added 135 points or 1.1% to 11,934.

Very few London-listed stocks failed to make headway Thursday, and Lloyds Banking Group (LLOY) was the stand-out performer, surging 9.7% to the top of the leaderboard. The part-nationalised bank announced its strategic review this morning and the market subsequently applauded new CEO Horta-Osorio’s stance, which includes the aim of cutting 15,000 jobs to save £1.5 billion the next four years while investing £2 billion in the retail business. These new job cuts will see the group named the bank that has slashed the most jobs out of any in the UK, but while Lloyds employees cursed their employer, shareholders rejoiced the prospect of a concrete plan to put the bank on the right foot.

Royal Bank of Scotland (RBS), the UK’s other partly-nationalised bank, also benefitted from the upbeat sector sentiment, as well as investors general return to risk assets. RBS shares added 4.6%, while Barclays (BARC) took on 2.9%.

Liquefied natural gas and oil producer BG Group (BG.) enjoyed a strong session, climbing 4.7% after doubling the amount it expects its Santos Basin offshore Brazil to produce to 8 billion barrels of oil equivalent.

Sticking with natural resources, with oil and gas prices both on the up today and bargain-hunters on the lookout for undervalued opportunities, other oil & gas producers and metal miners were also on the up. Vedanta Resources (VED), Anglo American (AAL) and Royal Dutch Shell (RDSB) took on 2.2%-3.1%.

But Petrofac (PFC) bucked the trend, falling 2.0% after the oil equipment group’s trading update was eclipsed by news CFO Keith Roberts is to retire, to be replaced by the former CFO of Cable & Wireless.

Also among the handful of casualties were a couple of those stocks that had outperformed during the previous session, which succumbed to profit-taking on Thursday, perhaps a sign of what the Friday session might entail after four days of broader market gains. ICAP (IAP) and ITV (ITV) lost 1.2% and 0.65, respectively Thursday.

 

 

Lloyds Banking Group to shed 15,000 more jobs

Lloyds has said it will cut another 15,000 jobs, 14% of its workforce.

The move is part of the banking group’s strategic review that targets £1.5bn in annual savings by 2014 and marks a withdrawal from international banking.

The High Street lender has already announced 27,500 job losses since its merger with HBOS in 2009.

However, the bank said it would not close any UK branches, implying that the cuts are likely to fall on middle management and back office functions.

Among the promised changes were “better end-to-end processes and IT platforms, a de-layered management structure and simpler legal structure, [and] centralised support functions”.

“This is a huge shake-up,” says the BBC’s business editor, Robert Peston, with consequences that “will ripple through the British economy”.

Among the many changes are plans for the bank to cut the number of suppliers it uses, which will have a knock-on impact on other companies.

Markets took the news well, with Lloyds’ share price jumping 7.2% in the opening minutes on the London Stock Exchange, making it the biggest climber in the FTSE 100.

‘Revitalise Halifax’

The strategic review was launched by the bank’s new chief executive, Antonio Horta-Osorio, who left Santander’s UK business to run Lloyds on 1 March.

“He wants to do as much of [the job cuts] through redeployment and natural attrition as redundancies, but there are bound to be redundancies,” says Robert Peston.

“They want to bring top management closer to branch management – so there’s a whole swathe of managers for whom that is incredibly bad news.”

The job losses represent 14% of Lloyds Banking Group’s total of 104,000 employees.

The cost-cutting programme itself will cost £2.3bn in total, but is expected to free up about £2bn for investments over 2011-14.

Lloyds said it would use the money to “revitalise Halifax” and develop its other UK businesses.

The lender also reaffirmed its commitment towards pensions and investments provider Scottish Widows.

Much of the savings will come from Lloyds’ international operations, with the bank saying it plans to shut up shop in 15 of the 30 countries in which it now offers its services.

“Our aim is to become the best bank for customers,” said Mr Horta-Osorio.

“We will unlock the potential in this franchise over time by creating a simpler, more agile and responsive organisation, and by making substantial investments in better-value products and services for our customers.”

The Portuguese banker has already shaken up Lloyds management since he arrived, with the departure of two board members.

He has also promised to wean the bank off government-backed funding by the end of this year.

The Unite union said the review would cause “deep distress and anxiety”.

David Fleming, Unite national officer, said: “This review is merely another box-ticking exercise to give this bank – which has already, since its creation two years ago, cut over 27,000 staff – an excuse to sack more employees.”

 

 

Property market ‘moving sideways’, says Nationwide

The housing market has “moved sideways” in the past six months, the Nationwide has said, as house prices remained unchanged in June.

The value of the typical home was the same in June as in the previous month, but 1.1% lower than in June 2010, the building society said.

The average UK home cost £168,205, the Nationwide said.

It expects prices to change little during the rest of the year, owing to the economic climate.

Forecast

Prices in the three months to the end of June were 0.3% higher than the previous three months, the figures – based on the building society’s own mortgage data – show.

“The property market has moved sideways over the past six months, and June’s data suggest that trend is being maintained through the summer months,” said Robert Gardner, Nationwide’s chief economist.

“It is hard to make the case for prices rising or falling sharply over the remainder of 2011 if the economy develops as we expect.

“Economic growth looks set to gather pace in the months ahead, but is likely to remain unspectacular. This in turn points to only modest gains in employment and sluggish wage increases, which will continue to keep many potential buyers on the sidelines.”

He added that expectations of the Bank rate remaining at its historic low of 0.5% meant that there would not be a surge of forced sales.

 

 

U.K. Economy Expanded 0.5% in First Quarter

Exports returned the British economy to growth in the first quarter as soaring food and energy costs eroded household incomes and curbed consumer spending.

Gross domestic product rose 0.5 percent from the fourth quarter, the same as previously estimated, the Office for National Statistics said today in London. The pace of growth from a year earlier was revised to 1.6 percent from 1.8 percent.

Concern about economic growth is taking precedence over inflation as rising prices and government budget cuts put Britain on course for the biggest squeeze on living standards since the 1970s. The Bank of England kept its key interest rate at a record low this month and some officials said more bond purchase may be needed if weakness persists.

“The recovery is going to be sluggish and consumer spending will continue to be weak, or more likely actually fall,” Jonathan Loynes, chief European economist at Capital Economics in London, said before the report. “We may see another bout of quantitative easing at some point if the economic recovery continues to disappoint.”

Real household disposable incomes fell by 0.8 percent following a 0.9 percent drop in the fourth quarter and consumer spending declined 0.6 percent, the largest drop since the second quarter of 2009. Business investment fell 3.2 percent, the most since the third quarter of the same year.

Export Boost

The pound extended its decline against the dollar after the data were published. It traded at $1.5958 as of 9:32 a.m. in London, down 0.2 percent from yesterday. Bonds declined, with the yield on the 10-year gilt up 3 basis points from yesterday to 3.19 percent.

The economy expanded largely thanks to exports, with net trade contributing 1.4 percentage points to growth, the most since 1979, as the pound’s depreciation since early 2007 gave U.K. goods a competitive edge. Manufacturing output grew 0.7 percent from the fourth quarter and services, the largest part of the economy, increased 0.9 percent. Construction fell 3.4 percent, the largest decrease since the first quarter of 2009.

While U.K. inflation was 4.5 percent in May, more than twice the Bank of England’s target, Governor Mervyn King has said the current price surge is temporary and has defended keeping the key rate on hold to aid the economic recovery. He is due to speak at a U.K. Parliament committee at 10 a.m.

J Sainsbury Plc (SBRY), the U.K.’s third- largest supermarket chain, said on June 15 that more customers are switching to its own brands to save money as household incomes shrink.

Consumer Squeeze

The squeeze on household budgets is weighing on an economy that has recouped barely more than a third of the output lost during the recession, leaving Britain lagging behind recoveries in the U.S., Germany and France. The International Monetary Fund lowered its 2011 U.K. growth forecast this month to 1.5 percent from 1.7 percent in April.

Real incomes fell last year for the first time since 1981 and the U.K. Treasury predicts a further drop this year, marking the first back-to-back decline since the 1970s oil crisis and recession.

Household savings stood at 4.6 percent of disposable income in the first quarter, down from 5.1 percent in the fourth quarter, suggesting the squeeze on incomes is forcing consumers to dip into their savings.

Separately, the statistics office said the current account deficit narrowed to 9.4 billion pounds ($15 billion) in the first quarter from 13 billion pounds in the previous three months. As a percentage of GDP, the deficit fell to 2.5 percent from 3.5 percent. The deficit on trade in goods narrowed to 22.2 billion pounds.

 

 

What to Expect from the Week Ahead

Inflation data, manufacturing PMIs, the end of QE2 and Greece’s continuous struggle with its fiscal deficit will all keep investors busy as we head towards the end of June

The coming week will bring monetary and fiscal policy developments that markets have been bracing themselves for throughout June. Namely, the Fed will officially end its second quantitative easing programme and Greece will have to deliver on its promise to rein in fiscal spending (or at least have a credible plan for it).

While the end of the Fed’s asset purchasing programme has been widely expected for some time already, it is still likely to translate into less appetite for risky assets in the weeks to come. Recent signs of economic slowdown in both developed and developing markets will likely feed into that trend.

To that end, the coming days will offer plenty of macroeconomic information to investors wondering where the economic growth and consumer prices are heading. For example, consumer price inflation data for June from Germany, the eurozone and Japan are scheduled for Tuesday, Thursday and Friday, respectively. Seeing as the European Central Bank signalled that it is planning another interest rate hike in July, eurozone inflation figures should provide an argument as to the necessity of such measure.

Perhaps of even more investor interest will be economic growth indicators. We have seen the market on both sides of the Atlantic be extremely susceptible to economic announcements in the past couple of weeks and there is a wealth of data points coming up that may spur further swings. Add to this the fact that trading volumes are low at present and are likely only worsen as we move into the summer months, thus further exacerbating volatility, and we could be in for a bit of a rocky ride.

In the UK, the final estimate of first-quarter GDP is due on Tuesday, followed by consumer borrowing and mortgage approval data for June on Wednesday, this month’s Gfk consumer confidence survey on Thursday and the manufacturing sector PMIs on Friday. Manufacturing sector PMIs will also be released for Germany and the rest of the eurozone on Friday.

Economists expect that the previous 0.5% estimate of UK growth in the first quarter will remain unrevised, while both consumer confidence and the manufacturing PMI will show producers and consumers struggling with the economic environment. Among these latest national accounts, Howard Archer, Chief European and UK Economist with IHS Global Insight, will be particularly interested to see what happened to households’ real disposable income and the savings ratio in the first quarter.

Elsewhere in the EU, we will be expecting German retail sales for May on Monday, a number of eurozone confidence surveys for June on Wednesday and eurozone unemployment for May on Friday. While these statistics are likely to once again highlight a two-speed economic recovery in the EU, of particular interest will be the extent to which the EU’s powerhouse, Germany, has been hit by peripheral debt concerns and the broader global economic slowdown.

In the political arena, the Greek government will be battling to pass budget reform through parliament – a change stipulated as mandatory in order for the country to receive the latest instalment of its bailout package and avoid default in the short term. It is likely that such agreement will be reached, says Morningstar equity analyst Erin Davis, but she argues this will not solve Athens’ structural debt problem and the country will eventually default on its debt.

As far as the coming week is concerned, however, in addition to the Greek saga, movements in other peripheral bond markets will be of interest as the spreads between Italian and Spanish sovereign bonds and German bunds will give some insight into how fragile the Mediterranean economies could be if eurozone debt concerns linger.

The volume of corporate announcements will be relatively quiet with no FTSE 100 company updates due except for trading updates from Petrofac (PFC) and Wood Group (WG.) on Thursday. On Wednesday, Compass Group (CPG), Man Group (EMG) and Tate & Lyle (TATE) will trade ex-divided.

Monday
UK Economic Announcements
Nationwide House Prices for June
International Economic Announcements
Eurozone: German Retail Sales for May, German Import Prices for May
US: Personal Income and Spending for May, Dallas Fed Manufacturing Activity

Tuesday
UK Corporate Announcements
Carpetright (CPR), Northgate (NTG)
UK Economic Announcements
1Q GDP, 1Q Current Account
International Economic Announcements
Japan: Retail Sales for May
Eurozone: German GfK Consumer Confidence Survey for July, German CPI for June
US: Consumer Confidence for June, Richmond Fed Manufacturing Index for June

Wednesday
UK Corporate Announcements
Betfair Group (BET), Stagecoach Group (SGC)
Ex-dividend Date
FTSE 100: Compass Group (CPG), Man Group (EMG), Tate & Lyle PLC (TATE)
FTSE 250: Cranswick (CWK), Halfords Group (HFD), HomeServe (HSV), The Paragon Group of Companies (PAG), Petropavlovsk (POG)
UK Economic Announcements
M4 Money Supply for May, Net Consumer Credit and Net Lending Secured on for May, Mortgage Approvals for May
International Economic Announcements
Japan: Industrial Production for May
Eurozone: 1Q French GDP, eurozone business and consumer confidence surveys for June
US: Pending Home Sales for May

Thursday
UK Corporate Announcements
Greene King (GNK), HMV Group (HMV), Petrofac trading update, Wood Group trading update
UK Economic Announcements
GfK Consumer Confidence Survey for June
International Economic Announcements
Eurozone: French Consumer Spending May, French Producer Prices May, German Unemployment for June, eurozone CPI for May
US: Weekly jobless claims, Chicago PMI Survey for June, NAPM Milwaukee for June

Friday
UK Economic Announcements
PMI Manufacturing Survey for June
International Economic Announcements
Japan: Household Spending for May, Jobless Rate for May, CPI for May, 2Q Tankan Large Manufacturing Index
Eurozone: French PMI Manufacturing Survey for June, German PMI Manufacturing Survey for June, eurozone PMI Manufacturing Survey for June, eurozone Unemployment Rate for May
US: University of Michigan Consumer Confidence for June, Construction Spending for May, ISM Manufacturing Survey for June

 

 

UK Equities Tick Up On Greece Deal

Signs that Greece has agreed a deal with its lenders supported European markets on Friday, though it’s not out of the woods yet

Markets rebounded around the globe on Friday after Greece agreed last night with its lenders to a five-year austerity plan that will enable it to avoid an immediate default if implemented. But while Asian markets closed higher, European markets pared gains as a sudden drop in Italian banking stocks’ valuations troubled the sector and hampered risk appetite once again.

The situation remains fragile, however, and is likely to do so throughout next week as Greek Prime Minister George Papandreou attempts to push through the terms of a new austerity package, including higher taxes and further spending cuts.

Meanwhile, crude prices struggled to recoup their substantial drop from Thursday after the International Energy Agency said it would release additional supplies of “emergency” oil stocks into the market to counter the shortfall of supplies caused by the Libyan civil war.

The FTSE 100 index closed 23 points firmer at 5,698, a tentative rise of 0.4%, while the FTSE 250 index added 75 points or 0.7% to 11,528.

Speculation was rife as to what caused the Italian bank sell-off, with some pointing to concerns of a credit rating downgrade and others highlighting fears Italy’s financial institutions might not be robust enough to pass capital requirements. Whatever the cause, the fear spread like wild fire, so that by close of play Lloyds Banking Group (LLOY), Royal Bank of Scotland (RBS) and Barclays (BARC) were the worst-off on the FTSE 100, down 4.8%, 3.5% and 2.9%, respectively.

Energy-fuelled stocks were also down in the dumps as the price of crude hovered just above $90 on Nymex. Essar Energy (ESSR), BG Group (BG.) and Cairn Energy (CNE) lost 1.1%-2.0% each.

On the upside, chipmaker ARM Holdings (ARM) was among the top FTSE 100 performers with a 3.0% gain on the positive readacross from results from IT firms Oracle and Accenture in the U.S.

But it was GKN (GKN), which makes parts for around half of the world’s cars, that topped the leaderboard, gaining 3.2%% on the back of figures showing better-than-expected auto sales in China.

In economic data, U.S. durable goods orders increased more than had been expected in May, offering some upbeat signs as the manufacturing’s rebound. The final estimate of the U.S. economy’s GDP in the first quarter came in at 1.9%. this was a touch stronger than the 1.8% previously estimated by marks a notable slowdown in the economic recovery compared to the 3.1% growth achieved in the final quaarter of 2010. Wall Street traded marginally lower at time of writing.

 

 

Greece bail-out agreement sends European markets higher

Stock markets in Europe have risen after Thursday’s agreement by European leaders to give Greece another 120bn euros ($170bn; £105bn) of support.

The money will come from the 17 eurozone countries and the International Monetary Fund (IMF).

There will be contributions from other lenders and fund-raising and cuts within Greece.

London’s FTSE 100 index was up 1.2%, Paris’s Cac 40 by 1.3% and Frankfurt’s Dax by 1%.

Countries from the 10 countries within the European Union but outside the single currency area will not contribute directly, something Germany had initially pressed for.

The original 110bn-euro ($156bn; £98bn) Greek rescue package is also a combination of funds from fellow eurozone nations and the IMF.

The European money currently being given to Greece comes from the European Financial Stability Facility, to which only the 17 eurozone nations contribute.

The UK contributes to the wider European Financial Stabilisation Mechanism, which covers the whole of the EU.

The Greek parliament will vote next week on the government’s latest round of spending cuts and tax rises.

If the vote goes through, then Greece will get the next 12bn-euro instalment of the current 110bn euros of eurozone and IMF funds.

Greece needs this money by 15 July or else it will default on its loan payments.

 

 

Italy bank shares dive on credit rating alert

Shares in leading Italian banks fell sharply after the credit ratings agency Moody’s said it may downgrade their status.

Moody’s report, published late on Thursday, put 16 Italian banks and two government institutions on review for a possible mark-down.

Shares in the country’s biggest bank, Unicredit, lost more than 8%.

Intesa Sanpaolo, Italy’s second-largest bank, and Monte Paschi also dropped. Trading was suspended in some banks.

Other factors weighing on bank shares included fears that Italian banks could be forced to raise more capital as a result of imminent stress tests.

Credit ratings help investors to determine the strength of an institution or company.

They affect the rate of interest a borrowing organisation must pay. The weaker the credit rating, the higher the cost of borrowing.

Moody’s put Italy’s public debt on review for possible downgrade amid concerns about low growth and high public debt, which at 120% of gross domestic product (GDP) is one of the highest in Europe.

Greece’s debt is 150% of GDP.

 

 

China is winning its price growth war, premier Wen says

Chinese premier Wen Jiabao has said that China can control inflation and maintain its robust growth.

Writing in the Financial Times newspaper, Mr Wen said “price rises will be firmly under control this year”.

He said while the world is still recovering from the global financial crisis, new challenges have emerged.

Mr Wen said countries must ‘co-operate closely’ to deal with those risks.

The comments come at a time of growing concern over China’s high inflation rate.

There are fears that the high prices may derail domestic and global growth, and could spark civil unrest.

Mr Wen tried to allay those fears.

“There is concern as to whether China can rein in inflation and sustain its rapid development. My answer is an emphatic yes,” he wrote in the newspaper.

In May, inflation in China hit its highest level for 34 months, mainly driven by gains in food costs.However, Mr Wen insisted that the steps China has taken this year to bring prices down have worked.

China’s central bank has raised interest rates four times since October last year.

“The overall price level is within a controllable range and is expected to drop steadily,” Mr Wen said.

 Mr Wen, who will be in Europe this week, said that although the global economy is recovering, many uncertainties remain.

 He promised that China would work with other countries with common responsibilities.

“We should make a concerted effort to strengthen the co-ordination of macroeconomic policies, fight protectionism, improve the international monetary system and tackle climate change.”

 

 

Bernanke slashes US growth forecast

Yesterday, the Federal Reserve concluded their day two meeting with a press conference, at which Chairman Ben Bernanke spoke and answered questions. It is clear now that Bernanke and the Fed are more pessimistic about the prospects for economic growth and employment than they were two months ago.

In April the Fed estimated that US economy would grow between 3.1% and 3.3%. Yesterday, they reduced their estimates to 2.7% and 2.9%. That is closer to the 2.6% growth private sector economists are expecting, according to The Associated Press poll.

The Fed now estimates that unemployment will remain at high levels and by the end of the year be somewhere between 8.6% – 8.9%. Bernanke said, “The recovery appears to be proceeding at a moderate pace though somewhat more slowly than the committee expected and some recent labor market indicators have been weaker than expected.”

In its statement, the Fed, as widely expected, said it will maintain interest rates at exceptionally low levels for an extended period. It also reiterated it was ending QE2 on time at the end of this month.

Though there was hope in the equity markets that the Fed would announce another round of stimulus, they did not. As a result the Dow Jones Industrial Average fell 80 points.

The Fed also cut inflation expectations, which was in line with what Bernanke has been saying about its temporary rise due to the geopolitical events in the Middle East and North Africa and the earthquake in Japan. The central bank now sees inflation rising at 2.3% – 2.5%, compared to April’s estimate of 2.8%.

Yet, the Fed estimates that “core” inflation, which excludes energy and food, will increase 1.5 percent to 1.8 percent, which is slightly higher than its April forecast of an increase of 1.3 percent to 1.6 percent.

Overall, the sentiment from this meeting is mildly negative and the Fed has acknowledged that US economic growth has slowed. However, Bernanke does think that it will pick up again soon.

 

 

What to Expect From the Week Ahead

Potential development on the Greek debt crisis and insights into monetary policy on both sides of the Atlantic will be among the top market announcements next week

With market sentiment heavily burdened by Greek debt woes, upcoming developments in Athens and Luxemburg will hardly give investors any respite this weekend. Following Friday’s announcement that Greece has reshuffled a number of its cabinet ministers and appointed austerity hawk Evangelos Venizelos as the new minister of finance, the country’s government will face a vote of confidence on Sunday. On the same day, Athens’ newly-appointed top finance decision-maker will begin negotiations on the next tranche of Greek bailout funds with the European Unions’ Economic and Financial Affairs Council. Venizelos may be facing a steep learning curve given that he has no prior experience in a finance role.

In addition to the Greek crisis, monetary policy on both sides of the Atlantic will take centre stage next week. The Federal Open Market Committee starts a two-day meeting on Tuesday and Chairman Ben Bernanke will follow up Wednesday’s interest rate announcement with a press conference. These quarterly conferences are a new communication practice from the Fed and while few investors expect a change in the US base interest rate or an extension of the quantitative easing programme beyond QE2, it will be closely watched for signs of Bernanke’s take on the US recovery. It will also be of interest whether the Chairman makes any commentary on the US dollar. “Bernanke considers the dollar a monetary policy tool,” pointed out Merk Fund’s Axel Merk in a recent interview with Morningstar.

Closer to home, the Bank of England’s latest Monetary Policy Committee meeting minutes will be released on Wednesday. This will be the first transcript of committee dynamics after the arrival of Goldman Sachs economist Ben Broadbent and departure of interest rate hawk Andrew Sentance. It is possible that this change in the MPC composition has added one more vote in favour of unchanged interest rates, bringing the pro-status quo vote to 7:2 from 6:3 in May. “If this is the case, it will further increase current mounting expectations that the Bank of England will hold off from raising interest rates until 2012,” commented Howard Archer, Chief European & UK Economist at IHS Global Insight.

Other points of interest on next week’s macroeconomic calendars will be Germany’s ZEW, PMI and IfO surveys for June due on Tuesday, Thursday and Friday, respectively; the US May existing and new home sales on Tuesday and Thursday; and the second reading of the US first-quarter GDP, out on Friday.

In terms of corporate announcements, next week will shine a light on a number of consumer demand-sensitive companies. An interim management statement from Whitbread (WTB) is scheduled for Tuesday, an update from Kesa Electricals (KESA) for Wednesday, and full-year results from Dixons Retail (DXNS) on Thursday. Dixons recently issued cautious full-year profit guidance and investors will be comparing the impact of soft consumer demand on the company’s sales to those of its high-street peers. Providing context for the retailer’s figures will be the UK’s CBI distributive trades’ survey, also expected on Thursday.

 

 

Greece crisis: Commissioners ‘fear future of eurozone’

EU commissioners have a “profound sense of foreboding” about Greece and the future of the eurozone, a leaked account of a meeting has suggested.

The account, seen by BBC News, said this was in reaction to the “damning failure” of eurozone ministers to agree a new bail-out for Greece last night.

It was written by an official who attended Wednesday’s gathering of commissioners in Brussels.

The author warned that the markets would now “smell blood”.

The European Commission said it would not comment “on anonymous interpretations of meetings”.

The document said that the planned second Greek financial rescue package on top of last year’s 110bn-euro (£161bn; £98bn) bail-out would dominate the forthcoming European Council meetings next week.

It added that any default on Greek government debt – as espoused by Germany – would leave the Greek banks insolvent and “threaten the viability of the ECB [European Central Bank] itself” which owns 49bn euros of Greek bonds.

European Commission President Jose Manuel Barroso was said to be “clearly more worried now than he was a year ago when the sovereign debt crisis first broke”.

He was said to have remarked that the markets would “smell blood” at this division between the ECB – which is set against any form of Greek default – and Germany, which wants banks to write off some of their investments in any second bail-out.

Senior European Commission sources told the BBC that President Barroso is increasingly frustrated at this lack of agreement and that the mood of the commission meeting was “sombre”.

Markets have been signalling in recent weeks that they increasingly think Greece will default on its debt, by forcing up its cost of borrowing to unsustainable levels.

This was also the case during the run-up to the announcement of emergency loans to Portugal and the Irish Republic, as politicians said publicly that no bail-outs would be needed.

One ratings agency, Standard & Poor’s (S&P), cut Greek sovereign debt to a CCC rating this week, its lowest rating for any country.

S&P expects Greece to default in some way on its enormous debts, which currently amount to almost 160% of Greek GDP.

Eurozone finance ministers are meeting again to discuss the crisis on Monday, ahead of a full meeting of all 27 EU prime ministers and presidents on June 23 and 24.

 

 

Ed Balls urges emergency tax cut to boost economy

Shadow chancellor Ed Balls is to call for a temporary emergency tax cut to stimulate the economy and boost consumer confidence.

He will say acting now to counter the slowdown is a better option than “ploughing on and hoping for the best”.

He will also warn that months or years of slow growth could leave “a permanent dent in our nation’s prosperity”.

The Conservatives said Mr Balls had not come up with a “credible alternative” for tackling the deficit.

In his first major policy speech since becoming shadow chancellor earlier this year, Mr Balls will also insist Labour are not to blame for the deficit.

‘Political gamble’

Mr Balls says the government’s cuts programme risks a “vicious circle” of lower investment, income and employment leading to slower growth, bigger tax increases and more spending cuts.

He says Chancellor George Osborne’s refusal to draw up a “Plan B” is because of a “political gamble” rather than for Britain’s economic interests.

“When I hear George Osborne refuse even to countenance a Plan B, I do not believe this is economic judgment at work, but a political gamble with the nation’s economy from a chancellor shaping his policies not around constitutional responsibility, sound economics and the protection of jobs, growth and homes, but around a fixed political strategy to win an election in 2015,” Mr Balls will say.

In the speech at the London School of Economics he is expected to add: “I’m not someone who shirks tough decisions.

“And I am making the case for a slower and more balanced approach not because I am a deficit denier, but because this is the tough – but cautious and credible – thing to do.”

Mr Balls will say that the recession of the early 1980s inflicted “long-term and permanent” damage to the state of manufacturing, small businesses and skills in the UK, and there is a risk of similar long-term damage now.

“The test for the Treasury isn’t just whether they can post better growth rates – we all know the economy will return to stronger growth eventually – it’s whether they can make up all this lost ground in jobs and living standards.

“The longer we spend with no or slow growth, the longer the road to recovery becomes, the greater the pain that will have to be endured and the further we fall behind. So the current economic drift really does matter.”

‘Labour mess’

Mr Balls relies on forecasts from the Office for Budget Responsibility which suggests the UK will be £5.6bn worse off at the end of 2012 than was predicted at the time of last year’s Budget.

He argues this figure will grow to £58bn – or £3,300 for every family – by 2015 if nothing is done.

Mr Balls’ intervention comes a day after Mr Osborne said the UK economy was “on the mend” in his annual Mansion House speech but the recovery would take time due to the size of the deficit the coalition had inherited.

Conservative party deputy chairman Michael Fallon said: “Ed Balls is yet to set out the cuts he would have to make to offer a credible alternative to clearing up Labour’s mess.

“Our deficit reduction plan is backed by international organisations including the IMF, the CBI, the OECD and the Obama administration. Ed Balls’ plan isn’t even backed by Ed Miliband.”

In its recent analysis of the UK economy, the International Monetary Fund said it expected weak growth and rising inflation to be “largely temporary” and suggested the coalition was right to proceed with its deficit reduction plan.

 

 

Oil Declines as Concerns Over European Debt Counter U.S. Inventory Drop

Oil extended losses, dropping from a three-day high in New York, on that concern Europe’s debt crisis will threaten the region’s economic recovery and curb demand.

Futures slid as much as 1 percent, after posting their biggest gain in almost a month yesterday, as European Union finance ministers struggled to break a deadlock on a second rescue plan for the Greek economy. U.S. crude stockpiles fell by 3.01 million barrels last week, the industry-funded American Petroleum Institute said yesterday. A Bloomberg survey indicated government data today may show a decline of 1.8 million barrels.

“The debt situation in Greece is coming into focus again so people are hesitant to buy,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich. “The supply situation everywhere is quite relaxed, especially in the U.S.”

Crude for July delivery declined as much as $1.02 to $98.35 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.58 at 10:12 a.m. London time. The contract gained 2.1 percent yesterday, the biggest increase since May 18. Prices are 28 percent higher in the past year.

The discount for New York futures to Brent traded in London was $20.44 a barrel, after reaching a record of $22.79 yesterday. Brent oil for July delivery slid $1.14, or 1 percent, to $119.02 a barrel on the London-based ICE Futures Europe exchange. The contract expires today. The more actively traded August future fell $1.17 cents to $118.18.

European Meetings

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet on June 17 in Berlin to try to resolve their differences on a rescue for Greece, which was downgraded this week to the world’s lowest credit rating by Standard & Poor’s. EU finance ministers agreed to convene again on June 19.

Shares of BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s three biggest banks, dropped more than 1 percent after Moody’s Investors Service placed their credit ratings on review to scrutinize their holdings of Greek debt.

The global economy has “hit a bit of a short-term patch of weakness but we still see the second half of the year as being pretty strong,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted crude will average $113 a barrel in the third quarter. “Higher oil prices might be having a marginal impact on growth in the advanced economies.”

The Energy Department report today may say U.S. crude inventories fell from 368.9 million last week, according to a Bloomberg News survey of 13 analysts. Gasoline supplies probably rose 1.05 million barrels, the survey shows.

API Report

Crude stockpiles dropped to 363 million barrels, the lowest in seven weeks, according to the American Petroleum Institute report yesterday. Gasoline inventories climbed 1.13 million barrels to 213.5 million barrels, the API said. Oil-supply totals from the API and the Energy Department have moved in the same direction 72 percent of the time over the past year.

The institute collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

The cancellation of some supplies of U.K. Forties crude for June loading and ongoing turmoil in Libya boosted Brent’s value relative to WTI, said Ken Hasegawa, a commodity derivative sales manager at Newedge in Tokyo.

Libya Supplies

The North Atlantic Treaty Organization dropped leaflets across Libyan government lines around the besieged rebel-held city of Misrata, threatening attacks by Apache helicopters if the daily bombardment of the enclave continues.

“Some Forties crude for June loading were rolled over to July and in Libya supplies are still suspended,” Hasegawa said. “I would want to watch if Brent goes up to $123 a barrel because it will try to reach $127 if that happens.”

The gap is widening because of flows of light, sweet crude to Europe and Asia instead of the U.S. Gulf Coast, Goldman Sachs Group Inc. said in a note yesterday. The premium is “primarily driven by the weakening of U.S. Gulf Coast light-sweet crude oil prices relative to Brent crude, not a Cushing bottleneck,” Goldman analysts including New York-based David Greely said.

In the past the gap was determined by excessive stockpiles at the U.S. storage hub in Cushing, Oklahoma, the latest divergence is more linked to shortages of blends similar to Brent crude, BNP Paribas SA said yesterday in a separate report.

 

 

Euro Falls on EU Deadlock Over Greece

The euro weakened and the cost of insuring Greek and Portuguese debt rose to records as European officials failed to agree on a rescue plan for Greece. U.S. stock-index futures and commodities fell.

The euro depreciated 0.6 percent to $1.4354 as of 9:55 a.m. in London, while the Australian dollar strengthened against all 16 of its major peers. Credit swaps on Greek bonds signaled a 74 percent chance of default within five years. The Portuguese two- year note yield advanced seven basis points before a bill auction. Standard & Poor’s 500 Index futures fell 0.5 percent and the Stoxx Europe 600 Index slipped 0.2 percent. Oil sank 0.9 percent and silver dropped 0.3 percent.

An emergency session of finance ministers ended with no progress on a new aid package for Greece, German Finance Minister Wolfgang Schaeuble told reporters yesterday. BNP Paribas SA, Societe Generale SA and Credit Agricole SA may have their debt ratings cut because of their investments in Greece, Moody’s Investors Service said today. U.S. inflation probably rose and industrial output picked up, economists said before reports from the Labor Department and Federal Reserve.

“We are no closer to solving the crises,” Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London, wrote in a report today. “It may well be that ultimately the only real option is some kind of fiscal union as that would buy the peripheral countries time and may act as a firebreak against contagion from the Greek situation.”

Aid Talks

The euro fell against all but two of its 16 most-traded counterparts, slipping 0.3 percent versus the yen. EU finance ministers meeting in Brussels yesterday agreed to convene again on June 19, a day earlier than planned. Talks may drag on into July, Luxembourg’s Finance Minister Luc Frieden said.

The Australian dollar rose 0.3 percent versus the yen and 0.7 percent against the euro. Reserve Bank of Australia Governor Glenn Stevens reiterated that policy makers will need to raise interest rates at some stage and signaled inflation data next month may be key for such a decision. The pound fell 0.3 percent against the dollar after U.K. jobless claims jumped more than economists expected in May and wage growth slowed.

The yield on the Greek 10-year bond climbed 22 basis points, rising for the seventh day, as protesters in Athens threatened to surround Parliament, where lawmakers began to debate budget cuts and asset sales that are conditions for aid. The extra yield investors demand to hold the securities instead of benchmark German bunds rose to a record 1,461 basis points.

Portugal Auction

The Portuguese 10-year yield snapped six days of increases as the government prepared to sell as much as 1 billion euros ($1.4 billion) of three- and six-month bills. Germany auctions two-year notes. The cost of insuring sovereign debt rose, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments increasing four basis points to 216. Greek swaps jumped 32 basis points to 1,637. Portugal’s advanced 14 to 768 basis points.

Two stocks fell for every one that gained in the Stoxx 600, with banks leading losses. National Bank of Greece SA slid 5.4 percent and Banco Comercial Portugues SA (BCP) sank 4.1 percent. BNP Paribas, Societe Generale and Credit Agricole each slipped more than 1 percent.

The drop in S&P 500 futures indicated the benchmark gauge for U.S. equities will snap a two-day advance. Reports today may show the cost of living rose in May at the slowest pace in six months, while industrial production increased 0.2 percent, according to Bloomberg surveys of economists.

The S&P GSCI index of 24 raw materials declined 0.3 percent. Silver fell 12 cents to $35.295 an ounce and oil was down 50 cents at $98.87 a barrel in New York.

The MSCI Emerging Markets Index lost 0.3 percent. The Shanghai Composite Index fell 0.9 percent after the central bank ordered domestic lenders yesterday to hold more cash in reserve. The Bombay Stock Exchange Sensitive Index slipped 1 percent before an interest-rate decision tomorrow. Turkey’s ISE 100 Index slid 1.3 percent after Haberturk newspaper reported savings-deposit insurance may increase.

 

 

U.K. Jobless Claims Rise, Wage Growth Slows

U.K. jobless claims surged more than economists expected in May and wage growth slowed, pointing to a continued squeeze on households as inflation accelerates.

Jobless-benefit claims jumped 19,600 from April, when they rose a revised 16,900, the Office for National Statistics said today in London. The median forecast of 22 economists in a Bloomberg News survey was an increase of 6,500. Wage growth excluding bonuses slowed to 2 percent in the three months through April, the weakest since the quarter through August.

Based on a separate International Labor Organization measure, unemployment fell by 88,000 in the three months through April, the most since 2000, the statistics office said. While there are mixed signals from the labor market, inflation is outpacing wage growth, squeezing consumers whose confidence is also being undermined by concerns about government budget cuts.

“The recovery is still pretty shaky,” Philip Rush, an economist at Nomura International in London, said before the report was released. “The unemployment rate is going to stay around these levels, before moving lower but at a gradual pace. The public-sector job cuts are going to damp down the improvement in the labor market.”

The pound extended its decline against the dollar after the report, falling as much as 0.3 percent. It traded at $1.6321 as of 9:36 a.m. in London. Bonds declined, with the yield on the 10-year gilt rising 2 basis points to 3.31 percent.

Inflation Pressure

The claimant count rate stayed at 4.6 percent in May. The increase in the jobless claims was the biggest since July 2009. Part of the increase was due to changes in benefit rules that have been affecting claims this year. The impact in May was less than in previous months, the statistics office said.

While data showed yesterday that inflation stayed at 4.5 percent in May, the highest since October 2008, price pressures have yet to feed through to wage settlements. Wage growth excluding bonuses eased to 2 percent in the three months through April from 2.1 percent in the first quarter. The Bank of England forecasts that consumer-price growth will accelerate to 5 percent in the coming months.

Wage increases including bonuses weakened to 1.8 percent from 2.4 percent, the least since the fourth quarter of 2010.

Based on ILO methods, the unemployment rate was 7.7 percent in the three months through April. The employment level was 70.6 percent, with the number of people in work totaling 29.2 million.

Amazon.com Inc. (AMZN) said on May 25 will open a customer service center employing 900 people in Edinburgh in August, almost doubling the number of jobs the world’s largest online retailer is creating in Scotland this year. Still, Southern Cross Healthcare Group Plc, the U.K.’s biggest nursing home operator, said on June 8 it plans to cut as many as 3,000 jobs as it seeks ways to reduce costs.

In a separate report, the statistics office said public- sector employment fell by 24,000 in the first quarter. Excluding the impact of workers hired for the 2011 census, the decline would have been 39,000.

 

 

Opec holds oil production as BP says energy demand rose

Oil consumption rose by its fastest rate since 2004 last year, according to the latest statistics from BP.

The news came as members of the Opec oil cartel failed to agree on increasing oil production as a way of lowering prices.

Analysts had expected the Vienna meeting to raise output. As a result, oil prices jumped again on fears of limited supply.

The value of a barrel of Brent crude rose back above $118 a barrel.

Production of oil and gas fell sharply in the UK in 2010, though global reserves rose slightly, according to BP.

Oil consumption in 2010 rose by 3.1%, more than double the 10-year average increase, according to BP’s annual statistical review.

The rise in consumption came despite rising prices – average oil prices in 2010 for Brent crude were the second highest on record.

Figures also out on Wednesday from the US Energy Information Agency showed weekly crude oil stocks fell while petrol stocks rose.

Opec row

Analysts had expected the high oil price would convince Opec to increase production.

The cartel’s secretariat, based in Vienna, had predicted that rising consumption this year would drive demand above its supply.

Saudi Arabia and other Gulf states wanted to increase production to limit rising prices and so ensure continued demand for oil.

However, oil ministers meeting in Vienna failed to agree on a rise in output.

“This is one of the worst meetings we have ever had,” said Saudi oil minister Ali al-Naimi.

Venezuela, Iran, Algeria and Libya were reportedly among the countries that refused to raise output.

However, many analysts said it would have little impact on actual production.

“It seems to me that with crude prices as high as they are, most members are already producing as much as they possibly can,” said Tom Bentz, director at BNP Paribas commodity futures.

Chinese demand

Much of the increased demand for oil continued to come from China, according to BP.

Chinese oil demand rose by more than 10% or 860,000 barrels a day.

China also drove rising demand for energy around the world. Energy consumption rose by 5.6% – the fastest rate since 1973.

Gas saw the fastest growth of all the fossil fuels, driven by the exploitation of shale gas in the US.

“When all the accounting is done, we all consumed more energy in 2010 than ever before,” said Christof Ruhl, BP group’s chief economist.

It means CO2 emissions rose in almost every country covered, led again by China, where emissions rose by more than 10%.

Falling UK production

The figures painted a very different picture for oil production in the North Sea.

Norway saw the fastest falls in production, closely followed by the UK.

UK oil production was down 7.7% and UK gas production down 4.3%. At the same time, businesses and households consumed more energy.

“UK and Norwegian oil production has been extremely weak last year, and that trend has continued right through this year,” said Amrita Sen, commodities analyst at Barclays Capital.

Production has fallen as fields have run out of oil and because of technical issues at some fields.

“Higher taxes in the UK are not going to help,” Ms Sen added.

However, many analysts said it would have little impact on actual production.

“It seems to me that with crude prices as high as they are, most members are already producing as much as they possibly can,” said Tom Bentz, director at BNP Paribas commodity futures.

Chinese demand

Much of the increased demand for oil continued to come from China, according to BP.

Chinese oil demand rose by more than 10% or 860,000 barrels a day.

China also drove rising demand for energy around the world. Energy consumption rose by 5.6% – the fastest rate since 1973.

Gas saw the fastest growth of all the fossil fuels, driven by the exploitation of shale gas in the US.

“When all the accounting is done, we all consumed more energy in 2010 than ever before,” said Christof Ruhl, BP group’s chief economist.

It means CO2 emissions rose in almost every country covered, led again by China, where emissions rose by more than 10%.

Falling UK production

The figures painted a very different picture for oil production in the North Sea.

Norway saw the fastest falls in production, closely followed by the UK.

UK oil production was down 7.7% and UK gas production down 4.3%. At the same time, businesses and households consumed more energy.

“UK and Norwegian oil production has been extremely weak last year, and that trend has continued right through this year,” said Amrita Sen, commodities analyst at Barclays Capital.

Production has fallen as fields have run out of oil and because of technical issues at some fields.

“Higher taxes in the UK are not going to help,” Ms Sen added.

 

 

Bernanke Comments, UK Downgrade Fears Hit FTSE

Most London-listed blue chips spent the day on the bottom amid a flurry of news pointing to sluggish growth on both sides of the Atlantic

Headline UK equity markets slumped on Wednesday, hit by both Moody’s warning that the UK may lose its AAA sovereign credit rating and a statement by US Federal Reserve Chairman Ben Bernanke suggesting the end of QE2.

UK-listed shares started the day below breakeven after late on Tuesday afternoon Ben Bernanke made a statement acknowledging that US economic growth remains “frustratingly slow” but stopped short of suggesting a continuation of the Fed’s quantitative easing programme.

Exacerbating investors’ worries over the global and local recovery, rating agency Moody’s said the UK could lose its top tier sovereign credit rating if domestic growth continued at its current sluggish pace or the Coalition Government slowed down its fiscal consolidation plans.

Gilt yields climbed and the pound tumbled on the news. “The British Pound remains at risk of facing additional headwinds over the near-term, and the sterling may struggle to hold the narrow range carried over from the previous week as the Bank of England looks to carry its wait-and-see approach into the second-half of the year,” commented David Song, currency analyst at DailyFX. Song did not rule out the chance of additional monetary easing in the face of Britain’s lethargic recovery.

Elsewhere in Europe, the German government fuelled sovereign debt worries when it suggested that Greece should offer all Greek sovereign bond holders a seven-year maturities extension and essentially involve owners of Greek debt in the stabilisation of Athens’ fiscal position.

Ultimately, the FTSE 100 index fell 1.0% or 56 points to 5,809 and the FTSE 250 index lost 1.2% or 138 points to 11,871.

The biggest blue-chip casualties were miners, with Antofagasta (ANTO), Kazakhmys (KAZ) and Vedanta Resources (VED) shedding 2.6%-4.7%. In addition to global growth concerns, a trading update weighed on Antofagasta’s performance. Speaking at the company’s annual meeting, Chief Executive Marelo Awad disclosed that final production from the company’s soon-to-be-acquired Esperanza copper mine might fall short of earlier estimates.

Also on the bottom, Associated British Foods (ABF) and Johnson Matthey (JMAT) slipped 2.3% and 3.5%, respectively, after trading ex-divided.

Among the short list of FTSE 100 risers, Lloyds Banking Group (LLOY) bounced back 2.3% from recent lows after the sale of Hill Hire Plc.

Also marking a limited advance, Royal Dutch Shell (RDSB) gained 0.2% in a day when crude oil prices took a nose dive during a closely watched meeting of OPEC ministers and eventually jumped sharply after the meeting failed to reach a consensus. OPEC member countries could not agree on output target quotas for oil and Saudi Arabian oil minister Ali Naimi called the OPEC meeting one of the worst meetings ever.

Further down the market cap scale, Punch Taverns (PUB) moved 6.8% forward after third-quarter trading update showed a rise sales growth in the company’s managed division.

 

 

Vince Cable threatens banks over lending

Business Secretary Vince Cable has said the government is willing to take “further action with tax on banks” if they do not increase lending to small and medium-sized enterprises (SMEs).

Mr Cable told MPs on the Business Committee that the level of lending to SMEs was a “serious problem”.

Under the Project Merlin agreement, the UK’s four biggest banks are committed to lending £76bn in 2011 to SMEs.

Later, the bosses of the four biggest banks will also give evidence to MPs.

The Treasury Committee will hear first from Stuart Gulliver of HSBC and Stephen Hester of Royal Bank of Scotland, and then from Bob Diamond of Barclays and Antonio Horta-Osorio of Lloyds.

They will answer questions on the Independent Commission on Banking.

‘Catch up’

“The chancellor and prime minister have made it clear that if we don’t get results, they have said we should take further action with tax on banks,” Mr Cable said.

Sanctions could include a tax on profits, balance sheets or bonuses, he said.

But he also said it could be a problem if some banks met lending targets, while others did not.

Under Project Merlin, the amount the banks agreed to lend to SMEs equates to £19bn a quarter. However, in the first three months of the year £16.8bn was lent.

Mr Cable acknowledged that while Project Merlin did not set specific quarterly targets, there was now a “catch-up element” involved.

He said there was a mixture of factors involved in why banks were not lending as much as the government wanted.

One was the level of demand – banks say it is weak, but businesses say they are being discouraged from applying in the first place.

The government’s requirement that the banks hold more capital was also having an effect, he said, as banks were being more cautious in their lending.

He also said that banks had gradually moved away from “relationship banking”, meaning that “at a time of crisis like this they don’t have the infrastructure in place to assess the risk of lending to small business”.

Changing behaviour

Mr Cable said if banks did not increase SME lending, the UK’s economic recovery would suffer.

“We believe there is an issue with the supply and cost of finance and it is inhibiting recovery,” he said. “Certainly, if it’s not dealt with, it will inhibit recovery as we move into more rapid growth.”

However, he added that he had anecdotal evidence that some banks were changing their behaviour, highlighting Lloyds as taking the issue very seriously and meeting their targets.

“Some banks are trying harder than others,” he said, also singling out Santander for its efforts.

 

 

Oakmount and Partners beat off competition to fund raise with Carbon 350.

Please find below a snap shot of our latest project based in China, again working in conjunction with Carbon 350.

 Introduction

 •             Project developer Carbon 350 Limited is currently assisting in the development of 3 CDM projects collectively known as The Waste Energy Recovery in Phosphorus & Cement industries (WER-China).

•             This initiative involves the installation of energy recovery devices in two factories in China.

 Why use waste energy recovery processes?

•             Industrial facilities release significant amounts of excess heat into the atmosphere in the form of hot exhaust gases or high-pressure steam.

•             Waste energy recovery is the process of recovering as much as two-thirds of that wasted energy and converting it into usable heat energy or electricity.

•             This process dramatically lowers energy costs.

•             Energy recovery systems are also capable of lowering heat pollution and capturing harmful pollutants that would otherwise be released into the environment.

 Waste energy recovery and China

•             China, the world’s fastest growing economy, is abundant in phosphate rock.

•             The demand for phosphates for fertilizers, animal feed supplements, food preservatives, etc. has fuelled the rapid progress of the Chinese phosphorous chemical industry in recent years. China is also the world’s largest producer and consumer of building materials (e.g. cement).

•             Waste energy recovery processes, such as Heat Recovery Power Generation (HRPG) and Pure Waste Heat Recovery (PWHR) technologies, are widely used in China in the cement industries as an effective measure to reduce emissions.

•             These same technologies can be used to recover waste heat emitted from the phosphorus   plants, and convert this into usable steam and electricity, thus reducing the amount of power drawn  from the grid.

 The WER-China Project

 •             The Waste Energy Recovery in Phosphorus & Cement industries (WER-China) project involves the installation of these energy recovery devices in two factories in China.

•             WER-China is being accredited under The Kyoto Protocol’s Clean Development Mechanism and will produce Certified Emissions Reductions (CERs), as a result of generating a reduction in greenhouse gas emissions and encouraging energy efficient processes.

To enquire on investment levels and project structure please email info@oakmountpartners.co.uk

 

 

FTSE Flat As Investors Mull Over Recent Data

Last week’s disappointing economic announcements took a toll on risk appetite at the start of the week and left equity markets treading water

Headline equity markets in London started the week with a whimper as worries over the global economic recovery left indices moving in tight ranges.

Ultimately, the FTSE 100 index advanced only 8 points or 0.1% to 5,863 and the FTSE 250 index added 24 points or 0.2% to 11,996.

A relatively quiet market suggested that last week’s batch of soft macroeconomic data, including Friday’s disappointing US employment report, is still weighing on risk appetite. Investors found little reassurance in the outcome of this weekend’s parliamentary elections in Portugal, where the incumbent Socialist party lost by a significant margin to the Social Democrats and their promise to stick to the country’s planned austerity measures.

Elsewhere in Europe, progress on a new Greek bailout also failed to excite and most UK banks found themselves among the list of FTSE 100 fallers. Looking at the strengthening of the single currency at the beginning of the trading day, however, Kathleen Brooks, Research Director at Gain Capital, put forward a “rosier outlook” for the eurozone on the back of the latest developments in Greece and Portugal.

Closer to home, news about the IMF’s annual assessment of the UK economy and economic policy dominated headlines. Amid economists disagreeing on the scope and pace of the Government’s austerity programme, the IMF concluded that the deficit reduction measures should be executed as planned, but suggested that a “prolonged period of weak growth and high unemployment” may justify a scaling down in the Chancellor’s spending cuts.

On the London Stock Exchange, recently-listed mining giant Glencore (GLEN) was the top gainer, up 2.0% following an upbeat analyst note by Deutsche Bank.

Next on the list of risers, ARM Holdings (ARM) added 1.8% after the announcement that ARM and electronic design automation (EDA) software provider Synopsys (SNPS) have signed a multi-year deal providing ARM engineering teams extended access to Synopsys’ leading-edge EDA technology.

Commodity majors Anglo American (AAL), Essar Energy (ESSR) and Fresnillo (FRES) tracked gains in commodity prices and added 1.4%-1.7%.

On the flipside, Lloyds Banking Group (LLOY) was the FTSE 100’s biggest casualty, slumping 3.6% after Chief Executive Antonio Horta-Osorio’s warned in a weekend interview for the Financial Times that the bank’s sustained recovery could take up to five years.

Second-to-last on the list of fallers, International Consolidated Airlines (IAG) dipped 3.0% following a profit outlook cut by the International Air Transport Association (IATA).

US equity markets are down at the time of writing as continued caution resonated with Wall Street after last week’s subpar economic data. No data is due in the US on Monday, though Philadelphia Federal Reserve president Charles Plosser said despite the recent “disappointing” data, the economic fundamentals are still intact and “most of the weakness we are seeing is transitory.” However, Plosser also called for more Fed action to ensure price stability.

 

 

Grim US Numbers Now, Grimmer Numbers on the Way

US WEEK IN REVIEW: Exogenous factors could produce shockingly bad statistics for another month or two

Last week ended on a low note as the employment report showed job growth of a paltry 54,000 versus expectations two weeks ago of 180,000 new jobs and 241,000 new jobs in the prior month.

Housing prices continued to erode, the national purchasing managers’ reports for manufacturers showed a major decline, and auto sales laid an egg as high prices and short supply drove customers away. At least initial unemployment claims went down and the purchasing managers’ survey of services looked better than expected. Both the June monthly and the pre-Memorial Day week of data showed that the consumer has still not given up the ghost.

Unfortunately, based on news already in the pipeline, even worse numbers lie ahead. A confluence of Japanese auto and supply chain issues, bad weather, record gasoline prices, and stagnant wages have produced a perfect storm of negative news that is exceptionally difficult to disentangle. The good news is the Japanese situation is on the mend and improving faster than earlier anticipated. And I have to believe that weather effects (too cold to buy summer clothes, too wet and rainy to begin home and garden projects) will run their course.

Even gasoline on a national basis is down from $3.98 a gallon at its high to $3.78 recently (still dangerously high compared with the $2.78 level of a year ago). The prognosis for real wage growth is less positive, resulting in the need for me to cut my 2011 economic forecast. And without some better news on the inflation front, even that estimate is suspect.

Officially Reducing My Real 2011 GDP Forecast to 2.75%
There is no doubt that the employment report was less than wonderful. Slower hiring was a concern (though the numbers may not be quite as bleak as they look), but I was much more concerned by the hourly wage numbers, which moved into negative territory on a year-over-year basis (three-month moving average) since early 2010.

Without increased earnings, it is going to be increasingly difficult for consumers to spend more. Yes, the upper income strata has done better than the hourly wage group. Yes, there are a lot of stock market gains being spent at the likes of Nordstrom (JWN), Saks (SKS), and Tiffany (TIF). Nevertheless, I think my 3.5% estimate for real GDP growth in 2011 is looking too aggressive. Therefore, I’ve reduced my economic growth forecast to a range of 2.5%-3.0% with a single-point estimate of 2.75%.

I think second-quarter GDP growth will have a hard time exceeding 2% (we already have 1.8% growth on the books for the first quarter) given the issues with the auto industry described below. However, as those plants are brought back online in the third quarter, quarterly growth in excess of 4% seems like a possibility.

Exogenous Factors Could Produce Shockingly Bad Statistics for Another Month or Two
Weather, changing seasonal effects, and major Japanese supply changes will continue to wreak havoc on economic statistics. All the variability will render a lot of statistics nearly useless, and there are no easy fixes for adjusting the data. For another month, maybe two, the biases will probably be on the downside (weakened auto sales could devastate May consumption statistics).

Then as Japanese plants come back online, weather improves, and seasonal adjustments become less onerous, we could see some stunning economic statistics later this summer. In the meantime, I have some fear that the short-run statistics look so bad that they will cause both businesses and consumers to panic, exacerbating the situation. So far it looks like businesses are doing most of the panicking even as consumer spending on non-auto- and non-gasoline-related products continues to show surprising strength. Business caution was certainly in evidence in this month’s slower hiring report.

Employment Data Disappoints
Just two weeks ago I had been relatively confident that job growth would continue at a decent pace of 180,000 or so jobs. Instead, jobs grew by just 54,000 overall as retail, government, and leisure related slowness torpedoed my forecast. Percentage growth rates were down in all categories with the exception of finance, which showed an acceleration in growth. That said, only nondurable manufacturing, retail, and leisure showed slowing that could be described as meaningful.

Though there’s some reason to doubt the magnitude of the decline in job growth, it’s clear that labour markets were weaker in May than any of us hoped. Businesses clearly pulled back as rising gas prices affected consumer behaviour, commodity price increases pressured the bottom line, and the effects of the Japanese tsunami and the renewed European debt crisis weighed on the minds of CEOs. The reported job growth of 54,000 per month represents annual employment growth of just 0.5% annualised, far short of what is needed to reach my economic forecast or to make a dent in unemployment.

 

 

Six Reasons US Housing Prices Aren’t Rising

Investors should be cautious about betting on a rising residential real estate market in the US

The rise and fall of the housing market was one of the more spectacular bubbles of recent memory. And the bursting of that bubble is still having a profound impact on the economy, even though we’re now several years past the peak. Yet, it doesn’t look like housing prices will be bouncing back anytime soon.

Last week, I examined the perfect storm of factors that led to the incredible inflation of housing prices and some of the reasons housing prices have fallen back to earth. Although I do believe that prices have stabilised, there are many headwinds that will make it hard to see impressive gains coming anytime soon. This week, we will look at six reasons why demand isn’t likely to pick up.

1. Unemployment
Even though the employment situation has improved, many people are still without jobs and even more are underemployed. People without jobs generally don’t buy homes. And the uncertainty created by the rocky jobs situation also keeps buyers on the sidelines. Before deciding to take the plunge and buy a home and be tied to one city, buyers want to be sure they have good job security and a stable income.

Even those with jobs who are afraid of layoffs aren’t terribly likely to make a bid on a property. They are much more likely to rent or live with relatives and wait until they have more confidence about the job market before thinking about buying. Until there is a robust recovery in the job market, not just one in corporate profit, there won’t be big housing-price increases.

2. Household Formation
A big driver of the housing market is the creation of new households when young people go out on their own or through other vectors such as divorce. More young people are finding the working world increasingly hostile and are choosing to live with their parents in order to save money or to have an inexpensive base to search for a job. Even more people who might prefer to live alone are finding roommates or sleeping on couches. Now of course many young people aren’t necessarily going to find their first job and then immediately buy a home, but they do represent future buyers. The longer household formation remains depressed, the longer it will be before demand begins to rise again for houses.

Lower divorce rates also have an impact. It’s unlikely that the recession created a lot more marital bliss. What is likely is that it has become financially very difficult for unhappy couples to split up. It may be impossible to sell the home, or one partner might not feel secure enough to venture out on his or her own. This might reverse quickly, but it is having a detrimental impact on demand at the moment.

Outside of Americans creating new households, another potential demand from housing is from immigration. But this seems unlikely to play a meaningful role in the coming years. The political winds have shifted against any large increases to legal immigration and toward stepped-up border enforcement, and a poor economy has led to a decline in numbers of undocumented workers looking for housing.

3. Shadow Inventory
According to seasonally adjusted data from the Census Bureau, there are six-and-a-half months’ worth of housing inventory. This is an improvement from the more than 12 months’ of supply during parts of 2009, but it is not telling the entire story. These statistics can only capture houses that are actually listed and miss the so-called shadow inventory. Shadow inventory includes houses that the owners want to sell but aren’t even bothering putting on the market because they don’t believe they can get the price they want.

There are likely a large number of baby boomers looking to downsize and banks looking to unload foreclosed properties. As prices begin to rise, these sellers will flood the market with new supply, pushing prices back downward. Although it is hard to tell exactly how much shadow supply is on the market, this dynamic could be felt for years to come.

4. Underwater Mortgages
Part of the natural housing cycle is a family moving up the housing food chain as more kids come and incomes expand. But this is made very difficult when one fourth of mortgage holders are underwater. Even if they wanted to move to a larger place, at best they would have no equity when they left their existing home. And though there is talk of people strategically defaulting on their mortgages, this seems to be mostly talk. By and large, homeowners feel a moral obligation to pay back their loans, and people are fearful of how a default would affect their credit scores. So more likely than not, many of these people underwater will just remain in their homes until they are forced by finances or circumstances to leave. This removes another group of buyers from the fray.

5. More Stringent Mortgage Requirements
Access to mortgages is a key driver of housing demand, and the ease of borrowing money was a major reason the bubble was able to inflate so quickly. Those trends have, of course, now reversed. Larger down payments (particularly for jumbo loans) are the norm now, and the exotic mortgages are mostly a thing of the past. The new requirements mean there are some families who were out there buying properties in the boom that couldn’t qualify for a mortgage now, and they might never be able to qualify. Of course, this isn’t all together a bad thing. Giving mortgages to people who couldn’t afford them is one of the reasons we got into this mess in the first place, and the credit quality of borrowers has markedly risen since then. But it is impossible to ignore the impact of the changes to housing prices.

How Congress winds down and replaces the government sponsored enterprises such as Fannie Mae and Freddie Mac will also affect mortgage availability. These groups provide subsidies and liquidity for the market that keeps rates low and banks lending. Chances are the government will continue to provide support for housing, but exactly how it is structured will have a real impact on housing demand.

6. Rising Rate Environment
Rates are near record lows right now. The Federal Reserve is keeping monetary policy loose in an attempt to keep the recovery moving and in part to prop up the housing market. This can’t go on forever. The central bank will eventually have to raise rates as inflation picks up to keep the economy from sliding into recession. As rates rise, it will be a further headwind to prices.

All this being said, it is important to note that prices really do seem to have stabilised, and another major decline in prices seems a distant possibility. And as Morningstar’s Eric Landry points out, we are seeing seasonal strength in prices, something that had been absent for some time. But anyone expecting to see decent returns in housing anytime soon is likely to be disappointed. The current trough in pricing might go on for some time.

What do you think? What is holding back home prices? Do you think prices could fall even more from current levels? Has the US love-affair with homeownership ended?

 

 

IMF’s verdict due on UK economy

The International Monetary Fund (IMF) is due to deliver its verdict on the UK economy later.

In November the IMF said the UK economy was “on the mend”. Since then, the economy contracted by 0.5% in the last three months of 2010 and then grew by 0.5% in the first three months of 2011.

On Sunday, a group of academics called for the government to come up with a Plan B on economic policy.

Chancellor George Osborne said the UK’s fiscal plan was “credible”.

“The economy is growing, jobs are being created. We would like the economy to grow further and we would like more jobs to be created,” he told BBC Radio 4′s Today programme.

He described the fiscal plan as “the rock on which the British economy rests at the moment”.

While he did not talk about a Plan B, he said: “We have flexibility built into our plan.”

‘Difficult decisions’

In a letter to the Observer, the group of academics described the “breakneck deficit-reduction plan” as “self-defeating”.

The academics argue that government spending cuts are hitting economic growth, which is reducing the amount that the government takes in taxes and increasing the amount it has to pay out in benefits – which increases the budget deficit.

The government has cited support for its plans from international financial organisations.

Mr Osborne said: “There are many many economists, many business organisations who create jobs in the economy, [and] many international bodies who support the difficult decisions we have taken over the last 12 months.”

BBC economics editor Stephanie Flanders said that even people who were fans of Chancellor George Osborne’s strategy would say things were not going as they would have liked, but things had not got to a point where they have turned on him.

She added that a year ago there were plenty of concerns within the IMF about the pace of Mr Osborne’s cuts, but these were over-ruled on political grounds, and in public the organisation was very supportive.

Confidence ‘knocked’

Last month, while the OECD endorsed the government’s policies, its chief economist Pier Carlo Padoan told The Times newspaper that the pace of cuts would have to be slowed if economic growth figures continued to be disappointing.

But Mr Osborne said: “Angel Gurria, the secretary general of the OECD, came out later that day, because the remarks were being over-interpreted, and said the OECD backs the course the UK is taking.”

Last week, Markit, which compiles the closely-watched purchasing managers’ indexes (PMI), said that its surveys on manufacturing, services and construction “collectively signalled a slowing in the rate of economic growth”.

Its PMI survey on manufacturing indicated that the sector grew at its weakest pace in almost two years in May.

On Sunday, the shadow chancellor, Ed Balls, said: “The disappointing figures we’ve had this week, particularly on manufacturing, seem to be further evidence that the economic recovery is stalling.

“The fact is that the spending review, the decision to cut further and faster than any other major economy and the VAT rise have really knocked business and consumer confidence and are putting at risk the good recovery we were starting to see a year ago.”

But Mr Osborne hit back, saying: “Our plan provides credibility, stability and confidence in the British economy.”

He also drew attention to a report out on Monday from the EEF manufacturing group which said manufacturers have enjoyed a sixth successive quarter of growth.

 

 

What to Expect from the Week Ahead

Producer prices, trade data from across the globe and announcements in the UK retail space will keep investors busy, while the Bank of England and ECB hold their monthly meetings

With next will come another wave of monetary policy deliberations in London and Frankfurt. Base interest rate decisions by both the Bank of England and the European Central Bank are due on Thursday.

This will be the first BoE Monetary Policy Committee Meeting following the departure of inflation hawk Andrew Sentance, which is yet another reason for low expectations of a rate change at the MPC June meeting. “We expect Dr Sentance’s departure from the MPC, together with further deterioration of economic data in the UK and other major markets as stimulus programmes expire in some cases, and cautious policy tightening continues on others, to mark a more dovish evolution in MPC’s thinking over the coming months,” commented John Wraith, Rates Strategist at Bank of America Merrill Lynch.

Meanwhile, investors will be looking out for trade data across the globe, with the German and Japanese Current Accounts for April expected on Wednesday, followed by the UK and US trade balance for April on Thursday.

US trade data for March disappointed last month after the rising cost of oil imports widened the US trade deficit. The same factor is likely to have had pushed imports higher in April as well, while excluding petroleum products from the current account will provide a more accurate picture of the strength of the US export markets.

Over in the UK, some hopes for strengthening exports have been raised by the improvement in the first-quarter trade deficit, which narrowed to £9.3 billion from £14.7 billion in the last quarter of 2010. However, with higher oil prices pushing import costs up and debt woes weighing on the EU economies, April’s data might be less reassuring.

On the inflation front, April’s Producer Price Index for the eurozone is due on Monday and May’s PPI for the UK is expected on Friday, which is also when Germany’s consumer prices for last month are expected. Halifax is to release its UK House Price Index for May during the week as well. The consensus forecast for UK PPI is for a rise of 0.3% on the month, while input prices are expected to have fallen by at least 1.0% “Signs that manufacturing activity has moderated recently from extended healthy levels seen in the first quarter of 2011 and through 2010 may well be starting to cause manufacturers to be more circumspect in raising their prices,” commented Howard Archer, Chief European and UK Economist with IHS Global Insight.

In terms of corporate announcements, a couple of noteworthy updates are expected from the retail space. On Thursday, Halfords Group (HFD) is reporting full-year results and Home Retail Group (HOME) is releasing its interim management statement. Neither is expected to issue particularly upbeat announcements, with Halfords coming to the end of a broadly flat year and Home Retail Group having issued disappointing results a few months ago.

Earlier in the week, interim results from Punch Taverns (PUB) alongside the aggregate retail sales from the British Retail Consortium will likely provide a gloomy update on the state of the British consumer now that April’s sunny weather and Royal Wedding effect have worn off.

Monday
International Economic Announcements
Eurozone: Sentix Investor Confidence for April

Tuesday
UK Corporate Announcements
Synergy Health (SYR) preliminaries
UK Economic Announcements
BRC Like For Like Sales for May
International Economic Announcements
Eurozone: Retail Sales for April, German Factory Orders for April
US: Consumer Credit for April

Wednesday
UK Corporate Announcements
Punch Taverns (PUB)
Ex-dividend Dates
FTSE 100: Associated British Foods (ABF), Johnson Matthey (JMAT)
FTSE 250: Big Yellow Group (BYG), Britvic (BVIC), Cable & Wireless Worldwide (CW.), Daily Mail and General Trust (DMGT), Hunting (HTG), Pace (PIC), Shaftesbury (SHB), Victrex (VCT), Yule Catto & Co (YULC)
UK Economic Announcements
BRC Shop Price Index for May
International Economic Announcements
Japan: Money Supply for May, Trade Balance for April, Bankruptcies for May
Eurozone: 1Q GDP, German Trade Balance for April, German Industrial Production for April
US: Fed Beige Book for June

Thursday
UK Corporate Announcements
Halfords Group (HFD) preliminaries, Home Retail Group (HOME) IMS
UK Economic Announcements
Bank of England MPC Base Rate Decision and Asset Purchase Target, Visible Trade Balance and Non-EU Trade Balance for April
International Economic Announcements
Japan: 1Q GDP, Consumer Confidence for May, Machine Tool Orders for May
Eurozone: ECB Rate Decision, 1Q French Non-Farm Payroll, Bank of France Business Sentiment for May, German Wholesale Price Index for May
US: Weekly Jobless Claims Trade Balance Apr Wholesale Inventories Apr

Friday
UK Economic Announcements
Industrial Production and Manufacturing Output for April, PPI for May,
NIESR GDP estimate for May
International Economic Announcements
Eurozone: German CPI for May, French Industrial Production and Manufacturing Output for April
US: Import Price Index for May, Monthly Budget Statement

 

 

Weak Manufacturing in UK, Europe, US Hits Markets

UK equities joined their European and US counterparts on a downward trend as disappointing data undermined Tuesday’s risk appetite

Stocks in Europe fell across the board as the eurozone purchasing managers’ index showed its sharpest drop since November 2008. Subpar data in the U.S. later in the session offered no respite.

The FTSE 100 index lost 61 points or 1.0% to 5,929 and the FTSE 250 index lost 51 points or 0.4% to 12,010. On the Continent, the Frankfurt DAX fell 1.0% and the Paris CAC lost 1.1%.

In a swift reversal of Tuesday’s events, the top tier of UK stocks represented a field of red on Wednesday. Natural resource stocks and financials were among the main casualties, mirroring the previous day’s performances when the two sectors helped carry the FTSE closer to the psychologically-important 6,000-point mark.

In addition to the weak purchasing managers’ index data from Europe, the Chartered Institute of Purchasing and Supply revealed this morning that the UK PMI fell for the fourth consecutive month in May to levels not seen since September 2009. The fall from 54.4 in April to 52.1 in May disappointed the market, though, being above 50, this latest reading still indicates expansion.

Across the pond, the US Institute for Supply Management’s manufacturing index also came in below expectations, with a May reading of 53.5 compared with the predicted 57.1 reading. Although the index is still a sign of manufacturing expansion, it is still a sharp drop from April’s 60.4 reading.

The ADP Employer Services report also raised some concern, coming as it does just days before the monthly jobs report. The US private sector added only 38,000 jobs in May, substantially fewer than the expected gain of about 175,000 positions as the goods-producing sector lost 10,000 jobs last month.

US construction spending data provided some optimism, increasing by 0.4% month over month in April to a seasonally adjusted annual rate of $764.98 billion. The reading beat expectations of a 0.2% increase but followed a sharp downward revision of March data; the revised March spending reading showed a slight increase of 0.1% compared with the previously reported 1.4% gain.

Returning to the UK, banks Lloyds Banking Group (LLOY) and Barclays (BARC) and natural resources firms BG Group (BG.) and Tullow Oil (TLW) dragged, each shedding between 2.2% and 3.8% Glencore International (GLEN), which debuted on the London Stock Exchange last month, dropped 3.2% after the European Investment Bank stopped all new loans to the commodities trader, citing “serious concerns about Glencore’s governance”.

But the worst off on the FTSE 100 on Wednesday were two stocks trading exclusive of dividend rights. Index heavyweight Vodafone (VOD) and utility provider National Grid (NG.) lost 4.4% and 4.8%, respectively, collecting taking 12 points off the index.

Among the relatively few market climbers, demand for defensives was unsurprisingly the most notable trend. Pharma group Shire (SHP), household products manufacturer Unilever (ULVR) and tobacco producer British American Tobacco (BATS) ticked up 0.4%-0.5%.

 

 

EU Considers Sweeteners for Greek Debt Extension

European officials preparing Greece’s second bailout in two years may offer bondholders incentives to roll over maturing debt without triggering a credit-rating downgrade that would roil Europe’s banking system, two people with knowledge of the talks said.

Investors may be given preferred status, higher coupon payments or collateral as inducements to buy bonds replacing Greek debt maturing between 2012 and 2014, said the people, who declined to be identified because the talks are in progress.

European leaders are trying to prevent the euro area’s first sovereign default. Last year’s 110 billion-euro ($159 billion) rescue failed to prevent an investor exodus from Greece, saddled with Europe’s highest debt load amid a three- year economic slump. The upgraded package would share costs with investors while skirting a technical default, the people said.

“We are also examining the feasibility of voluntarily rescheduling, which would not create a credit event,” European Union Economic and Monetary Commissioner Olli Rehn said in an interview yesterday in New York. “Debt restructuring is not on the table, it’s not in the cards, it will not be part of our agenda.”

For months, a maturity extension was taboo, as Europe counted on a mix of budget cuts and official loans to put the country’s finances on track and stop the debt crisis at its source.

Greek Offer

Greece has since given up plans to go back to bond markets for funding in 2012, offering deeper deficit cuts and the sale of state assets in exchange for follow-up loans to prevent a default.

The country’s additional needs may be known tonight or tomorrow, as European and International Monetary Fund officials complete work on an assessment of Greece’s public accounts.

Greece’s fate hinges on the stance taken by Chancellor Angela Merkel of Germany, the country that designed the euro in its image and as Europe’s largest economy is the biggest underwriter of bailouts.

Germany has a “clear expectation” that private creditors will bear some costs of Greece’s follow-up package, Finance Ministry spokesman Martin Kotthaus said in Berlin today.

Greece’s debt is likely to mushroom to 157.7 percent of gross domestic product in 2011, the highest in euro history, the European Commission said May 13. It predicted a 3.5 percent economic contraction, shedding doubts whether Greece will generate the tax revenue to pay off its debts.

Papandreou Opposition

European calls for austerity have sparked political warfare in Greece, with opposition parties rejecting Prime Minister George Papandreou’s proposals on May 27. The biggest opposition party, New Democracy, objects to the “policy mix” and not to the principle of saving money, said Notis Mitarachi, the party’s alternate head of economic policy.

“There is in no way a desire to obstruct implementation of the program,” Mitarachi told Bloomberg Television today. “We clearly agree with the need to reduce the budget deficit.”

Greek 10-year bonds trade at less than 55 cents on the euro, a sign of investors’ diminishing expectations of being repaid. Ten-year Greek bonds fell today, pushing the yield up 16 basis points to 16.2 percent at 122:10 p.m. in London.

Europe’s central bankers are caught in the middle of the debate. They have warned that any form of debt restructuring would shatter the Greek banking system, though they are unable on their own to dictate how the euro region’s 17 governments get out of the crisis.

ECB Position

The European Central Bank “might have to reconsider” its opposition to restructuring, Peter Bofinger, a member of Merkel’s council of economic advisers, told Bloomberg Television from Munich today. A restructuring of Greek debt carries risks “but is worth it,” he said.

Europe’s financial leaders need to hammer out a revised Greek package by the end of June, in time to persuade the IMF to pay out its share of the next tranche of loans.

The Washington-based lender provided 30 billion euros of Greece’s original loans, along with a third of the loans since granted to Ireland and Portugal as the spreading crisis threatened the integrity of the euro.

Senior aides to European finance ministers are discussing elements of the package in Vienna today. The ministers themselves may meet as early as next week, with final decisions due at a summit of government leaders on June 23-24.

So-called negative incentives are also under consideration, such as cutting off old Greek bonds from eligibility for use as collateral with the ECB while granting that privilege to new bonds, the people said.

Policy makers’ efforts echo 2009’s so-called Vienna Initiative that leaned on creditors in eastern Europe to roll over expiring bonds, the people said.

European politicians have given sometimes conflicting definitions of options such as “restructuring,” “reprofiling,” “soft restructuring” and “default.” French President Nicolas Sarkozy said May 27 that if “restructuring” means a failure to pay off debt, “then this word won’t be part of the French vocabulary.”

 

 

Businesses increasingly focused on reducing carbon emissions

Small businesses operating in various industries across the UK could be among those interested in the recent comments of one expert regarding carbon reduction.

Ronan Dunne, chief executive of leading communications provider O2, has claimed that businesses are now turning to technology in order to reduce their carbon footprints.

The expert said that in terms of energy use, data centres are fast becoming the biggest user of commercial energy.

As such, Mr Dunne revealed that O2 has invested £750,000 in a pilot programme designed to monitor the power efficiency of its data centre and claimed a number of firms are improving their efforts.

In an interview with FT Connected Business, he commented:”Over 90 per cent of our carbon footprint comes from electricity consumption, so that’s where our focus is. And that is facilitated by smart metering so that we can get a handle on what we are using.”

 

 

What to Expect from the Week Ahead

US employment data and UK Purchasing Managers Indices will attract investor attention against a background of ongoing eurozone debt woes

With both Britain and the US on holiday this Monday, the four-day working week will likely be largely driven by economic data releases, including the US labour market reports on Wednesday and Friday.

As per usual, the ADP Employment Change for May will be released first, mid-week, followed by the US Government’s Change in Non-Farm Payroll figure at the end of the week. Last month, the latter figure surprised on the upside and markets on both sides of the Atlantic responded with a cheer. At the time, Morningstar’s Director of Economic Research Bob Johnson predicted that the tailwinds in April’s employment data will carry on in the months ahead. He recently forecast growth of 200 to 250 jobs for May. Johnson also expects US economic growth to accelerate to 3.5%-4.0% in the second half of 2011, regardless of the fact that the first-quarter GDP number was not revised upwards as many had anticipated.

Closer to home, investors will be taking clues as to the state of the EU economies from the second batch of Purchasing Manager Indices (PMI) for May, as well as eurozone unemployment and Consumer Price Index (CPI) figures.

In both the UK and the eurozone, this month’s PMI Manufacturing Survey will be released on Wednesday and the PMI Service Sector Survey on Friday. Howard Archer, Chief Economist at IHS Global Insight, expects an uptick on both indicators for the UK. According to Archer, the balance of stronger global trade and high oil prices will leave the manufacturing PMI at 54.7 (up from 54.6 in April) while the services PMI will come in at 54.4 (up from 54.3 in April). Analysts at stockbroker Charles Stanley are less optimistic about the manufacturing sector, predicting a PMI of 54.0, but considerably more hopeful on services, forecasting a PMI increase to 59.2.

Meanwhile, the eurozone’s flash inflation estimate and labour market statistics for May will be available on Wednesday. And as if the mid-week list of economic announcements was not long enough, the UK’s Net Consumer Credit and Mortgage Approvals for April and the US ISM Manufacturing Index for May are also due on Wednesday.

On the corporate news front, there is only a handful of announcements expected from large- and mid-cap UK-listed companies. Among them, utility providers Northumbrian Water Group (NWG) and Johnson Matthey (JMAT) are reporting full-year results on Wednesday and Thursday, respectively. Their announcements should be of interest to utilities investors, particularly given the sector’s merits in times of economic uncertainty. Elsewhere, full-year results from Kingfisher (KGF) are due on Thursday and will provide further insight into the health of retailers and their consumers.

Outside events on the corporate and economic calendars, Europe’s unresolved debt crisis will remain in the spotlight. Jean-Claude Juncker, Prime Minister of Luxemburg and Chairman of the group of eurozone finance ministers, recently said a final assessment on new measures for Greece can be expected as early as next week. In addition, as Portugal is preparing for its general election on June 5, an IMF mission is expected in Lisbon on May 30-31 in order to supervise the implementation of the country’s EUR 78 billion bailout.

Monday
UK Spring Bank Holiday, US Memorial Day
International Economic Announcements
Japan: Construction Orders for April
Eurozone: German Retail Sales for April

Tuesday
International Economic Announcements
Japan: Household Spending for April, Jobless Rate for April, Industrial Production for April
Eurozone: French Consumer Spending for April, French Producer Prices for April, German Unemployment Rate for May, Eurozone CPI est for May, Eurozone Unemployment for April
US: Chicago Fed Purchasing Managers Survey for May, May Consumer Confidence for May, NAPM Milwaukee for May, Dallas Fed Manufacturing Activity for May

Wednesday
UK Corporate Announcements
Intermediate Capital Group (ICP) preliminaries, Northumbrian Water Group (NWG) preliminaries
Ex-dividend Date
FTSE 100: Capital Shopping Centres Group (CSCG), Intertek Group (ITRK), Marks & Spencer Group (MKS), National Grid PLC (NG.), Vodafone Group (VOD), WPP (WPP)
FTSE 250: Booker Group (BOK), Cable & Wireless Communications (CWC), Debenhams (DEB), Great Portland Estates (GPOR), Marston’s (MARS), Mothercare (MTC), Spectris (SXS), Stobart Group (STOB)
UK Economic Announcements
PMI Manufacturing Survey for May, Net Consumer Credit for April, Net Lending Secured on Dwellings for April, Mortgage Approvals for April, M4 Money Supply for April, Halifax House prices for May
International Economic Announcements
Eurozone: French 1Q ILO Unemployment Rate, Eurozone PMI Manufacturing Survey for May
US: ADP Employment Change for May, Construction Spending for April, ISM Manufacturing Survey for May

Thursday
UK Corporate Announcements
Johnson Matthey (JMAT) preliminaries, Kingfisher (KGF) trading update
UK Economic Announcements
PMI Construction Survey for May
International Economic Announcements
US: Q1 Unit Labour Costs, 1Q Non-Farm Productivity, Weekly Jobless Claims, Factory Orders for April

Friday
UK Economic Announcements
PMI Service Sector Survey for May
International Economic Announcements
Eurozone: PMI Service Sector Survey for May
US: Average Hourly Earnings for May, Change in Non-Farm Payroll for May, ISM Non-Manufacturing Composite Survey for May

 

 

Euro Rises on Greek Aid Optimism; Asia Stocks Gain, Wheat Falls

The euro climbed to a three-week high versus the dollar, while Asian stocks and U.S. equity-index futures rose on speculation European nations will pledge more funds to repair Greece’s finances. Wheat sank the most in three weeks after Russia said it will allow grain shipments to resume.

Europe’s 17-nation currency strengthened 0.7 percent to $1.4382 at 3 p.m. in Tokyo. The yen dropped against all 16 major peers after Moody’s Investors Service placed Japan’s sovereign rating on review for a downgrade. The MSCI Asia Pacific Index increased 1.3 percent, paring its biggest monthly loss in a year. Futures on the Standard & Poor’s 500 Index added 0.7 percent, while those on the Euro Stoxx 50 Index rose 1 percent. Wheat tumbled as much as 4.4 percent. Crude oil gained 0.5 percent.

European Union leaders will decide on a new aid package for Greece by the end of next month, said Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers. Economic reports today showed a leading index for China, the world’s second-largest economy, climbed to a six-month high while India’s gross domestic product and industrial production in Japan and South Korea grew less than economists predicted.

“There’s a degree of confidence that cooler heads will prevail and the next round of assistance will be forthcoming” for Greece, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp.

The euro appreciated against 13 of its 16 most-actively traded counterparts. It slid against all but two yesterday after Antonis Samaras, leader of Greece’s biggest opposition party, New Democracy, rejected Prime Minister George Papandreou Papandreou’s new austerity measures. The package includes an additional 6 billion euros ($8.6 billion) of budget cuts and a plan to speed 50 billion euros of state-asset sales.

‘Total Restructuring’

EU officials have ruled out a “total restructuring” of the nation’s debt, Juncker said yesterday. Germany may stop demanding an early rescheduling of bonds for Greece so the debt- strapped nation can get a new package of loans, the Wall Street Journal reported, citing unidentified people. German Chancellor Angela Merkel is scheduled to visit India today.

Discussions of additional aid for Greece “will help lift market sentiment but they still need to sort out how they are going to address the issue,” said Diane Lin, a Sydney-based fund manager at Pengana Capital Ltd., which has about $1 billion of assets. “Europe’s situation is still very difficult.”

New Zealand’s dollar rose as much as 1.2 percent to 82.64 U.S. cents, its highest level since exchange-rate controls ended in 1985, after a report showed the nation’s business confidence increased. Malaysia’s ringgit rose 0.4 percent to 3.0070 per dollar on speculation the central bank will raise interest rates or tolerate currency gains to help damp inflation after the government approved an increase in electricity prices.

China, South Korea

China’s leading index, a gauge of growth in Asia’s biggest economy, climbed to 102.11 in April from 101.76 the previous month. That’s the strongest level since October. South Korea’s output climbed 6.9 percent from a year earlier in April, the least in seven months, the statistical office said. India’s gross domestic product expanded 7.8 percent in the three months ended March 31 from a year earlier, less than the 8.1 percent median forecast in a Bloomberg survey of economists.

The yen fell 1.3 percent to 117.09 per euro and weakened 0.6 percent to 81.42 against the dollar after Moody’s placed Japan’s Aa2 sovereign debt grade on review for a downgrade, citing concerns over “faltering economic growth prospects and a weak policy response.”

Japan, U.S. Economy

The nation’s factory output rose 1 percent in April from March, when it recorded a record drop, the Trade Ministry said in Tokyo today. Economists forecast a 2 percent gain, a Bloomberg survey showed. The jobless rate advanced to 4.7 percent from 4.6 percent as payrolls fell, according to a separate report.

The Dollar Index dropped for a fourth day, sliding 0.4 percent, as Republican and Democrat leaders struggled to negotiate an agreement to raise the U.S.’s $14.3 trillion debt ceiling. Yields on 10-year Treasuries were little changed at 3.09 percent before data this week forecast to show the increase in U.S. payrolls this month slowed from April and the Institute for Supply Management’s factory index likely fell to the lowest level since October.

Futures on the S&P 500 indicate shares may extend a three- day rally when markets resume trading today after yesterday’s Memorial Day holiday. The gauge dropped in each of the last four weeks, the longest losing streak since February 2010.

OCI, Tenaga

Five shares advanced for every one that declined on MSCI’s Asia Pacific Index, helping the gauge pare its loss this month to 2.4 percent. That’s still the steepest monthly drop since May 2010, when the gauge tumbled 9.8 percent. Japan’s Nikkei 225 Stock Average rallied 2 percent and South Korea’s Kospi index jumped 2.3 percent.

OCI Co. and GCL-Poly Energy Holdings Ltd. rose more than 5.8 percent each, leading gains among renewable-energy companies, after Merkel’s coalition endorsed yesterday a plan to close all of Germany’s atomic-power plants by 2022. Tenaga Nasional Bhd., Malaysia’s biggest power producer, added 8.6 percent after it won government approval to raise charges by an average 7.1 percent starting tomorrow. Hyundai Heavy Industries Co. surged 11 percent after it received an order for two liquefied natural gas carriers from Dynagas Ltd. of Greece.

Tokyo Electric Power Co., operator of the damaged Fukushima nuclear plant, dropped 2.8 percent after its corporate credit ratings were cut to junk status by Standard & Poor’s Ratings Services. Credit-default swaps on Tepco, as the company is known, jumped 200 basis points to 900 basis points, according to Citigroup Inc. prices.

The Markit iTraxx Japan index of credit-default swaps increased three basis points to 126 basis points, according to Citigroup. The index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, is in course for its highest close since April 20, CMA prices show.

Oil, Wheat

Oil for July delivery rose 0.5 percent to $101.09 a barrel in New York after a pump-station leak forced the shutdown of the Keystone pipeline that carries crude to the largest U.S. storage hub. U.S. floor trading was closed yesterday and electronic trades will be booked with today’s transactions for settlement purposes. Brent crude oil gained 0.1 percent to $115.13 a barrel.

Copper futures dropped 0.9 percent to $4.148 a pound on the Comex in New York. Three-month delivery copper slid 0.7 percent $9,138.50 a metric ton on the London Metal Exchange, which was also shut yesterday for a holiday.

Wheat fell 2.2 percent to $8.0175 a bushel in electronic trading on the Chicago Board of Trade after Russia, once the second-largest exporter, said it will allow grain shipments to resume July 1, easing global supply concerns.

 

 

FTSE Edges Up as Miners Offset Banking Slide

London-listed natural resources stocks managed to keep the FTSE above breakeven Thursday as banks and weak US data weighed

The UK market ticked up in early trade Thursday but after a rocky session ended only just north of breakeven as disappointing data from the US weighed on sentiment. The FTSE 100 index closed up 11 points at 5,881, a rise of 0.2% on the day. The FTSE 250 index took on 16 points or 0.1% to settle at 11,841. The second estimate of the United States’ first-quarter GDP growth was unchanged from the initial report at 1.8%. Economists had expected the number to be revised upwards to 2.2%. Consumer spending was revised down while business inventories and exports were revised up. Corporate profits rose 5.9%, the largest increase in a year. Meanwhile, initial unemployment claims rose 10,000 last week to 424,000, more than the 4,000 decline expected by Wall Street. The increase is yet another sign of the fragility of the U.S. labour market. In London, resource stocks ensured the blue-chip index remained in the black, with Antofagasta (ANTO) up 3.5%, Lonmin (LMI) rising 2.5% and Fresnillo (FRES) 2.3% firmer, tracking commodity-led gains in Asia this morning and further bolstered by an upbeat industry report on the sector. Antofagasta was the strongest sector performer, thanks to a 30% increase in its quarterly core earnings, announced this morning.

On the corporate news front, Man Group (EMG) was a strong feature on the leaderboard, climbing 2.5% after its quarterly results. The listed hedge fund operator announced assets under management have increased by about 3% since the end of March to $71 billion as its new funds continue to attract investor attention.

British American Tobacco (BATS) was also in demand, up 1.3% after announcing it is to buy Productora Tabacalera de Colombia, or Protabaco, for £452 million. Five months ago, US firm Philip Morris International (PM) withdrew from a deal to acquire Protabaco after the government raised objections on antitrust grounds. Philip Morris already has a 51% share of the Colombian market, well above British American with 20% and Protabaco with 13%. With one major competitor out of the running, British American has pounced, striking a deal that will propel it to the number-two player in Colombia. At just over 11 times 2010 EBITDA, the acquisition price seems reasonable.

Among the FTSE’s casualties on Thursday, Burberry (BRBY) stood out, despite reasons to the contrary. Shares in the luxury fashion brand dropped 4.6% as investors took a strong earnings announcement as a trigger to take profits following a strong run up into the results.

But it was the banking sector that applied the most pressure on the broader market, with Royal Bank of Scotland (RBS) shedding 1.1% as eurozone debt concerns continue to drive financials lower. Standard Chartered (STAN) was also under the cosh, despite the Asia-facing firm having no exposure to peripheral Europe’s woes.

 

 

Japan’s car production plunges due to parts shortages

Japanese car production plunged in April as manufacturers continued to face a shortfall in parts supply.

Toyota, the world’s biggest carmaker, said its domestic production fell 74.5% compared with the same month last year.

Honda’s Japanese output plummeted 81%, while Nissan reported a 48.7% decline at its factories in Japan.

Japan’s carmakers have been facing a shortage of parts as the 11 March earthquake and tsunami disrupted the country’s supply chain.

As a result, the country’s top car manufacturers have been forced to suspend or slow down production at their factories.
Global impact

The effects of the disruption in Japan’s supply chain have been felt well beyond the country’s shores.

Leading Japanese carmakers have reported a sharp drop in their global production numbers as well.

Toyota Motors, which has curbed production at its plants in various countries, said its factories outside Japan produced 25% fewer vehicles in April.

Honda Motors has reported a decline of 43.5% in output at its overseas factories, while Nissan Motors said its foreign output dipped by 12.7%.

 

 

China Data and Credit Downgrades Slam FTSE

UK equities slumped Monday after several credit ratings downgrades heightened eurozone woes and China’s import data hampered miners

Europe’s equity markets opened sharply lower on Monday and stayed that way throughout the session after debt-rating downgrades of Greece and Italy put a cloud over the fiscal state of several nations.

The FTSE 100 index closed at its lowest level for two months, having shed 113 points or 1.9% on Monday to settle at 5,836. The FTSE 250 index suffered similar falls, down 197 points or 1.6% at 11,796.

The tone was set prior to the market open, with Asian markets ending on a gloomy note as several indices closed at multi-month lows owing to European sovereign debt concerns. Australia recorded its largest fall in two and a half months, but China’s Shanghai Composite was the worst off, plummeting 2.9% as weak manufacturing data in the country further added to woes. The region’s perceived save haven, the Japanese yen, rose against most peers.

The main cause of all those downbeat trade was a move on Friday by ratings agency Fitch, which cut Greece’s debt ratings by three notches to B+. This was followed by a similarly downbeat move from Standard & Poor’s on Saturday, which downgraded its credit outlook on Italy to negative from stable. In response to the multiple downgrades, the euro lost ground on Monday and a general risk aversion towards equities and commodities was triggered.

On the FTSE 100, only two companies saw their shares manage to close above breakeven on the day, the top index performer being The Capita Group (CPI), up 1.6%, and the other being retailer Next (NXT), which took on 1.0%. The former was buoyed by well-received results from mid-cap peer MITIE Group (MTO), which closed 5.0% higher. And the latter was helped by some remnants of positive sentiment surrounding the sector ahead of results from Marks & Spencer (MKS) tomorrow. M&S shares outperformed the broader index on Monday but still closed 0.5% lower.

Elsewhere, the top tier of the UK market resembled a sea of red, with miners applying significant pressure after China’s imports data showed a substantial drop in the level of copper being brought into the country. Anglo American (AAL), Antofagasta (ANTO) and Kazakhmys (KAZ) lost 4.1%, 3.9% and 3.4%, respectively.

The sharp drop in investors’ appetite for risk was also played out in the oil companies sector, where Essar Energy (ESSR) lost 3.7%, Tullow Oil (TLW) shed 2.6% and BG Group (BG.) fell back 2.5%.

In addition to the eurozone debt woes, banks were also in the spotlight after failing to meet government-set targets for first-quarter lending. Barclays (BARC), HSBC (HSBA), Lloyds Banking Group (LLOY), Royal Bank of Scotland (RBS) and Santander UK agreed in February to the terms set out by ‘Project Merlin’, under which £76 billion was pledged to be made available to small- and medium-sized companies over the year. The banks missed their first quarter target by 12%, according to figures released by the Bank of England today. Each of the London-listed banks lost between 1.3% and 2.0%.

 

 

No Sugar Coating Last Week’s US News …

… but there’s still no need to panic,

Housing starts remained soft, three separate manufacturing reports–heretofore the strongest sector of the economy–showed meaningful slowing, and existing home sales dipped again (on weather and Japanese supply-chain issues).

Worse, retailers, including Gap (GPS), indicated that higher input prices were beginning to pinch profits more than most analysts had anticipated. Unfortunately, the tale of two recoveries continued; Wal-Mart (WMT) reported same-store declines for its eighth quarter in row as midtier customers moved up and low-end customers moved to even cheaper dollar stores. Meanwhile, Saks (SKS), a luxury goods retailer, affirmed that it was trying to raise its price points. Cold weather in the upper Midwest pinched home goods retailers Lowe’s (LOW) and Home Depot (HD) and sporting goods purveyor Dick’s (DKS), with weather-sensitive categories off more than 20% from a year ago (think bushes, shrubs, and kayaks).

International News Wasn’t So Hot, Either
The European debt crisis remains far from solved as southern European nations push back on austerity measures and northern European nations take to the papers announcing that debts will not be rescheduled or written down. Greek debt was downgraded once again. Greece isn’t big enough to do much damage to anybody (well, maybe a few European banks), but the situation highlights that there is no easy way to fix debt problems under the euro. The easy fix of devaluing the currency just isn’t there. And debt defaults aren’t all that practical because they would wreak havoc on already fragile European banks. Luckily for the United States, its big export binge has been to Asia and the Americas.

Don’t Press the Panic Button – Last Week’s News Wasn’t All Bad
Last week wasn’t totally devoid of good news. The International Council of Shopping Centers reported that weekly sales continued to show 3% or more year-over-year same-store sales growth as they have for the last three or four months. Spending growth has remained at consistently high levels despite high gasoline prices and all our geopolitical problems. Even anecdotally, some of my analyst colleagues at Morningstar are reporting near Christmas-like parking conditions at local malls on weekends in Chicago.

Initial unemployment claims plunged for the second week in a row following several weeks of unexplained spikes. I will say that some of the recent spikes came from states with Japanese automobile manufacturing plants. New York state also had a quick run-up of 20,000 claims one week (on a normal base of about 40,000 claims) followed by an equal-sized drop last week. Remember that it is ultimately consumer spending (which is based on employment, consumer income, and confidence levels) that ultimately drives the economy, not housing (1%-2% of GDP) or manufacturing.

Have Gasoline Prices Peaked?
Gasoline prices have backed off from their high of $3.98 three weeks ago to $3.88 according to AAA (as I write this Friday afternoon). Based on the wholesale price of gasoline today and a typical spread of $0.70 for profit and taxes, I believe that the average national price could fall to $3.65 or less over the next month–still high, but not catastrophic.

Interest Rates Fall; Who Needs QE2?
The Fed’s moves to help the economy by reducing long-term interest rates has certainly helped assets including stocks and commodities. The boost to stocks has been meaningful, with the market increasing almost 30% since August, when the QE2 rumours kicked into high gear. And the stockholding classes have indeed unleashed some of their gains in the malls.

QE2 comes to an end in June, and we see commodities and stocks beginning to wobble a bit as the market anticipates the end of these programmes. (Higher margin rates on some commodities and some weak economic data haven’t helped these markets, either.)

Now, paradoxically, as QE2 ends, long-term interest rates are falling again, as are mortgage rates. The 10-year Treasury has now fallen back from its peak of 3.75% this spring to 3.16% as of Friday. Those same 10-year rates were as low as 2.5% when word of QE2 was leaked out of a Fed meeting in Jackson Hole, Wyo. Something similar happened with QE1, according to economic researchers at Capital Economics.

Upward Revision in First-Quarter GDP Estimate from 1.8% to 2.3% Possible
Large upward revisions in February’s retail sales and employment reports could lead to a meaningful increase in the first estimate of GDP growth for the first quarter. As I wrote last week, US retail sales growth in February was boosted to 0.9% from 0.4%, enough to move the GDP needle in a meaningful way. However, some of that increase could turn out to be imports, too, potentially hurting my optimistic forecast. Subsequent data releases indicate that construction spending was underestimated in the original GDP report and inventory growth (which increases GDP growth) was overestimated. However, the construction spending increase was meaningfully larger than the negative inventory revision.

Manufacturing Data: Managers Are Staying Calm, and So Am I
At first glance last week’s manufacturing reports were not pretty. Industrial production was flat instead of being up 0.4%, as expected. Then two regional purchasing manager reports, the Philly Fed and Empire State, both declined into the single digits from near recovery highs of the low 20s the previous month. As long as these numbers are above zero, the economy remains in growth mode, though that rate appears to be slowing. I warned last week that the US-based Japanese auto producers might affect the industrial production numbers, but even I was a bit surprised at the magnitude of the decline. Our industrial team summed up the industrial production report as follows:

Industrial production’s first material sequential decline of the current cycle was driven by shortages in auto. The overall index was unchanged from March’s levels, but manufacturing was down 0.4%, due in large part to a 7% sequential drop in automotive products that was driven by parts shortages resulting from the Japanese earthquake. Excluding motor vehicles and parts, factory activity increased 0.2% sequentially. Mining was up 0.8%, and utility activity was 1.7% greater than March. Overall, we’re not surprised by April’s lacklustre results, given the myriad comments from auto executives during the last several months. Capacity utilisation was off by 0.1% to 76.9% for total industry, and off by 0.6% for manufacturing to 74.4%. Both remain well below their long-term averages, which sit at 80.5% and 79%, respectively.

The auto industry has always had a disproportionate effect on the purchasing managers’ report, in my opinion, and last week’s numbers are further proof of that. Rail shipments, diesel fuel purchases, and the employment subcomponents of those same purchasing managers’ reports seem to indicate that manufacturing managers aren’t panicking and continue to ramp up employment. Interestingly, improved sales outlooks and employee burnout were the number-one and -two reasons for continued hiring. Lack of internal personnel possessing the necessary skill sets was reason number three, according to a special questionnaire attached to the normal Philly Fed report. If managers truly believed manufacturing was about to collapse, they would not be hiring people–trust me on that.

Housing Mired in the Mud with a Ray of Hope
I’ve got a little mud on my face on this one. Last week I hoped for an increase in existing home sales based a sequential pending home sales increase. I made the rookie error of looking at the sequential growth from the previous month. Our housing analyst Eric Landry gently tweaked me for forgetting to at least glance at the year-over-year data (which is less subject to seasonal errors). He correctly projected this month’s softening in existing home sales; I got it wrong. Therefore, I’m turning over this month’s housing commentary to him:

Existing home sales’ lacklustre results weren’t totally unexpected. Total sales of 5.05 million on a seasonally adjusted rate (SAAR) in April were 13% below the year-ago figure and 1% below March’s result. Single-family sales of 4.42 million SAAR were also down 13% and 1% on an annual and sequential basis, respectively. Inventories increased to 3.87 million units, or 9.2 months of supply in April.

While we were mildly discouraged by these latest weak results, we can’t say we were overly surprised, at least at the sales numbers, given what happened with pending sales in March. We do, however, hold out hope for gradually improving sales performance in the months to come, as prices across the country appear to be firming. Though much of the current positive activity in median listing prices can be attributed to seasonality, the last several weeks’ activity is a good start. Last year enjoyed only a small, short-lived bounce. And though 2009 saw a strong seasonal component to pricing during its spring and summer months, much of that was due to government stimulus. The fact that prices are going up this spring without the aid of a tax credit is encouraging and may coax reluctant buyers. More importantly, it may bring lender capital back into the space–a component the market is sorely lacking today.

Housing starts were highly disappointing, but still within the narrow range of the last two years. April starts of 523,000 on an annual basis were down 11% from March and 24% from last year’s tax credit-induced period. Single-family unit starts of 394,000 SAAR were 5% below March and 30% lower than last year, while the volatile five-unit and above category sunk 28% from March, but was 6% above year-ago levels.

Durable Goods Orders Due for a Disaster?
The consensus forecast for durable goods is for a decline of 3%, with some expecting even worse results given that Boeing (BA) had what could be politely called a quiet month. Boeing took just two orders in April versus 98 in March. This type of volatility is not at all unusual. But after a week of less than wonderful manufacturing data, the “glass half empty” crowd would have a field day with declining overall orders no matter the cause. Even excluding transport issues, orders are likely to go up a mere 0.5% compared with April’s 2.3% based on slowing new order growth reports from the ISM purchasing managers’ reports. A quick fall-off in auto-related orders due to Japanese supply-chain issues at US transplant factories could further complicate the interpretation of the normally reliable new orders report. Keep in mind that we’ve had three extremely solid order months in a row.

New Home Sales Look to Be Flat in April After Big March Jump
New home sales remain anaemic, though March did see a large weather-related jump of 11%. I suspect April new home sales will have a hard time besting March’s 300,000 rate of annual increase. I believe the poor location of new home developments (too far from jobs) as well as meaningfully higher prices for brand new homes compared with cheaper existing homes is contributing to the new home market malaise.

Respectable Income and Consumption Growth, but Inflation Will Erode Those Results
Consensus forecasts suggest that both personal income and spending data for April increased by about 0.5% each, before adjusting for inflation. That sounds great on the surface because when the monthly data are annualised, they produce a growth rate of 6%. However, with the Consumer Price Index increasing 0.4% and the government’s preferred price index, the PCE price deflator, likely to increase 0.3%-0.4%, that 0.5% growth rate looks a lot less exciting. Recent payroll employment revisions also mean that income and spending growth for February and March will also be revised upward. Of course, that will set us up for harder April comparisons on the income line.

Overall, my guess is that poor new home sales and durable goods orders will get us off to a bad start this week, while potentially better GDP numbers and respectable income numbers at the end of the week could provide a shift in investor attitudes.

Robert Johnson, CFA, is associate director of economic analysis with Morningstar.

 

 

Stocks Rise in Europe as Oil, Gold Advance; Greek Bonds Drop, Euro Weakens

Stocks rose, with Europe’s benchmark equity index heading for its first weekly gain in three, while gold and oil advanced. Greek bonds fell for a fifth day on speculation the government will have to reorganize its debt.

The Stoxx Europe 600 Index rallied 0.5 percent at 6:20 a.m. in New York, bringing this week’s increase to 0.3 percent. BP Plc (BP/) jumped the most seven weeks. Futures on the Standard & Poor’s 500 Index slipped 0.1 percent. Gold rose 0.6 percent and oil gained 0.7 percent. The yield on the Greek 10-year bond added 52 basis points, driving the difference with German bunds to a record 1,342 basis points. The euro slipped against all 16 of its major peers.

Federal Reserve Bank of Chicago President Charles Evans said yesterday “slow progress” in the economy justifies stimulus measures, while his New York counterpart, William C. Dudley, said it’s important not to “overreact” to inflation. BP Plc said it will receive $1.065 billion in a settlement with a unit of Mitsui & Co. over last year’s Gulf of Mexico spill. Greece may extend its debt maturities because it’s unlikely to regain market access “for the next five to 10 years,” economist Nouriel Roubini said yesterday.

“The environment is still positive for equities,” said Thomas Stucki, who helps manage about $3.8 billion as chief investment officer at Hyposwiss Private Bank in Zurich. “But as long as the U.S. economic data are weaker-than-expected, stock markets will be volatile and move sideways at best.”

The Stoxx 600 climbed for a third day. BP rallied 4 percent. Micro Focus International Plc (MCRO) rose 5.7 percent after the Financial Times said Advent International Corp. approached the company about a takeover.

Barnes & Noble, Gap

S&P 500 futures were little changed after two days of gains in the U.S. equity gauge. Barnes & Noble Inc. (BKS) surged 25 percent in pre-market trading as the bookstore chain received a takeover offer from John Malone’s Liberty Media Corp. Gap Inc. (GPS) slid 17 percent in Germany after the largest U.S. apparel chain cut its profit forecast 22 percent as the cost of making clothes rose more than expected.

The yen depreciated the most against the New Zealand dollar and Norwegian krone, while Japan’s Nikkei 225 (NKY) Stock Average slipped 0.1 percent. The Bank of Japan’s policy board voted unanimously to maintain monetary policy even after a report yesterday showed the country slipped into a recession following the March 11 earthquake.

Tepco

Tokyo Electric Power Co.’s president was forced to resign as the Fukushima nuclear crisis triggered a loss of 1.25 trillion yen ($15 billion), the biggest for a non-financial Japanese company. Credit-default swaps insuring debt of Tepco, as the utility is known, fell 83 basis points to 643, after soaring to a record yesterday, according to data provider CMA.

The MSCI Emerging Markets Index rose 0.4 percent, erasing its weekly loss. India’s Bombay Stock Exchange Sensitive Index jumped 1 percent after Tata Power Co., the country’s largest non-state electricity utility, posted profit that beat analysts’ estimates. Russia’s Micex Index advanced for a third day, climbing 0.5 percent, led by OAO Gazprom and OAO Lukoil.

Gold climbed $8.67 to $1,501.72 an ounce and crude oil advanced 64 cents to $99.08 a barrel. Corn increased 0.8 percent, and copper gained 1.2 percent on declining stockpiles in China and the U.S., the world’s biggest buyers of the metal.

Greece, Portugal

The yield on Greek 10-year bonds surged 1.08 percentage points in the week. The Portuguese 10-year yield increased eight basis points, sending the spread with benchmark German bunds 10 basis points wider. Irish 10-year bond yields advanced four basis points, with similar-maturity Spanish yields six basis points higher.

The euro weakened 0.3 percent against the dollar and 0.5 percent versus the yen. The dollar depreciated versus 13 of its 16 counterparts, dropping 0.7 percent against New Zealand’s currency.

 

 

UK’s savers get crushed by inflation

 

 

UK unemployment falls by 36,000 to 2.46 million

UK unemployment fell by 36,000 in the three months to the end of March to 2.46 million, the second quarterly drop in a row, official figures show.

The Office for National Statistics (ONS) said the rate of unemployment in the UK was now 7.7%.

Unemployment among 16 to 24-year-olds stood at 935,000, with the jobless rate for young people now at 20%.

The number of people claiming Jobseeker’s Allowance rose by 12,400 in April to 1.47 million, the ONS said.

It added that the number of people in employment rose by 118,000 to 29.24 million, compared with a pre-recession peak of 29.56 million recorded in the three months to the end of May 2008.

The latest ONS figures show that the number of unemployed men fell by 31,000 to 1.43 million, while the number of unemployed women fell by 5,000 to 1.03 million.

Of the 12,400 extra people claiming the Jobseeker’s Allowance, 9,300 were women, the highest figure since October 1996. The number of male claimants rose for the first time since January.

Average earnings, including bonuses, rose by 2.3% in the year to March.

The ONS also said that the number of working days lost through labour disputes in the year to March was the joint lowest total since records began in 1930.

‘Fiscal squeeze’

Employment Minister Chris Grayling said the figures represented a “step in the right direction”, but he warned that the number of people claiming Jobseeker’s Allowance was likely to continue rising.

Some analysts warned that despite the fall in unemployment, the number of people out of work was likely to rise again in the coming months, largely due to government spending cuts.

“We suspect that likely below-trend growth will mean that the private sector will be unable to fully compensate for the increasing job losses in the public sector that will result from the fiscal squeeze that is now really kicking in,” said Howard Archer at IHS Global Insight.

He said he expected 2.67 million people to be out of work by the end of this year, with the unemployment rate rising to 8.4%.

The government has started implementing extensive spending cuts that are designed to reduce the budget deficit, which is the amount it spends each year over and above its income.

It says that the cuts are necessary to restore international investors’ confidence in the UK economy, but critics argue that the cuts could jeopardise the UK’s fragile recovery

 

 

DCLG survey: UK house prices falling

UK house prices fell slightly in the first three months of the year, according to the Communities and Local Government department (DCLG).

Its survey shows prices over the first three months of the year prices were 0.5% down on the previous three months.

However, during March alone, prices rose by 1.2%, leaving them 0.9% higher than a year ago.

Prices in London have grown by 5.6% in the past year, far outstripping other areas of the UK.

Nicholas Ayre, director of UK buying agent Home Fusion, said: “The property market, very clearly, has fragmented into a series of micro-markets.

“It could be many years before we see the return of a property market that trends at a national level.”

The DCLG survey is based on a 60% sample of all completed house purchases involving a mortgage.

It shows that prices have risen in the past year in the south-east and east of England, as well as the East Midlands.

But they have dropped elsewhere, especially in Northern Ireland, where they have fallen by nearly 14% in the past 12 months.

“The DCLG data showing a marked rebound in house prices in March do not materially alter our view that house prices will lose ground over the coming months,” said Howard Archer of IHS Global Insight.

“House prices are notoriously volatile from month to month and from survey to survey.

“Furthermore, both the Halifax (by 1.4% month-on-month) and the Nationwide (by 0.2% month-on-month) reported falls in house prices in April,” he added.

 

 

UK inflation rate rises to 4.5% in April

The UK Consumer Prices Index (CPI) annual rate of inflation rose to 4.5% in April, up from 4% in March.

The rise was due to a jump in transport costs, particularly Easter rises in air and sea fares, and alcohol and tobacco.

However, the Retail Prices Index (RPI) measure of inflation – which includes mortgage interest payments – fell slightly to 5.2% from 5.3% in March.

The rise in CPI was bigger than analysts had forecast and follows a surprise fall in the index last month.

CPI is now at its highest level since October 2008.

The Office for National Statistics (ONS) said “by far the largest upward effect” on prices came from air transport, where fares rose by 29% between March and April. Sea fares rose by 22.3%.

It said the fact that Easter was in April this year but in March last year partly explained the jump in prices.

Alcoholic drinks and tobacco rose by a record 5.3% in April.

These price rises more than offset a 1.3% fall in clothing and footwear prices.

The Governor of the Bank of England Mervyn King was forced to write a letter to the Chancellor George Osborne explaining why the inflation rate was more than 1% above the Bank’s target rate of 2%.

He reiterated his view that high inflation was due to the “increase in VAT to 20% in January, higher energy prices and increases in import prices”.

April was the 17th month in a row that the inflation rate was at least one percentage point above target, and the governor has to write to the chancellor every three months while it remains so.

Higher fuel bills

In March, inflation had fallen to 4% from 4.4% in February.

The return of accelerating price rises after March’s respite will put further pressure on the Bank of England to raise rates sooner rather than later, analysts suggested.

“April’s rise in CPI inflation confirms that March’s drop was just a temporary reprieve – inflation will probably get to 5% or above over the coming months,” said Vicky Redwood at Capital Economics.

Last week, the Bank of England said it expected inflation to hit 5% later this year, largely due to higher utility bills.

It still expects inflation to fall back towards the Bank’s target rate of 2% towards the end of next year.

The Bank has resisted calls to raise interest rates – seen as the most effective policy tool in combating inflation – on the basis that temporary, external factors, such as rising oil and food costs, are driving price rises.

It believes raising rates would undermine the UK’s fragile economic recovery.

For this reason, earlier this month it held rates at a record low of 0.5% for the 26th month in a row.

However, for the previous three months, three members of the Bank’s rate-setting Monetary Policy Committee have voted to increase rates.

The increasing pressure to raise rates following April’s jump in the inflation rate was reflected in the currency markets, where the pound rose by more than half a cent against the dollar to $1.6285, and by almost 0.4 cents against the euro, to 1.1460 euros.

 

 

Goldman Said to Plan Blackstone Challenge on Hedge-Fund Startups

Goldman Sachs Group Inc. is seeking money to bankroll fledgling hedge funds, its second attempt since 2008 to break into a business now dominated by Blackstone Group LP, according to three people with knowledge of the plan.

The bank has spent the past year trying to attract clients for a seeding fund, which provides managers with startup investing capital in exchange for a cut of their fees, said the people, who asked not to be identified because the effort is private. Blackstone recently raised $2.4 billion for its second seeding fund, the industry’s biggest.

Reservoir Capital Group, Larch Lane Advisors LLC and PineBridge Investments LLC also are marketing new funds, saying it’s a good time to back startups because after the financial crisis investors are reluctant to trust even talented traders going out on their own. Goldman Sachs, based in New York, shut a fund in 2008, underscoring that betting on new managers can be tricky even for one of Wall Street’s savviest firms.

“Seeding isn’t an easy-money business,” Alexis Graham, co-founder of Acceleration Capital Group, a New York-based firm that works with seed investors, said in a telephone interview. “There are only a small percentage of people out there who can consistently outperform, build a business and scale assets.”

About half of the 100 or so firms that financed startups before 2008 have curtailed their investing or quit the industry, Graham said. Reasons for the shakeout include poor manager selection and hard-to-navigate financial markets.

Slice of Fees

Seeders generally invest $100 million to $150 million in a hedge fund, providing a pool of capital to help the manager begin trading. In return, the seeding fund gets 15 percent to 25 percent of the hedge fund’s fees. Hedge-fund managers typically charge clients 2 percent of assets and take 20 percent of investment gains.

The seed money is often locked up in the hedge fund for three years, and seeders return initial capital to their investors after about five years. Seeding funds retain their ownership stake until it’s bought out by the manager or a third party.

“If you have a 10-fund portfolio and three funds climb over $1 billion, then the economics work and you have a winner,” said Eric Weinstein, who runs the $4 billion fund-of- fund business at Neuberger Berman Group LLC in New York. Seeders target annual returns of about 12 percent to 15 percent for their investors, he said.

Blackstone’s Returns

Blackstone, the world’s largest private-equity firm, jumped into seeding in 2007 with a $1.1 billion fund that took stakes in eight managers. While one of the hedge funds failed in 2008, the New York-based company’s portfolio has returned about 50 percent since inception, according to investors. The remaining firms collectively manage $7 billion, and three have more than $1 billion, including Senrigan Capital Group Ltd., run by ex- Citadel LLC trader Nick Taylor in Hong Kong.

Goldman Sachs, the fifth-biggest U.S. bank by assets, plans to seed managers through a new venture between its hedge-fund strategies group, which allocates money to managers for clients, and its Petershill Fund, which buys stakes in established money managers, said the people familiar with the matter. They didn’t disclose how much money Goldman Sachs is seeking for the effort, which will be led by the firm’s Ali Raissi.

The bank’s seeding effort in 2008 involved financing two hedge funds, one person said. Ed Canaday, a spokesman for the bank, declined to comment.

Investor Caution

Demand for seed money tends to be strongest at times like now, when hedge-fund investors are reluctant to put money into new managers and instead focus on firms with established records. When investors are willing to take more risk, startups can get rolling without giving up equity to seeders.

Institutions have eschewed new managers since the end of 2008, when hedge funds lost an average of almost 20 percent, their worst performance on record. In 2007, six new managers started with about $1 billion or more. Last year there were two: Pierre-Henri Flamand and Morgan Sze, both former heads of Goldman Sachs’s global proprietary-trading groups. Such in- demand funds don’t need seed investors.

There’s about $2.6 billion available to seed new mangers, according to Acceleration Capital, a unit of Arcadia Securities LLC. That’s up from $1.3 billion in the second half of 2009. The number of managers wanting to raise money is on the rise as banks disband their proprietary trading desks to comply with U.S. legislation that restricts trading with their own money.

“You have the highest-quality managers coming out of hedge funds and proprietary desks, yet there is still an aversion from institutions to invest on Day One,” said Robert Discolo, managing director of New York-based PineBridge, which farms out $4 billion in to hedge funds and is partnering with Larch Lane for its latest fund.

Scaramucci Alters Strategy

While the timing may be good for seeding, SkyBridge Capital LLC, run by Anthony Scaramucci, is changing its strategy after losses. The New York-based firm, which has invested in 15 managers since 2006, terminated contracts with six of them, and only Westport Capital Partners, a real estate fund, has surpassed $1 billion in assets. SkyBridge’s oldest seeding fund has lost 5.3 percent since the start of 2006.

“The performance is disappointing,” Scaramucci said. “I thought seeding was like running a fund-of-funds with an equity kicker, but it’s a venture capital business.”

Funds-of-funds select money managers for clients. A venture capital fund invests in companies that are just getting started or are in the process of developing their first products or services.

Tiger Cubs

Scaramucci says he will focus on providing so-called acceleration capital to smaller managers who’ve been in business for a few years to help get them to a level where they can attract more investors.

Julian Robertson, founder of Tiger Management LLC, started seeding managers after he closed his New York hedge fund in 2000. Robertson has used an older model of seeding that gives managers $25 million in exchange for a 25 percent stake. While that worked in the earlier years, his newer seeds have had a tough time climbing beyond $200 million in assets. Of the almost 40 managers he’s seeded, four surpassed $1 billion.

The pitfalls of seeding extend past managers whose returns or asset growth don’t live up to expectations.

Among those that Robertson seeded is Bill Hwang’s Tiger Asia Management LLC. The New York-based hedge fund is being investigated by U.S. and Hong Kong regulators following government allegations in Hong Kong of insider trading, the firm told clients in October.

Tiger Asia, which denied any wrongdoing, told clients it’s cooperating with the U.S. Securities and Exchange Commission and was fighting an injunction to freeze some of its assets filed by the Hong Kong Securities and Futures Commission.

Insider Trading

Protege Partners LP, which was founded by Ted Seides and Jeffrey Tarrant and oversees $3 billion, has seeded about 40 funds over nine years, of which about a dozen are still in existence. New York-based Protege, which doesn’t run a dedicated seeding fund, financed two startups last year and has yet to invest in a fund this year.

The firm had invested in Barai Capital Management LP, the New York-based hedge fund that shut this year after its founder, Samir Barai, was arrested and accused by the government of insider trading. He has yet to enter a plea and has been in talks with the U.S. on whether he will cooperate with the government, prosecutors said in court papers filed in April.

 The appeal of seeding hedge funds is rooted in the track record of managers such as Ken Griffin, who got $1 million from Frank Meyer, founder of Glenwood Capital LLC, to start Chicago- based Citadel in 1990. Griffin, 42, now manages $11 billion.

Och-Ziff

 Daniel Stern, then president of Ziff Brothers Investments LLC, seeded Och-Ziff Capital Management Group LLC, the New York- based firm founded by Daniel Och in 1994. Och now oversees $29 billion. Stern, who later co-founded Reservoir Capital, had also helped raise money for HBK Capital Management, which was started by Harlan Korenvaes in 1991 with $30 million. The Dallas-based firm has $5.7 billion in assets.

“Everyone seeks to replicate the successes of the seeders during the 1990s when the pool of talent starting their own hedge funds was smaller and made up of the most entrepreneurial and innovative traders,” said Simon Irish, principal of New York-based investment firm SWH Capital LLC, who previously ran Man Group Plc’s North American seeding business.

“Now one needs better insights to identify the winners, not the least given the fragility of the current economic environment.”

 

 

Euro Crisis May Hit Eastern Europe Again as Markets Rally

Eastern Europe’s economic recovery may be scuttled by any Greek debt restructuring, which would curb lending by western banks and undermine investor bets that have propelled the region’s stocks, bonds and currencies.

While the region has three of this year’s 10 best- performing currencies and five of the 10 equity indexes that rose the most, 76 percent of its banking market is controlled by western European lenders still threatened by the euro’s debt crisis.

“You would expect that the Greek troubles now would have a bigger impact on emerging Europe,” said Neil Shearing, senior emerging-market analyst at Capital Economics in London. “It’s a puzzle. I suspect it might just be the calm before the storm.”

The risk is that a new round of Europe’s sovereign debt turmoil will prompt lenders including UniCredit SpA, Erste Group Bank AG and Societe Generale SA to rein back lending just as the region recovers from a credit crunch that contributed to recessions three years ago. The European Union forecast on May 13 that every eastern economy will grow this year for the first time since 2008.

Euro-area finance ministers meet today in Brussels to prepare a new plan to ease Greece’s debt burden and prevent the euro area’s first sovereign debt restructuring. Eighty-five percent of international investors surveyed last week said Greece will probably default, with smaller majorities predicting Portugal and Ireland will do the same, according to a Bloomberg Global Poll released last week.

‘Cause Tremors’

A Greek default would “cause tremors” in eastern Europe, affecting currencies, Czech Prime Minister Petr Necas said at a press conference in Katowice, Poland today.

The cost of insuring Hungary’s debt against default, which climbed to 410 basis points last June, is now at 247. Romania’s credit default swaps trade at 227 basis points, down from 415 last year. Greece’s CDS jumped to a record 1,251 basis points last week from 488 a year ago.

In the event of a “disorderly” default by Greece or Ireland, east European CDS spreads and bond yields would rise and currencies and stocks would tumble, according to Christian Keller, an emerging-markets economist at Barclays Capital in London who said he doesn’t expect this to occur.

‘More Radical Evolution’

“If someone was to think that there’s a risk of some more radical evolution of things in Europe, then things are not priced correctly,” Keller said. “The European banking system would be liquidity starved and would go through a shock. At that moment all emerging European countries, which constantly need financing, would have an issue.”

Eastern Europe would find it hard to avoid contagion from the west transmitted through banks and trade links, the International Monetary Fund said May 12 in its regional outlook. Authorities in the east should “make every effort to reduce vulnerabilities,” the Washington-based fund said.

“In an adverse scenario in which western banks take a significant hit, they might have to resort to sizable cuts of their exposures to emerging Europe,” the IMF said.

At the same time, the IMF increased its economic growth forecast for emerging Europe, citing increased domestic demand and stronger public finances. The region’s economies will expand a cumulative 4.3 percent this year and next, instead of the 3.7 percent and 4 percent the IMF projected April 11, the fund said.

‘Economic Revival’

European Central Bank Governing Council member Ewald Nowotny doesn’t expect a contagion on eastern Europe from Greece, he told reporters in Vienna today. He said “these countries have learnt and are experiencing an economic revival.”

Erste Bank, the second-biggest lender in eastern Europe, said April 28 that growth in the Czech Republic, Slovakia and Austria will offset “economic issues” in Romania and Hungary, helping the bank increase profitability this year.

Eastern “economies no longer stand out as the ‘rotten apples,’’ said Lars Christensen, chief emerging-markets analyst at Danske Bank A/S in Copenhagen. ‘‘They didn’t loosen fiscal policy during the crisis and they are in a much better state.’’

Hungary’s debt, the highest among the EU’s eastern members, will be 75.2 percent of gross domestic product this year, compared with 55.4 percent in Poland and 41.3 percent in the Czech Republic, according to the EU forecast. Euro-region debt will average 87.7 percent, with Greece at 157.7 percent.

‘Significant Risk Factor’

Still, Hungary’s central bank identified the euro crisis as ‘‘a significant risk factor,” according to its financial stability report.

“The institutionalized crisis management scheme of the EU has so far been able to offset the deepening euro area crisis only to a small extent,” the bank said last month. “All this may have a considerable negative impact.”

While the largest western banks in the region made pledges to remain in eastern Europe at the height of the credit crunch, they have reduced lending by 15 percent over the last two years, IMF data show.

The practice of borrowing in euros and Swiss francs pushed some eastern countries to the verge of insolvency in 2008 as credit dried up and plunging local currencies ballooned repayment costs. Foreign-currency loans account for about two- thirds of outstanding credit in Hungary, Romania and Bulgaria, with higher rates in the Baltic states.

‘Constant Strain’

Those loans will keep weighing on bank balance sheets and economic growth, said Franziska Ohnsorge, senior economist at the European Bank for Reconstruction and Development.

In Lithuania, loans more than 90 days past due equaled 19.1 percent of lending at the end of the first quarter, compared with 18.7 percent in Latvia, according to central bank data. Hungary’s ratio was 12.5 percent at the end of last year, and the central bank forecasts it will reach 15 percent by year-end.

“What puts a constant strain on the banking system is the recovery lagging,” Ohnsorge said. “That puts pressure on capital and capitalization rates and delays more buoyant credit growth. This pressure on the capital base continues until the pre-crisis credit booms have unwound themselves.”

 

 

A low carbon plan for HGVs

A long-term strategy aimed at helping manufacturers of commercial vehicles and construction equipment move to low carbon solutions has been published in conjunction with the Automotive Council UK.

The roadmap is the first to be published in Europe with this level of detail and outlines the drivers and timescales of technology development across the sector from delivery vans to bulldozers. These technologies include hybridisation, more efficient powertrains and alternative fuels.

The plan will be a useful tool in determining research priorities as well as helping vehicle manufacturers and the supply chain draft long-term business plans.

Business Secretary and Co-Chair of the Automotive Council Vince Cable said: “Work on lowering carbon emissions from cars is well underway. Now we need to look at other parts of the sector and how they can help meet our long term obligations on CO2 and air quality targets. This roadmap will help companies make the right investment choices as well as promote UK innovation and technology.”

According to Automotive Council Co-chair Professor Richard Parry-Jones the roadmap will provide provides focus for the UK’s research and technology as well as the transfer of knowledge to industry. “As well as accelerating the pace of innovation and new product development,” he said, “it will help ensure the UK maintains its position at the cutting edge of the low carbon automotive revolution.”

 

 

What to Expect From the Week Ahead

Next week, we will be hoping for some certainty on the Greek debt fiasco and dissecting the records from the Bank of England’s and the Fed’s latest rate-setting meetings

The ‘progress’ of Greece’s debt crisis will likely be the prime focus of attention at the start of next week. After Greek officials on Tuesday denied rumours that Athens will hastily receive a EUR 60 billion bailout, all eyes will be on the eurozone finance ministers’ meeting this coming Monday. Sovereign debt issues are also likely to dominate the agenda of the subsequent EU summit on Tuesday.

Meanwhile, the President of the European Council Herman van Rompuy will be on a four day state visit in China. State intervention on EU sovereign debt markets is a probable topic of discussion during this visit, as China has played a key role in buying up Spanish and Portuguese government bonds in the past months.

Expectations that any of these meetings will provide a panacea for the eurozone debt crisis are low. “Debt reorganisation [in Greece] will be far from easy,” Morningstar Markets Editor Jeremy Glaser recently wrote, while reminding us that “the political will to throw money at this problem is likely waning” and “voters are sick of bailouts.” Acknowledging the significant challenges in resolving and containing the Greek debt tragedy, Glaser did not rule out the possibility that Greece leaves the eurozone.

Equity markets have thus far showed a relative resilience amid the European sovereign debt chaos. However, the added uncertainty and amounting fears that the Greek problem will drag on will surely continue to be a source of market volatility.

Elsewhere, there will be a number of economic data announcements of note next week. Japan is to release machine orders and industrial production for March on Monday and Thursday, respectively, in addition to its Tertiary Industry Index for March on Wednesday. These figures will add to investors’ understanding of how the country’s economy has responded to the March 11 earthquake. At the end of the week, the central bank of Japan will issue its May base interest rate decision.

Closer to home, Tuesday’s May UK CPI data will provide some additional context for ongoing monetary policy and inflation discussions, as will the latest Bank of England’s MPC meeting minutes, due on Wednesday. We saw the Bank lower its growth forecast this Wednesday and project above-target inflation until end-2012. Investors will be looking to see how these changing views have been reflected in monetary policy discussions.

Across the pond, key economic announcements are expected on Tuesday with the US Industrial Production for April and on Wednesday with the US’s own FOMC meeting minutes. In addition, there will be US housing market data of note released on Tuesday and Thursday.

On the corporate announcements front, reporting season is winding down, but few major events will keep investors busy. Among these, Aviva (AV.) and Vodafone (VOD) are updating the market on Tuesday, Cairn Energy (CNE) and Experian (EXPN) on Wednesday and National Grid (NG.) and SABMiller (SAB) on Thursday.

 

 

Hedge funds expected to set new record for assets in 2011

Hedge funds around the world are expected to attract $210 billion in new money this year, helping to set a fresh record for assets, according to a survey by Deutsche Bank.

The increase of new money, roughly four times the amount added last year, plus performance is expected to increase industry assets to $2.25 trillion by the end of the year, data from the bank’s ninth annual alternative investment survey shows.

Hedge Fund Research, a Chicago based performance and asset tracking group, said the loosely regulated industry oversaw $1.92 trillion in assets at the end of 2010. Indeed, hedge fund assets reached an all time high of $1.93 trillion in 2008 before the financial crisis took hold.

Fresh interest in hedge funds comes at a time pension funds and other large investors are trying to boost their returns but it also comes as the industry faces fresh scrutiny due to the US government’s wide ranging, high profile insider trading probe.

The bulk of the new money is expected to come from institutional investors, the bank wrote, noting that 83% of sovereign wealth funds and 83% of pension funds raised their allocations to hedge funds last year.

These types of investors are readying themselves for new investments by beefing up their own teams while also turning more to consultants for help in selecting managers.

While tastes for hedge funds has historically favoured the industry’s biggest players, the bank’s survey found that investors are now ready to give smaller players a try with 65% of the investors, saying they expect to put money with funds that have less $1 billion in assets.

Hedge fund managers delivered gains for a second straight month in February, according to data released, but the asset class still lagged the broader stock market.

The average hedge fund returned 1.39% last month, according to the Hennessee Group while the Standard & Poor’s 500 index advanced 3.2% and the Dow Jones Industrial Average increased 2.81%.

Rival research group Hedge Fund Research said the average hedge fund gained 1.21% during the month. And in the first two months of 2011, hedge funds climbed 2.08%, lagging the Standard & Poor’s 5.53% rise. In January, the average hedge fund inched up 0.65%.

Hedge funds often promise to make clients money in all markets by relying on methods like shorting stocks that are more restricted at mutual funds.

‘Managers benefited from modest net long exposure, but overweight exposure to cyclicals, shorts and hedges detracted from performance,’ said Charles Gradante, a co-founder of Hennessee Group, New York based investors with hedge funds which also tracks performance and flows.

In February, the outlook on US stocks began to cloud for many hedge fund managers, according to a report from TrimTabs/BarclayHedge. It said that 40% of surveyed managers were bearish on the S&P 500. In January only 26% of polled managers were bearish.

February’s trading was influenced by political unrest in the Middle East and northern Africa, which helped push oil prices higher. At the same time though, the US economy appeared to get a shot in the arm as more jobs were created, suggesting the recovery may accelerate.

Hedge funds focusing on Russia and Eastern Europe gained 3.26%, among the best returns in the industry, while so called short sellers, hedge funds that bet exclusively that stock prices will fall, dropped 5.19%, HFR reported.

 

 

Renewable energy the future: UN

Global energy generated by renewables could increase up to 10 times on current levels by mid-century, a landmark study by a United Nations climate change body has found.

In a report released last night in Abu Dhabi, the Intergovernmental Panel on Climate Change says detailed analysis it has carried out finds renewables will most likely contribute more than 17 per cent of the planet’s primary energy supply by 2030, and more than 27 per cent by 2050.

Under the most positive outcomes of the analysis, 43 per cent of energy could be supplied by renewables in 2030, growing to 77 per cent in 2050, but these findings assume strict global carbon emissions targets and a number of other favorable conditions.

The most optimistic findings would represent a cut of about a third of global greenhouse gas emissions.

In 2008 renewable energy contributed 12.9 per cent to the world’s primary energy supply. By 2050, renewables’ contribution to primary energy will be three- to 10-fold greater, once biomass is excluded.

One of the lead authors of the report, Wes Stein from CSIRO, told the Herald yesterday that ”to put this in perspective the sorts of growth projected in renewable energy … is 20 to 40 times the total primary energy Australia uses at the moment”.

The report includes the contribution of solar, geothermal, bioenergy, hydropower, ocean energy and wind

 

 

Greek Woes, Inflation Report Push FTSE Below 6,000

Evidence that Greece is unlikely to receive a speedy financial boost from Europe alongside a downbeat inflation report by the Bank of England suppressed risk appetite

Greece worries, a fall in commodity prices on the back of a stronger dollar, and the Bank of England’s inflation report sent the FTSE 100 below breakeven on Wednesday afternoon.

The index ultimately closed 0.7% or 45 points lower at 5,973, just below the elusive 6,000-point mark. The FTSE 250 index also fell, down 0.3% or 40 points to 12,015.

The latest batch of Chinese data showed industrial production for April growing 13.4% year-on-year and retail sales up 17.1% for last month. CPI, however, came in at an above-target 5.3% year-on-year. Investors’ initial reaction was positive, however, and miners gained in morning trade.

Later in the day, the Bank of England released its inflation report and cut is GDP growth forecast for the UK economy to 1.7% for 2011. Governor Mervyn King said the economic outlook has deteriorated since the Bank’s February report and inflation as measured by consumer prices is likely to increase to 5% this year and stay above target until the end of 2012.

“The recent comments from Governor Mervyn King suggest that the MPC will implement an exit strategy over the coming months and interest rate expectations are likely to heavily influence future price action for the British Pound as investors weigh the prospects for monetary policy,” commented David Song, currency analyst for DailyFX.

Adding to this outlook, further Greek debt concerns ultimately knocked risk appetite off its perch. Eurozone officials today attempted to lower expectations of a speedy financial boost for Athens and said that the question of another Greek aid package will be discussed at a meeting next week, but a decision won’t be made until an EU mission to Athens rules on what progress the country has made with its reforms.

This combination of macro events sent mining majors to the bottom of the FTSE 100, with Fresnillo (FRES), BG Group (BG.) and Kazakhmys (KAZ) down 2.9%-3.9%. BG Group suffered further after its trading update disappointed investors on Tuesday.

ITV (ITV) was today’s greatest casualty, down 5.4% after projecting a decline in its May and June advertising revenues due to tough comparables.

Also on the list of fallers, HSBC (HSBA) lost 1.6% after announcing plans to reduce its wealth management and retail banking businesses.

On the flipside, Burberry (BRBY) was today’s greatest gainer, up 2.4% after European peers Bulgari (BUL) and Hermes (HESAY) posted strong first-quarter sales.

A set of defensive equities also benefitted as investors shied away from risk this afternoon. International Power (IPR), Severn Trent (SVT) and Scottish & Southern Energy (SSE) were up 1.5%-1.8%.

 

 

FTSE Passes 6,000 on Chinese Data and Greek Hopes

Stronger than expected trade data from China and speculations that Greece may receive another financial support package supported investor confidence on Tuesday

Strong trade data from China and speculation that Greece may take an additional EUR 60 billion loan boosted investor confidence in Tuesday trade.

The FTSE 100 index closed the trading day 76 points or 1.3% higher at 6,023, supported chiefly by heavyweight miners. Commodity majors Rio Tinto (RIO), Tullow Oil (TLW) and Fresnillo (FRES) moved 2.3%-2.4% ahead. The FTSE 250 index added 159 points or 1.3% to 12,062.

Asian trade set up European markets for a strong day, with the Shanghai Composite Index closing 0.6% higher on news that the Chinese balance of trade for April was above expectations at a surplus of $11.4 billion.

Closer to home, market rumours continued to circulate about a new Greek bailout package circulated throughout the day, lifting some concerns about Athens defaulting on its sovereign debt. Equity markets were initially sent into a tailspin this week following weekend reports that Greece may need a second round of bailouts and after S&P downgraded Greek debt to B from BB-. The official Greek government position at the moment is that the country is not in negotiations for a second financial injection from Europe and it is also not considering an outright debt restructuring. The cost of borrowing rose to 4.9% for the Greek government at a bond auction today.

In the US, import prices increased by 2.2% in April, month over month. With the 2.6% increase in March, it is the first time in nearly three years that import prices have gained more than 2.0% for two consecutive months. The April reading also exceeded economists’ expectations of a 1.7% gain. Higher energy prices contributed to the April increase as fuel prices constituted about 80% of the overall price gains. Export prices also increased by 1.1%.

Elsewhere, March wholesale goods inventories also slightly beat expectations, increasing by 1.1%. The higher reading could indicate that businesses are preparing for future demand. Wholesalers’ revenue for the month turned in a 2.9% gain, as well, but the low inventory/sales ratio shows that factories can produce more goods to meet companies’ demands.

US markets were higher at the time of writing, taking direction from Europe and further boosted by merger activity and news that Microsoft (MSFT) is acquiring internet calling company Skype for $8.5 billion

Among individual movers on the London Stock Exchange, InterContinental Hotels Group (IHG) added 3.9% after reporting a rise in first quarter profit in its trading update and Imperial Tobacco (IMT) was up 3.2% after reporting strong performance in emerging markets and solid first half profits. Schroders (SDR) was the day’s top gainer, moving 5.6% ahead after buying 50,000 of its own shares.

On the flipside, BG Group (BG.) lost 1.6% after announcing a sharp fall in its first quarter oil and gas production.

 

 

Euro Falls to Six-Week Low Versus Yen; Asia Stocks, Metals Gain

 The euro dropped to a six-week low versus the yen after Standard & Poor’s cut Greece’s credit rating, fueling concern Europe’s debt crisis is worsening. Asian stocks and metals gained after China reported record exports.

 The euro weakened 0.2 percent to 115.23 yen as of 1:09 p.m. in Tokyo, while New Zealand’s dollar snapped a two-day gain versus the greenback. Japan’s 10-year bond yield was half a basis point off a four-month low. The MSCI Asia Pacific Index climbed 0.2 percent and futures on the Standard & Poor’s 500 Index slid 0.2 percent. Silver futures gained for a second day, while copper rose 0.6 percent in London. Crude oil declined 1.5 percent in New York after a 5.5 percent jump yesterday.

 Greece is scheduled to sell 1.25 billion euros ($1.79 billion) of bills today after S&P cut the nation’s credit rating by two levels yesterday, the fourth downgrade since April 2010. Losses in Asian equities were capped after China joined South Korea, Taiwan and Malaysia in having reported record exports this month. Data tomorrow is forecast to show inflation eased in the world’s second-largest economy, as industrial production and retail sales climbed.

 “Greece is a continuing source of irritation for the investment community,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management Ltd. in Sydney. “I don’t think Greece’s problems will derail the economic recovery, but it seems unable to meet its commitments and therefore constantly undermines the integrity of the euro.”

 Europe’s 17-nation currency traded at $1.4333 from $1.4365 in New York yesterday, when it touched $1.4255, the weakest level since April 19. It reached 114.99 yen yesterday, the lowest since March 29. The dollar bought 80.35 yen, little changed from 80.36 yen yesterday.

 Greek Debt

 Greece is selling 182-day bills after S&P cut the nation’s credit rating to B from BB-, saying that further reductions are possible. That marks the fourth reduction by S&P since April 2010, and another cut would make Greece the lowest-rated country in Europe. Greece’s 10-year note yield increased 21 basis points to 15.71 percent and the cost of insuring Greek debt for five years jumped to a record.

 “The euro is obviously showing its vulnerability once again to the sovereign debt issue,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp., said in a Bloomberg Television interview in Singapore. “It can definitely fall further in the near term.”

 Japan’s benchmark 10-year yield retreated one basis point to 1.13 percent amid increased demand for safer assets. Treasury 10-year notes traded near their highest level this year, yielding 3.16 percent. The U.S. is preparing to sell $72 billion of debt this week.

 Overvalued Kiwi

 The New Zealand dollar fell 0.3 percent to 79.33 U.S. cents after the International Monetary Fund said it may be as much as 20 percent overvalued relative to estimates of the equilibrium exchange rate. The currency also weakened after the Treasury Department said the nation’s budget deficit was wider than forecast in the nine months through March.

 Taiwan’s dollar advanced 0.6 percent to NT$28.569 versus its U.S. counterpart after government data showed exports increased 24.6 percent from a year earlier in April to a record $27.3 billion. Economists expected an 18 percent gain, based on the median estimate in a Bloomberg survey. The currency reached NT$28.508 on May 3, the strongest level since October 1997.

“Better-than-expected export figures supported the currency,” said Eric Hsing, a fixed-income trader at First Securities Inc. in Taipei. “Income from overseas will continue to drive up the Taiwan dollar.”

 Chinese Exports

 China’s exports increased 29.9 percent from a year earlier to $155.7 billion in April and the trade surplus was $11.4 billion, according to government data released today. The surplus was more than triple the median forecast of $3.2 billion in a Bloomberg survey of economists. Reports tomorrow are expected to show inflation eased to 5.2 percent from 5.4 percent in March, industrial production grew 14.6 percent and retail sales expanded 17.6 percent, separate polls show.

 Copper for three-month delivery rose 0.6 percent to $8,945 a metric ton on the London Metal Exchange. Nickle jumped 1.6 percent and lead rallied 1.1 percent.

 Silver for July delivery advanced 1.8 percent to $37.78 an ounce, extending yesterday’s 5.2 percent gain. Futures slumped 27 percent last week after CME Group Inc., the owner of the Comex exchange, increased the cost of making new speculative positions by 84 percent in two weeks.

 Cheaper Oil

 Oil for June delivery fell 1.4 percent to $101.15 a barrel in electronic trading on the New York Mercantile Exchange before an Energy Department report tomorrow that may show U.S. crude inventories increased for a third week. The contract jumped yesterday by the most since Feb. 22, following a 15 percent weekly loss that was the biggest since December 2008.

 Japan’s Nikkei 225 Stock Average rose 0.1 percent, snapping a two-day drop. Australia’s S&P/ASX 200 Index slipped 0.1 percent before the nation’s budget is delivered to parliament today. China’s Shanghai Composite Index rose 0.3 percent after the release of the trade figures. Financial markets in Hong Kong and South Korea are closed for holidays.

 Sumitomo Heavy Industries Ltd. jumped 13 percent after the maker of heavy electric machinery beat its full-year net income forecast by 27 percent. Toshiba Corp., the world’s No. 2 maker of flash-memory chips, rallied 3.5 percent after it forecast profit will climb to a record this year.

U.S. stocks rose yesterday, helping the S&P 500 to a 0.5 percent gain. McDonald’s Corp., the world’s biggest restaurant chain, climbed after reporting sales that topped analyst estimates.

 

 

Europe Markets Hampered by Greek Woes

London’s FTSE slipped into the red on Monday as investors shunned riskier assets, with financials and natural resources dragging

Europe’s equity markets were largely under the cosh Monday as fiscal concerns regarding Greece returned to the fore, while UK banks’ surrender to PPI compensation also weighed on the London-listed sector.

The FTSE 100 index closed down 36 points or 0.6% at 5,943, while the FTSE 250 index slipped just 5 points to settle at 11,895.

UK banks have abandoned their legal fight over the mis-selling of personal protection insurance, following the lead set by Lloyds Banking Group PLC (LLOY) last week, in a move that could cost them up to £10 billion in compensation. Read more here.

Lloyds last week reported a larger-than-expected first-quarter loss after setting aside £3.2 billion for compensation payments, and today both Barclays (BARC) and HSBC (HSBA) announced they have put aside £1 billion and $440 million (£268 million) for PPI compensation.

Royal Bank of Scotland (RBS), Standard Chartered (STAN) and Barclays closed down 2.4%, 2.0% and 1.3% on Monday.

Financials were also under pressure following speculation over the weekend that debt-ridden Greece is planning to exit the eurozone, though these reports were later denied by Greek authorities. The reports came at a time when eurozone ministers are looking to extend the country’s EUR 110 billion bailout package. And further hampering the situation was today’s two-notch downgrade by ratings agency Standard & Poor’s of Greek credit to B from BB-.

“The latest crisis affecting Greece should come as little surprise since their finances have generally been regarded as being on an unsustainable path for some while,” commented Simon Hayley, lecturer at Cass Business School. “The surprise is that there is also talk of Greece leaving EMU. This would be madness—far from curing Greece’s financial problems it would exacerbate them,” he added.

Noting that reports in a French newspaper pointed to the second bailout of Greece as being in the region of EUR 25-30 billion, GAIN Capital Research Director Kathleen Brooks said this is “a manageable sum” and “probably less than many people thought.” However, she also noted that any concessions given to Greece may also be demanded by Portugal and Ireland. “We may eventually look back and see the first round of bailouts as mere band aids over gaping economic wounds,” Brooks added.

Away from financials, prices of precious and base metals along with crude oil rose, following the recent correction, with silver enjoying the greatest rebound after losing around 25% in value over the past week. But with investors shunning riskier assets, the broader natural resources sector struggled to outperform. Lonmin (LMI) was a stand-out performer, however, rising 0.8% after the firm declared its quarterly earnings and said profits tripled during the three-month period.

But it was mobile telecoms group Inmarsat (ISAT) that topped the FTSE leaderboard with a 4.4% climb after reporting 2010 was a strong year with group operating profits up 17% year on year. The company said it also remains well positioned to continue growing its core L-band franchise.

 

 

Oakmount and Partners – Welcome to the Forex Market

Oakmount and Partners have today announced their due date for the launch of their Foreign Exchange trading platform. This is just another example of the dynamic investment house seeking the purest and simplest forms of returns within these volatile times.

Mr David Hyman – Head of Trading ….This will give clients the opportunity to:

• make profits on the fluctuations of the currency market
• hedge their existing investments in other currencies
• Foreign Exchange is the world’s largest market
• Trade 24 hours a day
• The foreign exchange market is the most liquid market in the world
• You can make money when the market does up or down

I am pleased with the trading team and their diverse approach in trading across the markets in which we conduct our business in.

 

 

Forex – Update

EUR/USD $1.4412 (-2.66% on the week) Inevitable profit taking for the Euro with the

Dollar catching a bid on ‘risk off trade’

 

A volatile week for the Euro Dollar to say the least. The Euro hit a 17-month high at $1.4939 early in the week

but fell on Thursday when ECB President Trichet indicated that rates in Europe would not be hiked in June,

now July looks likely unless inflationary pressures continue to dissipate as we have seen with the sell off in

energy and commodity prices last week. The market reacted to the absence of “strong vigilance” in Mr

Trichet’s press conference, a phrase previously used to signal tightening. The sell off in commodities which

really started on the bank holiday Monday with the CME increasing the margin call on the silver contract,

largely did not affect the Dollar, but the risk trade really came off on Thursday with the carry trade of selling the

Dollar for higher yielding more riskier assets gathered momentum (The Dollar Index rose by 2.5% last week

having hit a 33-month low on Wednesday). This gave traders who had extensive long positions a catalyst to

take profits and this saw the Euro close down by three big figures or 2.8% on the week. Things took another

turn with the better than expected US employment data which one would have expected the Dollar to rally on

but there are two reasons possibly for the muted response from the Dollar, firstly an improving US recovery

gives investors more of an appetite for the risk trade so the Dollar is therefore sold and secondly traders

simply did not buy in to the jobs numbers and that the market believes that the Fed will continue to be

accommodative on monetary policy. The difference between both central banks is that the Fed will do its

utmost to protect the stock market whereas the ECB will not have such a responsibility to the equity market,

the focus will continue to be on countering the threat of inflation and for these reasons the Euro should

continue to have the upper hand against the Dollar.

However in the near term, momentum is with the Dollar as momentum for the Euro looks weak with the RSI

indicator rolling over, it moved below the neutral area last week to close at 48.64, additionally the MACD line

crossed down through the signal line. If we take the trough at $1.3428 on February 14th and the subsequent

run by the Euro up to Thursday’s level then the strong uptrend line is still intact but only just as the Euro would

have to trade at $1.4385 to begin to break down. Interestingly in this same period, the 32.8% Fibonacci

retracement level is around current levels so it well might find support here (the Greek default issue and press

over the weekend has not weakened the Euro with collateral demanded on Greek assets or asset sales will

still be needed. Most commentators dismiss the idea of Greece leaving the EU). The Euro did break the 20

day moving average at $1.4579 on Thursday but it has broken this line on several occasions in its recent run

and gone on to regain its poise

 

GBP/USD $1.6392 (+0.77% on the week) Sterling gives up some ground but uptrend still

firmly intact

Sterling came out worst last week, declining by1.8% against the Dollar for the same aforementioned

fundamental reasons but also its own fragility was highlighted by yet again weak UK economic data with

manufacturing, services and property prices falling sharply last month indeed UK house prices had their

biggest fall this year. The Bank of England is in a bind here as inflation continues to shock, with PPI data

reflecting the effects of the rise in energy prices and VAT yet the BOE will continue to focus on stimulating the

economy and believing (hoping) that CPI of 4% in April was a temporary blip. Cable has been for quite some

time a battle of two struggling economies with both central banks unable to increase rates for fear of

destroying a recovery. The Dollar benefits from better GDP growth, the UK rate of recovery has been anaemic

to say the least but Sterling benefits from a government that is addressing the high unsustainable levels of

debt whereas the US continues to be beleaguered by infighting and partisan politics.

Technically momentum is right in the middle at the neutral area of 50.23. If we take the trough at $1.5345 at

the end of December, we can clearly see that Sterling has been in an uptrend since then and this trend line

support is still intact. It would have to trade around $1.62 for this to be broken and around current levels,

Sterling might get some support at current levels as this represents a 23.6% retracement level in the

aforementioned period. If Sterling continues to weaken then support could be seen just above the $1.62

uptrend line at the key 38.2% retracement level at $1.6211. There is little to indicate short term direction from

here but the key is to watch that $1.62 level to hold for Sterling’s uptrend to continue.

GBP/ EUR €1.1368 (-1.89% on the week) Sterling stages impressive run after making

fresh 12 month low against the Euro but expect profit taking around €1.14 level.

Sterling had a very impressive rally against the Euro or rather the Euro fell like a stone against the Pound but

technically Sterling has some resistance coming up. We had warned repeatedly that Sterling has looked

terrible on their chart over the past three months with the previous 12 month low of €1.1184 from late October

looming in the background as there was little support down to there. Sterling duly obliged and hit a fresh 12

month low of €1.1121 on Wednesday but was granted a stay of execution from the ECB the following day.

Sterling to be fair had an impressive bounce with it trading at the near oversold RSI level of 34 on Wednesday

but then bouncing above the neutral area to close the week at 53.11 and also with the MACD line crossing up

through the signal line on Thursday. This positive momentum also saw Sterling break up through the 20 day

moving average of €1.1282 on Friday. However this rally will probably come to a halt as technically if we take

the sell off in Sterling (peak on February 18th) down to last Wednesday’s low then the 38.2% retracement level

comes in at €1.1405 and just above here, there is further resistance at the 50 day moving average at €1.1416.

 

 

House prices ‘fell 1.4% in April’ the Halifax says

Weak household confidence led UK house prices to fall by 1.4% in April compared with March, the Halifax has said.

The lender, now part of Lloyds Banking Group, said the latest figures showed that property values were continuing a trend of “modest decline”.

Prices fell by 3.7% compared with a year ago, with the average home now costing £160,395.

In the three months to April, prices were 1.2% down on the previous quarter.

“Weak confidence amongst households, partly due to uncertainty over the economic outlook, is constraining housing demand and resulting in some downward movement in prices,” said Martin Ellis, Halifax housing economist.

“The latest figures show that the underlying trend in house prices continues to be one of modest decline.”

However, he said low mortgage rates and an increase in the number of people with jobs were likely to curb the pace of house price decline.

“There are signs that house sales are stabilising albeit at a level lower than the historical average,” he added.

Comparison

The data, which showed the the biggest annual decline since October 2009, is slightly more negative than that offered by the rival Nationwide Building Society.

The year-on-year comparison is calculated slightly differently by the two lenders. If Halifax were to calculate a direct comparison between April 2011 and April 2010, it would show a fall of 4.9%. Instead it compares the previous three months with the same three months a year earlier to give a smoother comparison.

The Nationwide said that prices had been “fairly static” over the past six months, with values rising in three and falling in three of the last six months.

However, figures from the Land Registry, widely regarded as the most comprehensive of house price statistics, showed that prices were 2.3% lower in March than a year earlier.

The figures, which lag slightly compared with other surveys, revealed that over the past year in England and Wales, only London had seen prices rise.

“It is clear that critical to the development of house prices over the coming months will be the amount of houses coming on to the market, mortgage availability, how well the economy and jobs hold up as the fiscal squeeze increasingly kicks in, and what happens with interest rates,” said Howard Archer, chief UK and European economist at IHS Global Insight.

 

 

Silver Futures Rally From Worst Weekly Loss Since 1975 as Investors Return

Silver futures rebounded from the worst weekly slump since at least 1975 and gold gained on speculation investors will return to commodity markets after concerns over the global recovery eased and the dollar weakened.

The Standard & Poor’s GSCI Index of 24 commodities declined 11 percent last week, the most since December 2008, led by the 27 percent tumble in silver futures. The dollar fell as much as 0.5 percent against six major currencies today. Precious metals typically move inversely to the greenback.

“Gold and silver may regain strength as traders perceive last week’s commodities washout to be excessive and it isn’t viewed as a trend reversal,” said Park Jong Beom, Seoul-based trader with Tongyang Futures Co. “There’s no change in the outlook for a weaker dollar as well.”

Silver for July delivery gained as much as $1.588, or 4.5 percent, to $36.875 an ounce and traded at $36.845 by 9:36 a.m. London time on the Comex, while the metal for immediate delivery climbed 3.3 percent to $36.82 an ounce.

Silver futures dropped as much as 34 percent from a 30-year high of $49.845 an ounce set April 25 after Comex owner CME Group Inc. (CME) announced an 84 percent rise in margin requirements. A bear market is defined by some investors as a decline of 20 percent or more. Silver spot prices climbed to a record $49.79 on April 25.

Gold for June delivery rose $16.90, or 1.1 percent, to $1,508.50 an ounce on the Comex after last week slipping 4.2 percent, the most in almost a year. The metal reached a record $1,577.40 on May 2. Immediate-delivery bullion increased 0.9 percent to $1,509.30.

‘Buying Opportunity’

Slower growth in U.S. service industries and fewer German manufacturing orders helped drive commodities lower last week. The dollar today weakened against its major peers after advancing 2.6 percent last week, the most since August. Gold, wheat and zinc rebounded at the end of the week as U.S. payrolls exceeded economists’ forecasts, reducing concern that demand will weaken.

“It might be a buying opportunity,” said Glenn King, Managing Director of Oakmount and Partners – London “The dollar has weakened and this is positive for precious metals.”

Combined holdings of exchange-traded products backed by precious metals fell to $119.4 billion last week from $132.1 billion, data compiled by Bloomberg show. Silver assets held in ETPs tumbled 1.2 percent to 14,367.77 metric tons on May 6, the lowest level in six months, the data show.

Palladium for immediate delivery was up 1.8 percent at $733.75 an ounce. Platinum rose 0.6 percent to $1,797.55 an ounce.

 

 

Encouraging US Jobs Report Bolsters UK Market

Signs of strengthening fundamentals in the US employment market triggered a strong and positive response on global markets

Significantly better than expected US non-farm payrolls summoned the bulls in afternoon deals on Friday and the FTSE 100 resumed its climb but finished shy of the 6,000-point mark.

The US economy added 244,000 jobs in April, with the private sector actually creating 268,000 new jobs and the public sector subtracting 24,000. The figure exceeded most economic forecasts and gave a major boost to equity markets on both sides of the Atlantic. Bob Johnson, Morningstar’s Director of Economic Analysis, pointed out that this number, along with revisions to previous months’ data, marks a third month of strong growth in US labour markets and the US economic growth is poised to continue improving. “Today’s report bodes for an acceleration in some of the GDP numbers we will see in the weeks and months ahead” he said, adding that US first-quarter GDP is also likely to be revised upwards as a result of the improved labour market figures.

In the UK, the FTSE 100 closed the trading day 1.0% or 57 points higher at 5,976, almost reversing its 1.1% tumble on Thursday and ending the week with a decline of 0.7%. The FTSE 250 moved 0.5% or 62 points ahead to 11,907 and gained 0.8% on the week overall.

In morning UK trade, ahead of the US jobs report, equity markets were relatively quiet and paid little attention to the UK producer price index for April, which surprised on the upside with a 2.6% year-on-year rise.

Among individual market movers, oil and mining majors gained, having been badly hit by a steep decline in commodity prices earlier in the week. Anglo American (AAL), Tullow Oil (TLW) and Vedanta Resources (VED) achieved the greatest sector gains, up 3.3%-3.7% each.

Meanwhile, BP (BP.) added 3.1% after an arbitral tribunal permitted a $16 billion share swap between the oil major and Russia’s OAO Rosneft on the condition that a planned joint Arctic exploration deal is done through BP’s joint venture TNK-BP. BP confirmed that it would be willing to go ahead with the transfer of its share of the Arctic oil exploration consortium to TNK-BP, and the latter also welcomed the decision.

Within the commodity complex, crude and precious metals began to reverse their losses and Brent Crude appreciated by 0.4%.

In addition to blue chip commodities, bargain hunters moved into financials, bolstered by Royal Bank of Scotland (RBS), which announced a 19% increase in first quarter operating profits. RBS was the FTSE 100’s top gainer Friday, up 5.6%. Lloyds Banking Group’s (LLOY) own results yesterday, which contained a larger-than-expected loss after the bank took a substantial hit on the back of PPI mis-selling, caused the company shares to take a beating on Thursday. Lloyds bounced back on Friday, rising 1.1%.

Elsewhere, ITV (ITV) advanced 4.9% on the back of an upbeat note from analysts at JP Morgan.

Among the relatively few FTSE 100 fallers, Man Group (EMG) lost 1.9%, having traded strong following a successful fund raising for the launch of its largest fund. Inmarsat (ISAT) fell 1.7% ahead of its first-quarter results announcement on Monday.

 

 

Another Flat Close as Investors Await Key Reports

The FTSE closed virtually unchanged for a third consecutive session Tuesday as investors await central bank announcements and US jobs data

An initial uptick in early trade, as the UK market offered a muted response to Monday’s news of the death of Osama bin Laden, had faded by midday as investors got off to a slow start ahead of key economic reports later in the week.

By close of play, the FTSE 100 index had ticked up 3 points to close at 6,083 and the FTSE 250 index had slipped 12 points to settle at 12,015. Both indices closed within 0.1% of their daily starting point.

Global Market Movements
The response on Wall Street yesterday to news US troops have killed al Qaeda leader Osama bin Laden was short lived and key US indices ended Monday’s session a touch weaker. As such, and with Asian markets also mostly lower on Tuesday, there was little upward momentum for European markets today.

Indian equities fell this morning after the central bank tightened monetary policy in the wake of domestic inflationary pressures, with interest rate-sensitive sectors such as property and financials being the worst hit. By contrast, mainland China’s Shanghai Composite bucked the downward trend in Asia after the Chinese authorities did not tighten monetary policy, as was expected by some quarters, over the long weekend.

Both the Bank of England and the European Central Bank will announce interest rate decisions this week. After several months of speculation as to whether the BoE would make its first hike in over two years this month, all talk of a May rate rise has now disappeared after last week’s UK GDP figure.

Also due later this week is the monthly US jobs report. In spite of signs that the impact of Japan is likely to show up in this report, with manufacturing still going strong, a late Easter and better weather, Morningstar Director of Economic Analysis Bob Johnson expects to see decent employment gains for April. “While employment growth probably won’t reach the 216,000 level of a month ago, a range of 150,000-200,000 seems very doable,” Johnson said.

Miners and Retailers Under Pressure
In London today, the market seemed to largely ignore rumours of Rio Tinto (RIO) interest in Alcoa and instead mining sector losses were driven by commodity price weakness.

Morningstar analysts think an Alcoa deal is not likely on Rio’s to-do list, particularly given its purchase of Alcan in the not-too-distant past. Shares in Rio lost 1.6% on Tuesday, while peers Xstrata (XTA), Antofagasta (ANTO), Fresnillo (FRES) and Kazakhmys (KAZ) shed 2.4%-3.4%. Randgold Resources (RRS) was the worst off among the miners, down 4.7% with gold prices down 0.9% at time of writing.

But it was Smiths Group (SMIN) that led the FTSE 100 casualties, dropping 5.7% after the global technology company reported second-half trading at Smiths Detection fell short of the Board’s expectations and announced that the division’s President, Stephen Phipson, has stepped down with immediate effect.

Retailers and other consumer-facing stocks also suffered after the CBI distributive trades survey revealed an unexpected rise in retail sales in April but a negative outlook for May. ITV (ITV) lost 2.2%, Kingfisher (KGF) fell back 1.5% and Marks & Spencer (MKS) eased 0.9% lower.

Man Group and Pharma Stocks Climb
On the upside, an asset management firm was the cream of Tuesday’s crop. Man Group (EMG) gained 3.3% after the hedge fund manager raised $1.5 billion for the launch of its largest fund, the Nomura Global Trend fund, at the end of last month.

Schroder (SDR) was also in demand, as was mid-cap Aberdeen Asset Management (ADN), both of which climbed 0.4% after the latter’s net profits doubled in the first half with assets under management rising to over £181 billion.

The pharmaceuticals sector also saw buyers, with AstraZeneca (AZN), Shire (SHP) and GlaxoSmithKline (GSK) climbing 2.4%, 1.5% and 0.8%, respectively. US peer Pfizer today reported first-quarter results that largely matched our analysts’ expectations, with earnings per share growth flat year-on-year as increased share buybacks helped offset minor cost increases.

Holly Cook, 03/05/11 18:13

 

 

UK GDP Growth Fails to Excite Equity Market

The UK economy expanded 0.5% in the first quarter but with all eyes on Ben Bernanke and the Fed’s rate decision, markets were rangebound Wednesday

The FTSE was range bound on Wednesday as investors awaited this evening’s interest rate decision from the Federal Reserve and the accompanying inaugural press conference from Ben Bernanke. Meanwhile, an as-expected 0.5% estimated increase in UK GDP in the first quarter of 2011 triggered debate but little market reaction.

The FTSE 100 index closed a little under 2 points lower, at 6,068, while the FTSE 250 index, which more accurately represents the British economy, ticked up 29 points or 0.3% to 11,895.

The UK economy expanded 0.5% in the first three months of the year, according to the keenly-awaited first reading from the Office for National Statistics. After an unexpected 0.5% drop in GDP in the final quarter of 2010, today’s figure helped to assuage fears of a double dip recession, but also led to criticism that the more encouraging performance seen so far this year was more to do with how GDP is calculated rather than the economy’s overall performance. Manufacturing and services underpinned the economic expansion, but struggling construction capped growth, which, were it not for the construction sector shortfall, could have been closer to 0.8% over the quarter. Construction fell 4.7% but the magnitude of this decline has raised suspicions that it will be revised upwards in later readings.

Across the pond, all eyes were on Ben Bernanke and the FOMC rate decision today. An announcement and press conference is due in the hours after the UK market close. Regarding the UK’s own central bank rate decision, today’s GDP data has finally ruled out speculation of a rate hike at next week’s Bank of England MPC meeting.

With the focus very much on economic events, the main equity market movements came in response to earnings news. Associated British Foods (ABF), Barclays (BARC) and BP (BP.) were among the blue-chips reporting results today. AB Foods and Barclays found themselves the bottom two on the FTSE 100 by close of play, down 5.8% and 4.8% respectively. Primark-owner AB Foods saw its earnings hit by escalating commodity prices, cotton in particular, which are eating into profit margins and the retailer and food producer looks to maintain demand.

At Barclays, an 8% sequential drop in quarterly earnings disappointed the market and with the shares haven rallied strongly in the lead up to today’s announcement, the shares were hit by profit taking on Wednesday.

BP fared relatively better, rising 0.4% on the FTSE 100 after the firm’s first-quarter replacement cost profit dipped 2% year-on-year to $5.5 billion from $5.6 billion a year ago as an 11% decline in production offset the benefits of a 30% gain in oil prices on the upstream side and downstream earnings gains. Following these mixed results, Morningstar equity analysts reiterated that their central concern about BP remains how the firm will execute longer-term growth plans after reshaping its upstream and downstream operations. Read more here.

BP’s peer Royal Dutch Shell (RDSB) will publish its own earnings tomorrow, as will Hammerson (HMSO), Unilever (ULVR) and WPP (WPP). Markets will also have a chance to react the FOMC rate decision and Bernanke’s accompanying comments, while also waiting for the US GDP reading.

Source – Hemscott – Holly Cook, 27/04/11 17:51

 

 

UK economy grows by 0.5% in first quarter of 2011

 The UK economy grew by 0.5% in the first three months of the year, official figures have shown, reducing the risk of a double-dip recession.

The chancellor welcomed the return to growth, which followed a contraction of 0.5% at the end of 2010.

But Labour said the economy was flat and the recovery had been “choked off”.

The manufacturing and services sectors had performed well, the Office for National Statistics said, but construction output had fallen sharply.

Mixed response

Chancellor George Osborne said: “It is good news that the British economy is growing. It is particularly good news that manufacturing is growing so strongly, when we have had such an unbalanced economy in recent years, and manufacturing has not done so well.

“Jobs have been created since the New Year and government borrowing is down,” he added.

Ed Balls, Labour’s shadow chancellor, responded: “If George Osborne thinks zero growth over six months is good news and a sign that the recovery is on track then he is more out of touch and out of his depth than I feared. ”

For once, the first estimate for growth in the first quarter is in line with expectations – but it would be hard to argue that it’s good news.

Not so long ago, many were hoping for a strong bounceback from the slowdown at the end of 2010.

Instead, the figures suggest that the UK economy has barely grown since the summer – though of course that hides a lot of variation.

Some sectors, such as manufacturing, are doing well, and others are struggling to move ahead.

‘Fragile recovery’

Economists gave a mixed response to the figures.

David Kern, the chief economist at the British Chambers of Commerce, said: “These figures were mixed and well below the Office for Budget Responsibility prediction that the economy would grow by 0.8% in the quarter.

“Given the fragility of the recovery, it is vital for the government to persevere with policies that support growth, and remove the obstacles that prevent businesses from creating jobs and exporting.”

Growth in manufacturing continued to be strong, at 1.1%, the same as the previous quarter.

Services returned to growth, after contracting during the bad weather at the end of last year. This had particularly been the case with hotels and restaurants, the ONS said.

A lot of my clients have told me they are being affected by the cuts and we expect it to start showing on our business as we continue through 2011”Abbie Jackson Owner, Marie Claire hair salon, Hull

However, construction – one of the worst hit areas in the last quarter of 2010 – was down by 4.7% at the start of 2011.

Ross Walker, from RBS Financial Markets, said that as new data came in, the picture was likely to improve: “You do have what looks to me like a surprisingly large fall in construction output. Do we really believe that the level of construction output was lower in January than in December? We may well see some revisions here.”

These figures are an initial estimate and will be revised at least twice as more information is gathered.

The low rate of growth could lessen the chance of an early interest rate rise by the Bank of England to combat inflation, which is currently running at 4%, analysts say.

“We are expecting the Bank of England to raise rates in August,” said Deutsche Bank economist George Buckley, “but it is far from certain whether they will do that”.

“We will have the second quarter GDP numbers by then, but the problem is they may have been negatively affected by the royal wedding and two back-to-back bank holiday weekends which will depress production.

“It is still very uncertain. All of these figures are being affected by a lot of volatility, by holidays, the weather, snow. It has all had a big impact on the numbers.

Source – BBC

 

 

FTSE hits 9 week high in Light trade

Banks and other index heavyweights helped offset mining sector weakness to push the FTSE to a 9-week high in light post-Easter trade.

At the end of a relatively quiet post-Easter weekend trading session, European markets ended comfortably higher, with light trading volume helping London’s FTSE hit its highest close since mid-February.

The FTSE 100 index closed up 51 points or 0.9% at 6,069 and the FTSE 250 index took on 59 points or 0.5% to 11,869.

UK-listed shares edged up after a weak start, but a handful of mining companies capped gains as commodity prices slipped lower. Earnings results and macroeconomic data were the main focal point, though with many investors staying away during the shortened three-day week, volatility is likely to be exaggerated this week.

There were plenty of earnings news from the US, with outstanding results from Ford, impressive figures from 3M, strong first-quarter results from Illinois Tool Works, but numbers from Coca-Cola that failed to hit consensus expectations.

Banks were in the news after UBS posted a pleasing set of earnings that should provide some encouragement as to the investment management outlook, but with Barclays’ own results due Wednesday the market response was relatively muted in London. Barclays (BARC) ticked up 1.0% and Lloyds Banking Group (LLOY) added 0.8%.

AstraZeneca (AZN) will also unveil figures later this week. Shares in the pharmaceuticals giant closed 1.4% higher, while peer GlaxoSmithKline (GSK) took on 0.9%.

British American Tobacco (BATS) and Imperial Tobacco (IMT) also attracted buyers after numbers from US peer Lorillard came in very close to Morningstar analysts’ forecasts. Shares in the UK tobacco producers had taken on 1.7% and 1.3%, respectively, by close of play.

In economic developments, all eyes will be on the Federal Reserve over the next 24 hours as it convenes a two-day monetary-policy meeting. The US central bank is expected to hold interest rates, but Chairman Ben Bernanke’s first ever press conference following the meeting Wednesday will be keenly awaited by equity markets. The dollar has been trading weak recently and any hawkish comments from the Fed may trigger a bounce-back in the greenback.

In other data, US consumer confidence ticked up in March, climbing to 65.4 versus market forecasts of a figure closer to 64.5.

Source – Hemscott

 

 

The cost of raising a child and educating privately jumps to £500,000

Experts say that the cost of sending a child to prep and senior school from ages 5 to 18 would be around £175,000

Parents have a hard choice these days between opting for the lottery of state schooling or the need to win the lottery to have a chance of being able to afford to send their child to private education.

These costs are not an easy option, as the total price of rearing a child and educating them privately will cost around £500,000!

According to recent research by insurance company LV=, the cost of raising a child until their 21st birthday now totals more than £210,000 – before private school costs are taken in to account.

Gabbitas Education Consultants estimates that the average private school fees would mean the cost of sending a child to prep and senior school from ages 5 to 18 would be around £175,000. Adding on the cost of uniform, school trips and boarding pushes the total to more than £300,000, making the full cost of raising a child and send them to private education £0.5m!

Of course, most parents would say you can’t place a price on a good education, but if you do opt for the private route you have some serious capital raising to do.

However, even though the assisted places scheme is now a thing of the past, there are still educational charities that may help, as well as the possibility of obtaining a scholarship or bursary from a private school itself to assist with part of the costs. According to the Independent Schools Council (ISC), during 2009/10 more than 160,000 pupils received help with their fees.

Scholarships covering up to 50% of fees are usually only offered by schools to children who demonstrate a high standard in academic studies, music or art, which they will usually have to demonstrate in an exam or audition. These differ from bursaries which are means-tested and may be offered to pupils whose parents would not be able to afford the full costs. However, each school has its own criteria for these awards, so make sure you contact them well in advance.

 

 

Gold Rush

THE PRICE of gold surged to yet another all-time high yesterday as growing fears over a weaker dollar sent investors scrambling for the safest asset class of all.

Gold hit an unprecedented $1,518.6 per troy ounce in morning trading yesterday. It eventually fell back to $1,507, although some traders predict it will hit $1,600 by the end of the year.

Silver also surged, with spot prices reaching $49.82 an ounce – close to the all-time high of $50.35 recorded in January 1980. It eventually fell back to $47.09.

The greenback has come under heavy selling pressure ahead of this week’s Federal Open Market Committee, with markets expecting chairman Ben Bernanke to reiterate his commitment to easy money.
Long-standing gold bug Jim Grant, the founder and editor of Grant’s Interest Rate Observer, said he was expecting a third round of quantitative easing in the US, which would propel gold to new highs.

The greenback also slid against commodity currencies, diving to a 29-year low of A$0.9291 versus the Australian dollar and a three-year low of C$0.9503 versus the Canadian loonie.

Analysts blamed the buck’s unpopularity on the Federal Reserve’s ongoing inflationary monetary policy, anxieties about US government debt and suggestions that China is moving to limit its exposure to the greenback.

BNP Paribas’ Ray Attrill said “it’s a weak dollar story”. “We don’t see any imminent reversal unless Mr Bernanke has got a rabbit to pull out the hat,” he added, referring to the Fed’s interest rate-setting decision.

Economists say that sky-high precious metals prices are here to stay as desperate investors rush towards perceived “safe havens” to escape the damaging effects of inflation.

The market has also been influenced by fears that China is planning several new investment funds to diversify its $3 trillion foreign reserves holdings, much of which is in dollars.

Diamonds are also reckoned to have reached record highs on the back of slowing production and increased demand from China and India, while WTI crude oil rose to over $113 a barrel due to ongoing fears about political turmoil in the Middle East.

Source – City AM

 

 

Dollar fears may keep oil on the boil.

FINANCIAL markets initially reeled following last week’s announcement from Standard & Poor’s (S&P). The ratings agency downgraded its outlook for US sovereign debt to “negative” from “stable”, implying a 33 per cent chance that the US would lose its AAA credit rating within the next two years. The agency is concerned by the fiscal challenges facing the US and warned policymakers to address the situation immediately rather than waiting until after the presidential election in 2012. Many analysts shrugged off S&P’s warning either by attacking the credibility of the agency or by insisting that it is overreacting to old news. But the downgrade highlights the danger to the US economy of the current political impasse.

Investors are already worried about what will happen to financial assets once the Federal Reserve ends its programme of asset purchases this summer. On top of this, the geopolitical and macroeconomic outlook is still a concern. Violence continues to flare up across north Africa and the Middle East; Japan is still struggling to deal with its nuclear crisis and supply chain issues; Europe is hampered by its debt problems, and inflation is on the rise everywhere leading to interest rate hikes in the Eurozone, as well as China and other emerging countries.

Firmer oil prices are also playing into this mix. Just a few weeks ago, crude hit its highest level since the summer of 2008. It then pulled back sharply following a number of “sell” recommendations from Goldman Sachs, which cited weaker global demand, a possible ceasefire in Libya and excessive long-side speculation. Crude has since rebounded and made back around 50 per cent of its losses. Then last week’s S&P downgrade hit prices again as the US dollar rallied on a “flight to safety”, but support has held at $121 for Brent and around $106 for the WTI contract. The oil price should be self-correcting to some degree. While higher prices hurt global growth and stoke inflation, they also put a dent in demand. But it’s the dollar that currently holds the biggest influence over oil. With the Federal Reserve determined to complete its $600bn of asset purchases, and as US policymakers struggle to control the budget deficit, the dollar should remain under pressure. This should ensure that oil prices are kept on the boil.

SOurce – City AM

 

 

What to expect from the week ahead.

 

 

UK retail sales unexpectedly rebound in March

The ONS said that the data continued to present a “mixed picture” about spending in the UK
Retail sales in the UK registered a surprise pick-up in March, led by strong food and non-store sales.

Sales volumes rose 0.2% compared with a month earlier according to the Office for National Statistics (ONS).

Market analysts had expected a much weaker number after a downbeat survey was released by the British Retail Consortium last week.

It follows a revised 0.9% drop in sales in February – a fall that had also caught analysts by surprise.
The ONS said in its latest retail sales bulletin that the volume of sales was up 1.3% compared with March 2010 on a seasonally adjusted basis – which takes account of the fact that Easter fell in March last year.

Rates decision

The numbers caught markets by surprise – instead of a 0.2% rise, economists had expected a month-on-month fall in sales of 0.5%.

Sterling jumped half a cent against the dollar to $1.654 after the data was released, as currency traders priced in a higher probability that the Bank of England will raise rates over the summer.

In the minutes from its latest rate setting meeting in April, the Bank indicated that the strength of recovery in consumer spending was a key question for them.

However, the retail price deflator – an important proxy for inflation included in the data release – slowed down to a 3.4% annual increase from 4% in February.

“The consumer is not quite as flat on his back as had been feared,” said Howard Archer of research group IHS Global Insight.

However, he pointed out that despite the modest pick-up in sales and slowdown in price rises in the month, consumers were still seeing their incomes squeezed by inflation and “the underlying impression remains that consumers are less able and willing to spend”.

He also noted that consumer spending for the first quarter of the year as a whole had only risen 0.3% versus the previous three months, which did not bode well for the economy, as retail sales comprise 65% of all spending.

Mixed picture

Smaller shops were doing well – including those in London selling memorabilia for the royal wedding, Aileen Simkins from the ONS told the BBC.

The good weather had also helped sales of items such as climbing frames, as people prepared for a long summer.

Other sectors showing strong growth were garden stores and toy stores, while IT stores were also doing well on the back of new product launches, she said.

However, supermarkets had suffered a more challenging month, which showed that there was a mixed picture across the retail sector, she said.

The ONS figure comes after supermarket giant Tesco revealed earlier this week a 0.7% drop in UK like-for-like sales in the three months to 26 February.

Meanwhile Home Retail Group reported shrinking markets for its Argos and Homebase chains, and predicted another tough year in 2011.

Source – BBC – 21 April 2011 Last updated at 10:22

 

 

FTSE Jumps Above 6,000 on Tech Earnings, Gold High

Gold breached $1,500 on Wednesday and chipmakers’ earnings beat expectations, prompting a broad-based rally around the globe

In stark contrast to Monday’s dismal session, the FTSE trading board resembled a sea of green on Wednesday as encouraging earnings from tech bellwethers, a new record high gold price, and signs that a UK interest rate hike is not imminent triggered a broad-based rebound.

The FTSE 100 index gained 125 points or 2.1%–its strongest one-day gain in over four months–to close back above the 6,000-point mark at 6,022, while the FTSE 250 index added 181 points or 1.6% to 11,756.

Asian markets enjoyed a strong start to the session, which European markets then continued, after Intel (INTC) turned in solid first-quarter results after Tuesday’s closing bell. Revenue was a record $12.8 billion, up 12% sequentially and 25% year over year, propelled by robust spending on computers from enterprises and emerging markets, which helped drive demand for both PC and server microprocessors. For the second quarter, management expects revenue of $12.3 billion-$13.3 billion.

Similarly strong results from Yahoo (YHOO), IBM (IBM) and United Technologies (UTX) also added to the upbeat tech sector sentiment, which helped to propel London-listed ARM Holdings (ARM) into the top spot on the FTSE 100 with a 5.7% rise.

But the main support of the UK’s benchmark index came from natural resources, with Antofagasta (ANTO), Xstrata (XTA) and Anglo American (AAL) leading the mining sector higher as gold hit an all-time high, breaching $1,505 per ounce.

“Considering investor appetite to buy into gold within the broader context of current inflationary pressures, debt concerns and dollar weakness, there is every chance that the price of gold could continue to push higher throughout the year,” commented City Index head of equities Giles Watts. But Morningstar analysts believe some of the tailwinds behind gold’s climb could fade and the price of the yellow metal could head lower in the long term.

Heavyweight oil producers added their support, tracking the price of black gold, which was almost 2.8% higher at $111 per barrel at last check. Royal Dutch Shell (RDSB) and BP (BP.) gained 4.0% and 3.0%, respectively, on the first anniversary of the Macondo well disaster.

On the economic front, a survey from Citi and YouGov today revealed that the general public’s inflation expectations are this month at their lowest level since September, at 2.9% in April versus 3.5% in March. Expectations for inflation over the next 5-10 years slipped to 3.4% from 3.5% last month.

Given the substantial fall in consumer price inflation last month to 4.0% from 4.4%, it came as little surprise that the Bank of England’s Monetary Policy Committee remained split 6-3 in favour of keeping interest rates on hold at their latest meeting. The minutes of the April meeting revealed a more dovish tone from the Committee members.

Source – Hemscott – Holly Cook, 20/04/11 18:22

 

 

Gold price hits record high – $1500 an ounce

Analysts are divided over whether the price can go much higher in the near term

The gold price has risen above $1,500 an ounce for the first time after concerns about global economic recovery lifted the metal’s appeal as a haven.

In Hong Kong trade, gold hit a record $1,500.70 an ounce, which traders said was mainly due to Standard & Poor’s downgrade of its outlook on US debt.

 Silver also touched a 31-year high of $44.34 an ounce.

 ”In a word, sensational. Everything’s feeding into this, sovereign debt, weak dollar, inflation,” said one analyst.

But analysts were divided about whether the price could go higher and are waiting to see if trading in Europe and the US continues the momentum seen in Asia.

Arnold Dublin- Green, Hedge fund manager at CGM in London “ We have a bull mentality with Gold. It’s a buy and hold in our opinion, especially with sovereign debt, weak dollar and  inflation, there has to be a safe haven. Typically we see a $15-$20 rally after breaking a big number, but quite often scepticism overshadows growth and you can see a pullback.”

“We will see what Europe and United States do with this. $1,510 or $1,520 look possible, but prices are starting to look a little stretched up here.” 

Darren Heathcote, at Investec, said: “The market is so fickle at the moment and it wouldn’t surprise me if we saw a sell-off.”

Some market watchers see gold consolidating at its current level as it waits for the next reason to push higher.

Natalie Robertson, commodities strategist at ANZ, said: “I don’t see prices convincingly past that level in the next few days unless we see something very negative, probably related to the eurozone sovereign debt.

“But we do see gold very well supported at the $1,490 level,” she said.

Silver continued to soar, rising to a 31-year high for the fifth consecutive session.

David Hyman, Head of Trading at Oakmount and Partners in London has suggested that the gold rush has allowed the limelight to be taken away from the silver rally and believes $50 is the next significant target.

Not only is silver increasingly seen as a haven, but there is also rising demand for industrial consumption.

 

 

BarCap ups 2013 U.N. carbon price forecast by 10 percent

LONDON | Tue Apr 12, 2011 8:23am EDT

LONDON (Reuters) – Barclays Capital raised its price forecast for U.N.-backed carbon credits by 10 percent to 24 euros ($34.70) a tonne on widening spreads, analysts said in a research note on Tuesday.

The bank increased its price estimate for 2013 permits called certified emissions reductions (CERs) to 24 euros a tonne from 22 euros, the bank said in a research note.

Under the U.N.’s clean development mechanism (CDM), firms can invest in carbon-cutting projects in developing nations and receive CERs in return, which can be used against their own emissions.

The premium for CER contracts for delivery in 2013 over those for delivery in 2012 has widened to 1.22 euros from 0.88 euros over the past month.

This is due to restrictions on the use of some industrial gas CERs in the EU’s emissions trading scheme from 2013, which limits the option value of those credits before 2013, the bank said.

“As those options near expiry (when they will be no longer eligible), the lower the relative value they will be able to command, the wider both the CER time spreads and the EUA-CER spread will become,” said Trevor Sikorski.

The 2012-2013 CER spread could widen to 4 euros by 2013.

Sikorski forecasts a total 940 million CERs will be issued over the period 2008 to 2012. Improved U.N. processes for dealing with requests for issuance mean this number could be higher, but demand would have to meet the greater supply.

(Reporting by Nina Chestney, editing by Jane Baird

 

 

What to expect from the week ahead

The days before Easter will bring insights into the UK consumer goods sector, global real estate and the latest Bank of England MPC meeting minutes.

Relatively few economic and corporate announcements are scheduled for the first of three shortened weeks in the UK, and market participants are likely to wind down their activity levels in the days before the Easter weekend. Equity markets have shown a resilience in the face of recent external shocks but the likely low trading volumes in the coming weeks could make market valuations more susceptible to volatile movements should unexpected news emerge.

Economic announcements are unlikely to provide substantial excitement next week. Of most note, a number of eurozone Purchasing Manager Indices are due on Tuesday and the latest Bank of England Monetary Policy Committee meeting minutes will be released on Wednesday. The latter are a record of a the MPC’s decision to keep interest rates unchanged, announced hours before the European Central Bank increased its key interest rate by 25 basis points in a widely expected move. With the ECB having moved towards monetary tightening already but the Fed expected to keep rates unchanged until at least the end of this year, all eyes will be on the latest MPC minutes for insight into the positioning of the Bank of England’s own rate setters.

Elsewhere, updates on the state of the housing market are due across the globe, starting with Rightmove’s UK house prices for April on Monday, followed by a count of last month’s building permits, housing starts and home sales in the US, due on Tuesday and Wednesday. Meanwhile, UK housebuilder Persimmon (PSN) will be releasing its interim statement on Thursday.
Next week will also provide insights into the UK’s struggling retail sector with UK retail sales released next Thursday. In addition, a number of UK consumer facing companies will be issuing corporate announcements next week, including a preliminary results from Tesco (TSCO) on Tuesday and full-year results from the Home Retail Group (HOME) and first-quarter update by Reckitt Benckiser (RB.) on Wednesday. Earlier this week, Morningstar’ equity analyst Philip Gorham shared his concern about soft consumer demand in Western Europe, next week and will add more detail to this argument.

Source – Hemscott- Dea Markova

 

 

Government outlines necessary changes in low carbon commercial vehicle design

The Government has launched a roadmap outlining a specific time frame for moving toward low carbon commercial vehicle and construction equipment design and manufacturing.
The Commercial Vehicle and Off-Highway Technology Roadmap has been published by the Government-created Automotive Council and explains the changes that need to be made to commercial vehicles and over what time period in order to reduce CO2 emissions and improve air quality.

Heavy goods vehicles, such as bulldozers, lorries and buses, account for about 20 per cent of domestic transport greenhouse gas emissions, but current CO2 regulations apply only to cars. The report takes into account the possibility of regulations on medium and heavy-duty vehicles, starting in 2020. It states that in order for the UK to meet its 2050 carbon dioxide reduction goal of 80 per cent, commercial and off-highway vehicles will need to change.

“Work on lowering carbon emissions from cars is well underway. Now we need to look at other parts of the sector and how they can help meet our long-term obligations on CO2 and air quality targets,” said Vince Cable, Business Secretary and co-chair of the Automotive Council. “This roadmap will help companies make the right investment choices as well as promote UK innovation and technology.”

Design changes
In the roadmap, vehicles are broken down into three major categories: light, medium and heavy-duty ‘cycles’. These include tractors, fork lifts, bulldozers, mobile cranes, crawler excavators, buses, light duty delivery trucks (like vans) as well as heavy duty trucks (like lorries). Each will need to undergo specific changes, but the roadmap suggests that all vehicles will need to be designed to be more aerodynamic and lighter weight. It also suggests all engines will all need improvements to the combustion and emission control systems as well as reducing friction.

Biofuels and hybridization are also key components of the roadmap. It states that making energy storage cost effective will be essential in making medium and light duty cycle vehicles commercially viable. Further development of fuel cell technology is also seen as critical in making these vehicles available to the entire market.

“The roadmap provides a strategic focus for the UK’s research and technology base to work in partnership with industry in these key sectors,” said Richard Parry-Jones, Automotive Council co-chair. “As well as accelerating the pace of innovation and new product development, it will help ensure the UK maintains its position at the cutting edge of the low carbon automotive revolution.”

Source – greenwisebusiness Emily Smoucha 12th April 2011

 

 

FTSE Posts Modest Gain Amid Inflation Worries

Demand for defensive equities and broker comments supported the FTSE 100 as monthly CPI data inflamed inflation concerns and risky assets lost out
The headline UK equity market edged up Friday, having lacked conviction for most of the trading day. Macroeconomic data from China, EU inflation figures and developments in European sovereign debt were the main foci of investor attention today.
Ultimately, the FTSE 100 index added 32 points or 0.5% to 5,996, bringing it down by just under a 1% at over what was a difficult week. The FTSE 250 index moved ahead 76 points or 0.7% to 11,679, losing 0.4% on the week.
London trade kicked off alongside news that the Chinese economy has expanded 9.7% in the first quarter of 2011 – less than last quarter’s 9.8% growth, but above market expectations. Meanwhile, Chinese March CPI surprised on the upside, rising 5.4% year-on-year. Beijing responded to the CPI jump by introducing price controls on basic consumer items and speaking in favour of increasing the yuan’s exchange rate flexibility.
“We tend to believe that the Chinese will follow a moderate, safe path of tightening (as long as inflation does not spike) and this is partly why the Aussie dollar, which is highly correlated with the Chinese economy, has only had a moderate decline over the European session,” commented Kathleen Brooks, Research Director at Gain Capital.
Adding fuel to the flames of inflation worries, India’s CPI surged to a little under 9% year-on-year in March, inflation figures for the eurozone were revised upwards and the US saw its consumer price index rise to 2.7% year-on-year in March–higher than expected. The US increase was driven almost entirely by higher food and energy prices, which means that discounting for those volatile prices, core inflation rose by 1.2% — not enough to merit concern for monetary tightening from the Fed just yet.
Nevertheless, spooked by the rapid rise in consumer prices and the potential monetary tightening response from central banks, risky assets such as banks and heavyweight miners fell on the FTSE 100. Essar Energy (ESSR), Royal Bank of Scotland (RBS) and Vedanta Resources (VED) were the top three casualties on the UK blue-chip index, down 1.0%-2.0%. On the flipside, traditional inflation hedges such as most metals traded stronger and gold hit a new record at $1,483 an ounce.
UK-headquartered banks were additionally troubled by another sovereign debt downgrade in peripheral Europe. Moody’s Investors Service downgraded Ireland’s government debt by two notches to Baa3, one notch above junk status.
A number of corporate announcement, upbeat broker comments and appetite for defensive equities helped support the FTSE above the breakeven line. Severn Trent (SVT), Imperial Tobacco (IMT) and International Power (IPR) gained 1.8%-1.9%.
Elsewhere, Next (NXT) added 2.0% after buying close to 236,000 of its own shares for £21.95 each for cancellation.
Man Group (EMG) was the FSTE 100’s top gainer, up 4.2% on the back of a favourable update from BofA-Merrill Lynch analysts, while British Land (BLND) and Land Securities (LAND) added 3.1% and 2.0%, respectively, after an upbeat sector note from JP Morgan.
Source – Hemscott – Dea Markova, 15/04/11 18:49

 

 

FTSE on the Back Foot Again as Banks Fall

London’s leading share index struggled to maintain its recently reclaimed 6,000-point mark on Thursday, as miners and banks combined to drag the broader market lower.

Asian markets traded mixed this morning but Chinese shares were pressured after inflation was seen rising, leading to monetary-policy tightening concerns.

The FTSE 100 index fell back 47 points or 0.8% to close at 5,964. But the FTSE 250, which lacked the downward pressure of heavyweight financials and metal extractors, lost just 13 points to settle 0.1% weaker at 11,603.
Banks Barclays (BARC), HSBC (HSBA) and Lloyds Banking Group (LLOY) presented a mirror image of Wednesday’s gains, each sliding between 1.1% and 2.3%, as fears that Greece may need to restructure its substantial debt swept through the financial markets.
And miners were also on the back foot, with Antofagasta (ANTO), Kazakhmys (KAZ) and Eurasian Natural Resources (ENRC) 2.3%-3.6% lower as metal prices remained under the cosh.

But the stand-out performer, albeit on the wrong side of breakeven, was Reckitt Benckiser (RB.), which saw 7.5% sliced off its market value on the back of news CEO Bart Becht will be retiring later this year.

“As operationally strong as Reckitt is, the change of its top leadership in such a short period is a concern,” commented Lauren DeSanto, Morningstar Equity Analyst. Morningstar has placed the household goods manufacturer under review following the news. Our analysts were in the process of updating their model following the release of the firm’s annual filing, and anticipated raising the fair value estimate. While they still expect a fair value increase, they will probably revisit the assumptions made regarding the integration of recently acquired SSL International. The acquisition appears to be on track in terms of its integration, but Reckitt seems to have its hands very full right now. “The firm has a strong bench of managerial talent, and incoming CEO Rakesh Kapoor has a solid record with Reckitt and led the firm’s successful Powerbrand strategies,” added DeSanto.

BP (BP.) was another notable name appearing in the red on Thursday, down 0.9% after facing shareholders at an eventful annual general meeting in London. The oil giant’s management had to field questions not only about the Gulf of Mexico oil spill but also about its struggles to secure a joint venture with Russia’s Rosneft.

Excluding Reckitt, defensives were broadly in demand as investors steered clear of riskier assets and consumer-facing stocks featured on the blue-chip top line, with Associated British Foods (ABF), Marks & Spencer Group (MKS), Unilever (ULVR) and Whitbread (WTB) climbing 1.2%, 1.0%, 0.7% and 0.7% apiece.

Source : Hemscott – Holly Cook, 14/04/11 18:22

 

 

UK inflation rate falls to 4% in March

The CPI measure has now been one percentage point or more above target for 16 months.
The UK Consumer Prices Index (CPI) annual rate of inflation has fallen to 4%, down from 4.4% in February.
The drop was largely due a record monthly fall in the price of food and non-alcoholic drinks, which fell 1.4%, compared with a sharp rise last year.
Retail Prices Index (RPI) inflation – which includes mortgage interest payments – fell to 5.3% from 5.5% in February.
The fall eases pressure on the Bank of England to raise interest rates.
The Office of National Statistics (ONS) said fruit prices fell by 4.7%, while bread and cereals dropped by a record 2.6% when compared with March last year.
Falls in the price of air flights, games and toys also helped to offset rises in energy costs and cars, it added
Source : bbc/business 12 April 2011 Last updated at 09:44

 

 

UK Interest rates remain at record low

7 April 2011 Last updated at 12:00

The Bank of England’s Monetary Policy Committee has kept UK interest rates once more at a record low of 0.5%.
There has been no change to the Bank rate for 25 months, despite the fact that inflation is currently more than twice the Bank’s 2% target rate.
No new quantitative easing measures were unveiled.
Last month, three MPC members again voted for a rise, and it was revealed that consumer prices inflation rose again in February, to 4.4%.
Inflation continues to be boosted by rising commodities prices – not least the oil price, which is being driven higher both by strong demand from Asia and by supply worries due to the Middle East uprisings.
The Bank faces a dilemma over what to do on interest rates, and has chosen once again to wait and see.
Raising rates slows down inflation – and it is the Bank’s job to keep inflation in check.

But it also increases the cost of borrowing, and there are concerns this may tip the UK back into recession, especially after the shock 0.5% contraction in the economy seen in the last quarter of 2010.
“The Bank is right to look through the short-term rises in inflation and continue holding fire on rates for the time being,” said Jeegar Kakkad, economist at manufacturers’ organisation EEF.
“The current combination of unrest, upheaval and uncertainty we are seeing around the world poses significant risks to growth, whilst, at home, the full effects of fiscal tightening and the squeeze on consumers is still to be felt.”

However, other economists fear that unless the Bank takes action soon, the current high inflation rate may become locked in by higher inflation expectations and faster wage increases.

 

 

GlaxoSmithKline reduces carbon footprint by 4%

Pharmaceuticals giant GlaxoSmithKline (GSK) has reduced its carbon footprint by 4% to achieve the Carbon Trust Standard.

The Carbon Trust made the award after assessing GSK’s carbon footprint over the last three years, covering operations at 200 sites in 65 countries.

Over the assessment period, GSK reduced its carbon footprint by over 84,000 tonnes of CO2 equivalent and saved £3.8 million in energy costs.

The company installed wind turbines at its Barnard Castle facility in the UK and a rooftop solar array at its regional distribution centre in York, Pennsylvania.

GSK has also installed energy efficient lighting at five sites and implemented a canal water cooling system for its IT data centres at its headquarters.

The measures are the first stage of the company’s plans to reduce its carbon footprint by 10% by 2015 and 25% by 2020, before becoming carbon neutral by 2050.

“Not only did the scale of the project set a new benchmark for carbon reduction amongst businesses, but the extent of our cuts proved that it is possible to achieve a meaningful reduction in emissions,” said Richard Pamenter, head of sustainability at GSK.

Source : Energy efficiency news – 31/03/2011

 

 

Fixed-rate bonds’ interest rates rising

5 April 2011 09:53

Savers prepared to lock away their funds are receiving the best interest rates for more than a year, according to Moneyfacts.

The financial information service said that the interest rates offered on relatively short-term fixed-rate bonds have been rising since August 2010.

However, they have been increasing from an all-time low of 2.52% for a one-year bond.

The movement signals an expectation of a Bank rate rise in the coming months.

Rates

Moneyfacts said that the average interest rate for a one-year fixed-rate bond was now 2.85%, the highest since March 2010.

For a two-year bond, savers receive an average of 3.42%. Tying in money for three years garners an average rate of 3.7%, and when investing for five years the average interest rate is 4.17%.

“The biggest increase in rates is on short-term deals, which are the most popular amongst savers,” said Michelle Slade, of Moneyfacts.

“Most of the best deals are from smaller building societies. If savers want to make the most of their money they may need to look further afield than their local High Street.

“The markets expect a rise in Bank base rate in the not too distant future and this is being factored in to the rates being offered to savers.”

However, she warned savers that they would receive a hefty penalty if they needed access to their funds during the fixed-rate period, and so they should consider their financial situation before committing.

Scores of visitors to the BBC Money Matters Roadshow in Plymouth last week explained how they were struggling to find a home for their savings that brought them a decent return.

Source – BBC Business

 

 

BUY OR SELL-Where do EU carbon prices go from here?

By Nina Chestney
LONDON, March 28 (Reuters) – The price of European carbon permits have risen around 10 percent this month after political unrest in the Middle East, Japan’s earthquake and Germany’s decision to shut down old nuclear capacity.
EUAs for delivery in December 2010 CFI2Zc1 peaked at 17.75 euros a tonne on March 16 — their highest level since November 2008 — triggered by a nuclear crisis in Japan and a German government move to shut a third of its nuclear capacity.
After retreating to below 17 euros, prices hit an eight-day high of 17.35 euros in early trade on Monday, after a Green Party victory in Germany’s state elections suggested that Germany would rely more heavily on coal plants, thereby pushing up emissions.
Several traders and analysts see prices gaining more momentum this week, before shedding a euro or two in the spring due to reduced power demand and generation.
“A new upward trend seems to be on the horizon,” said Matteo Mazzoni, carbon analyst at Italy’s Nomisma Energia.
The German election outcome, an increase in spot trading and the release of European Union 2010 verified emissions data could drive carbon prices higher this week, Mazzoni said.
BUY
After Sunday’s election, the Greens, which secured the second-largest number of votes, are widely expected to form a coalition with the socialist party, which could lead to the permanent shut down of 7-8 gigawatts of nuclear capacity.
“That means around 70 million tonnes of extra carbon dioxide will be emitted and carbon is up on this prospect for now,” said Emmanuel Fages at Societe Generale/orbeo.
Spot trade is also likely to increase as more national EU emissions registries reopen. [ID:nLDE72R0VQ]
Any heightened trading activity could help carbon’s upward momentum.
However, prices would have to break through the 17.50 euro level to lead to higher gains, traders said.
The EU Commission’s release of verified emissions data for 2010 on Friday could help fuel that rise. Analysts expect the bloc’s emissions to have risen by 2-4 percent last year.
If the rise is stronger and the market remains in surplus of EUAs, it could help carbon break through 17.50 euros towards the next key level of 18.60, said OTC Europe’s Brett Genus.
But traders will be monitoring technical factors like changes in open interest to gauge if prices are likely to slip again.
Any resulting dips in price would be an opportunity to buy, Genus said.
SELL
EU emissions data is unlikely to affect prices, according to Barclays Capital analyst Trevor Sikorski.
“The market is likely to be neither shaken nor stirred by Friday’s numbers as the forecast balance for the phase is long some 450 million tonnes of EUAs — and market pricing already reflects this balance. It would take something outside the expected increase of 2-4 percent to be a surprise,” he said.
More long-term gains will much depend upon utilities’ hedging patterns. Warmer weather in Spring will also reduce power and thereby EUA demand, which could temper gains.
“I think the price will remain around 17 euros or increase a bit more this week but I don’t think it will go to 20 euros as there will be less power and electricity demand in spring which should make it go down a euro,” said Fages at Societe Generale/orbeo.

 

 

Environmental News Update

Green Investment Bank

George Osborne confirmed, as the Guardian indicated last week, that the bank will be able to borrow money and raise capital rather than just be a finite fund – but not until 2015-16, and not until the government’s debt target is met. In addition to the £1bn already committed to its capitalisation, the chancellor confirmed an extra £2bn would be raised through public asset sales. Previously a range of an extra £1-2bn had been discussed. The bank will start operating in 2012-2013.

Carbon capture and storage (CCS)

The government reaffirmed its commitment to paying £1bn for one demonstration plant to capture and store the carbon emissions from a coal power station. But Osborne changed the way a further three demo plants will be funded – they will now be paid for from general spending rather than a so-called “CCS levy” on energy bills.

Fuel duty

As widely expected the planned rise in fuel duty was delayed until 2012, because of the impact of rising oil prices on business and individuals, Osborne said. He also cut petrol duty by 1p per litre, which will take effect tonight. While it will be welcomed by most motorists, the move makes eco-friendly electric cars less attractive. The fuel duty escalator, planned to add 1p per year in future years on the price of fuel, was also cancelled.

Air passenger duty

A planned April rise in this “green tax” was delayed to 2012. The government said it was also starting a consultation on a reform of APD, including a plan to extend it to cover private jets. While it is ostensibly a tax on airlines, the airlines are allowed – and do – pass the cost on to their customers. It was introduced in 2008.

Carbon floor price

More detail than expected was announced today on this levy on electricity producers, which is based on the carbon content of fuels and intended to encourage greater investment in low-carbon energy. The floor price for carbon will be set at £16 per tonne of CO2 in 2013 -based on a target price of £30 per tonne – and move towards a target of £30 by 2020, the chancellor said.

Green deal

Osborne highlighted the government’s flagship policy to encourage homeowners to make their homes more energy-efficient through loans worth thousands of pounds. There were hopes that today would see further incentives for people to take up the scheme – such as a stamp duty exemption for green deal homes – but no further information was provided.

Low-emission cars

The chancellor froze company car tax for cars with low emissions – those that emit less than 95g CO2 per kilometre, meaning the very smallest petrol cars, as well as low carbon diesels and hybrid cars. The tax goes up by 1% for cars above that level. The measure is in addition to the existing grants of up to £5,000 for electric cars.

Climate change levy

The chancellor said the discount on this tax on energy users (not including homes and transport) would rise from 65% to 80% in April 2012. The higher discount should mean more companies have the incentive to enter into climate change agreements to cut their carbon emissions.

Source: http://www.guardian.co.uk/environment/2011/mar/23/budget-2011-green-measures – March 2011

 

 

The key points of Chancellor George Osborne’s Budget on 23 March 2011

FUEL, CIGARETTE AND ALCOHOL DUTIES

Fuel duty to be cut by 1p per litre from 1800 GMT
Planned inflation rise in fuel duty due in April to be delayed until 2012
Annual 1p above inflation “fuel escalator” rise scrapped until 2015
Measures to be paid for by £2bn extra taxes on North Sea oil firms
VAT on fuel will not be reduced
No additional changes to alcohol duty rates
Tobacco duty rates up by 2% above inflation, duty regime to be reformed

GREEN MEASURES

£2bn extra funding for Green Investment Bank – to launch in 2012
UK to introduce a carbon price floor for the power sector

INCOME TAX

No personal tax increases
Personal tax allowance to rise a further £630 to £8,015 in April 2012
Consultation on long-term plan to merge income tax and National Insurance
50% top rate of tax to remain but review of how much it raises
Direct tax rates to be indexed to Consumer Price Index from 2012

UK ECONOMY

2011 growth forecast downgraded from 2.1% to 1.7%
2012 forecast also down from 2.6% to 2.5%
Inflation set to remain between 4% and 5% in 2011, falling to 2.5% in 2012

BORROWING

Forecast borrowing of £146bn this year, £2.5bn lower than anticipated
Borrowing to fall to £122bn next year, dropping to £29bn by 2015-16
National debt forecast to be 60% of national income this year, rising to 71% in 2012 before falling to 69% by 2015

OTHER TAXES AND ALLOWANCES

Council tax to be frozen or reduced this year in every English council
10% inheritance tax discount for those leaving 10% of estate to charity
Rise in air passenger duty to be frozen this year
Continue reading this story…

FULL BUDGET DOCUMENTS

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Private jet users to pay passenger duty for first time
Inflation rise in road tax but duty for HGVs frozen
Levy of up to £50,000 on so-called “non-doms” resident in the UK for 12 years
Support for families in the south-west of England with water bills
Tax avoidance clampdown to raise £1bn this year
Production tax on North Sea oil firms to rise from 20% to 32%

HOUSING

Government-backed shared equity scheme to help 10,000 first-time buyers to purchase properties

HELP FOR BUSINESS

Corporation tax to be cut by 2% in April, not 1% as previously planned
Tax to cut by 1% in each of the next three years, reducing it to 23%
Bank levy to be adjusted so banks do not pay less tax as a result
43 tax reliefs to be scrapped as part of simplification of tax code
No new regulation on firms with fewer than 10 staff for three years
Business rate relief holiday for small firms extended for another year
New rules to require planners to prioritise growth and jobs
£100m funding for science facilities
21 “enterprise zones” to be created in England, backed by tax incentives
Reform of gift aid administration for charitable donations

JOBS AND SKILLS

Funding for 12 further university technical colleges
Extra 40,000 apprenticeships for young people out of work
Funding for 100,000 new work experience placements

PENSIONS

Accepts Hutton review of reform of public sector pension contributions
Long-term aim for £140 a week flat-rate state pension – not to apply to current pensioners

TRANSPORT

£100m for repairing potholes in England
£200m support for regional railways in England

Source – BBC News – 23rd March 2011

 

 

Reuters and Bloomberg

Warren Buffett, visiting India for the first time, said he hopes to invest in the South Asian nation after his Berkshire Hathaway Inc. (BRK/A) committed more than $35 billion to takeovers in the last two years.

Buffett, Berkshire’s chairman and chief executive officer, said at a media conference in Bangalore today. “India is a very logical place to look for investment so I hope we spend some money here”   “We tend to look at larger countries like India, China, U.K. Brazil, Germany. Those all fit us.”

Buffett, is seeking deals in the U.S. and abroad as earnings climb at Omaha, Nebraska-based Berkshire. He agreed this month to pay about $9 billion for engine-additive maker Lubrizol Corp. (LZ) and last year bought railroad Burlington Northern Santa Fe for $26.5 billion. Berkshire’s cash holdings rose to $38.2 billion as of Dec. 31, prompting Buffett to tell investors two months later that his “elephant gun has been reloaded.”

Buffett is seeking to expand into India to tap growth in Asia’s second-fastest growing major economy. India’s $1.3 trillion economy may expand by as much as 9.25% in the year starting April 1, the fastest pace since 2008, the finance ministry forecast last month.

Berkshire, which started selling insurance to Indian consumers after forging an agreement with Bajaj Allianz General Insurance, will keep doing business in India in that form as well as investing for the foreseeable future as the government caps foreign ownership in insurance companies to 26%, Buffett said.

Source: Reuters and Bloomberg – March 2011

 

 

British Pound May Reach Two-Year High, Citigroup Says

The pound may advance to a level last reached in October 2008 against the dollar if it closes above $1.6380, according to Citigroup Inc.

That rate, reached today, is a 74% retracement of sterling’s drop from August 2009 to May 2010, Citigroup technical analysts led by Tom Fitzpatrick in New York wrote in a research note to clients. If the currency closes above $1.6380, it may rise to $1.7050, which would be a 2 1/2-year high, according to Citigroup.

“It’s not going to be that easy to go through, but if we do, that would open up the way for an extension to higher levels,” Fitzpatrick said in a phone interview. “Today it was the extra little push out of the inflation numbers.”

The pound rose for a fourth day in the longest stretch of advances since January after a government report showed U.K. inflation accelerated to the fastest pace in more than two years, adding pressure on the Bank of England to increase its benchmark interest rate.

Sterling appreciated 0.4% to $1.6379 at 10:40 a.m. in New York, from $1.6311 yesterday. It touched $1.6401, the highest level since Jan. 19, 2010.

Consumer prices rose 4.4% in February from a year earlier after a 4% increase in January, the Office for National Statistics said today in London. That’s the highest level since October 2008.

The BOE will raise its benchmark interest rate from a record low 0.50% by a quarter-percentage point in the second quarter, according to the median forecast of 17 economists in a Bloomberg News survey.

Source: Bloomberg – March 2011

 

 

Solar Reports World Solar Photovoltaic Market Grew to 18.2 Gigawatts in 2010, Up 139% Y/Y..

SAN FRANCISCO, Calif.—March 15, 2011—Worldwide solar photovoltaic (PV) market installations reached a record high of 18.2 gigawatts (GW) in 2010. This represents growth of 139% over the previous year, according to the annual PV market report, Marketbuzz® 2011, issued today by Solar, a California-based solar energy consultancy, and a part of The NPD Group.

The PV industry generated $82 billion in global revenues in 2010, up 105% Y/Y from $40 billion in 2009. Companies throughout the PV chain successfully raised more than $10 billion in equity over the last 12 months.

In 2010, the top five countries by PV market size were Germany, Czech Republic, Japan, India and the United States—representing over 80% of global demand. European countries represented 14.7 GW, or 81% of world demand in 2010. The top three countries in Europe were Germany, Italy, and the Czech Republic, which collectively totalled 12.9 GW. In 2010, the Japanese and US markets grew by 101% and 96%, respectively. In all, over 100 countries made some contribution to soaring global PV demand last year with India now at the forefront of this growth energy market.

Source: Solar Growth – March 2011

 

 

ONE of the City’s top experts has urged press to stop moaning about the economy – because it’s on the UP

Jim O’Neill of Goldman Sachs said the UK had made a “significant” recovery, led by manufacturing.

He has insisted the markets should stop “freaking out” about the financial fallout from Japan. He said it was unlikely to have any influence on the global economy unless oil prices soared on the nuke meltdown.

Mr O’Neill was speaking as the OECD think-tank CUT its forecasts for UK growth for 2011 to 1.5 per cent. He stuck to over 2 per cent and said we’d get a huge boost from China and other powerhouse countries such as Brazil. He admitted households were under pressure – but said the mood should be different from the “misery” in headlines.

The rallying cry came at a retail industry conference in London. Mr O’Neill said: “You would think from the tone of the media that the UK would never be able to grow again.
“It did collapse but it has recovered significantly. It is led by the forgotten man – manufacturing.”

Mr O’Neill added that global GDP should rise by 4.8 per cent – above the average for the past 35 years. He based his optimism on the enormous growth in China. The country imported $1.4TRILLION worth of products last year – up $400billion. The increase alone is TWICE the size of Egypt’s entire GDP.

Mr O’Neill coined the phrase “BRIC nations” in the Noughties to describe the booming economies of Brazil, Russia, India and China. He said South Korea, Indonesia, Mexico and Turkey should now be added to the list.

Source: Goldman Sachs – March 2011

 

 

Knight Frank: Thursday March 17th 2011

Liam Bailey, head of Knight Frank Residential Research, comments: “Prices slipped in London during the summer and autumn last year, which fitted the wider narrative of a weakening UK economy and a weaker national housing market.

“Since then prices have resumed their recovery, and in the four months to the end of February they rose by 4%. The reasons for this growth, and the divergence of this market from national trends, can be partially ascribed to low stock volumes, and a desire from buyers over recent months to buy and fix their borrowing costs at very low rates.

“However, the most important factor driving price growth, has been growing demand for London property from international buyers. Over the last 12 months the proportion of £2m+ sales which have gone to non-UK buyers hit 52%. Above £5m the figure was 64%.
“The number of different nationalities who are buying in London has also risen, from 46 in 2009 to a new record of 61 over the past year.

“The nationalities which have seen the fastest growth in sales volumes have been Spanish buyers (up by 340% in the year to February 2011), followed by buyers from Uzbekistan (see table 2 below).

“Looking at our top 15 fastest growing nationalities by market share, we can see several trends at play. Eurozone concerns appear to have pushed buyers from Spain, Greece and France into 1st, 5th and 12th place respectively.

“Wealth generation from the mining and commodity sectors has propelled demand from Uzbekistan, Australia, Nigeria and Russia. Asian economic growth has fuelled demand from Hong Kong, Malaysia, Taiwan, China and India.

“Looking ahead at how these trends will change over time, London’s leading wealth managers and private bankers recently confirmed, in our Super-Prime London Survey, that the 10 nationalities most likely to grow their share of purchases in the central London market over the next 12 months were: 1 Russian, 2 Chinese, 3 Indian, 4 UAE, 5 Other Middle East, 6 Egyptian, 7 Italian, 8 Lebanese, 9 Turkish and 10 Brazilian.”

Source: Knight Frank – March 2011

 

 

Investors’ $102 Billion Metals Wager Showing Bull Market Intact

After the worst January for precious metals in two decades, investors still have a $102 billion bet on higher prices, hoarding more gold than all but four central banks and more silver than the U.S. can mine in almost 12 years.

The five analysts ranked by Bloomberg as the most accurate over two years expect silver to rise as much as 24% before the end of 2011 and gold 20%, the median of their estimates show. UBS AG predicts the strongest industrial demand for silver since at least 1990 and the second-highest sales of exchange-traded gold products on record.

The decade-long surge in gold attracted fund managers from John Paulson to George Soros and is now spurring central banks to add to their reserves for the first time in a generation. Once written off as demand for photographic film waned, silver found new uses in everything from solar panels to plasma screens, making it the precious metal most used in industry. As stocks rose 9% and Treasuries returned 67% since the end of 2000, gold surged five-fold and silver six-fold.

“I had to chuckle when I saw reports that it was over for gold,” said Michael Cuggino, who helps manage $10 billion at Permanent Portfolio Funds in San Francisco, and has about 20% of his assets in gold. “Some investors have taken money off the table after a significant run-up in 2010. If you look at the macro environment, the instability around the world, the worldwide currency devaluation, these factors all bode well.”

Source: Bloomberg – March 2011

 

 

India will begin rolling out hundreds of megawatts of solar power by December next year

India will begin rolling out hundreds of megawatts of solar power by December next year, ahead of an initial target for an ambitious plan that seeks to zoom production from near zero to 20 gigawatts by 2022.

Under its Solar Mission plan issued last year, India is to produce 1,300 megawatt (MW) of power by 2013, an additional supply of up to 10 gigawatt (GW) by 2017 and the rest by 2022 at an overall investment of about $70 billion.

Once implemented, the plan would see output equivalent to one-eighth of India’s current installed power base, helping the world’s third-worst polluter limit reliance on coal and easing a power deficit that has crimped economic growth.

Debashish Majumdar, chairman and managing director of Indian Renewable Energy Development Agency, told the Reuters Global Climate and Alternative Energy Summit that a strong investor interest in India’s solar power indicated the goals could be met.

“We are over-subscribed for the first phase of 1,300 MW, and by December 2011 generation will have begun work for at least half of this target,” he said.

“The rest could be done by December 2012 which will be ahead of schedule. There is no death of investors.”

Going by current figures, for example, investments chasing every 1000 MW of photo-voltaic and solar-thermal power was almost four times the capacity.

With about 250-300 clear sunny days in a year, India’s solar power reception is about 5,000 trillion kilowatt hour per year, meaning just 1 percent of India’s land area can meet the country’s entire electricity requirements till 2030.

Such potential holds huge attraction for firms such as Tata BP Solar, a joint venture between Tata Power (TTPW.BO) and BP plc’s (BP.L) solar unit, BP Solar, and Bharat Heavy Electricals Ltd (BHEL.BO), a state-run power and engineering equipment firm, and Lanco Infratech (LAIN.BO).

Which is why solar is a key thrust area in the renewables sector.

Source: Reuters – March 2011

 

 

Commodity News – Rio Tinto’s 2010 profits triple to $14bn

Annual profits at mining giant Rio Tinto have nearly tripled on the back of rising commodity prices and strong growth in emerging markets.

The Anglo-Australian company reported net profits of $14.3bn (£8.9bn) for 2010, up from $4.9bn in 2009.

It said it would return $5bn to shareholders through a share buy-back programme by the end of 2012.

“Rio Tinto is reinvigorated, running strongly and benefiting from favourable markets,” said chief Tom Albanese.

The company also announced a final dividend of 63 cents per share.

That took its total dividends for 2010 to 108 cents per share, marking a 20% increase on its previous commitment.

UBS analyst Glyn Lawcock said profits were broadly in line with forecasts, but the dividend increase was ahead of expectations and the share buy-back had come about six months earlier than anticipated.

“Rio has come and surprised people on the upside with the dividend and the buy-back. The buy-back is clearly positive and it’s what shareholders were asking for,” he said.

Prices for commodities – including coal, metals, grain and cotton – are rising, pushed higher by increased demand from emerging economies, as well as concerns about supply caused by natural disasters including the recent flooding and cyclones in Australia, and last year’s wildfires in Russia.

Chief executive Tom Albanese indicated that prices could keep rising, as emerging markets continued to grow.

Source: BBC NEWS – March 2011

 

 

Anglo American profits surge on commodity prices

Emerging markets are more than offsetting economic weakness in more developed nations Mining company Anglo American saw pre-tax profits almost treble in 2010, helped by rising commodity prices and improvements in productivity.

The firm made $10.9bn (£6.7bn) compared with $4.02bn the year earlier as sales jumped 34% to $32.9bn.

Anglo also announced it was forming a joint venture of its UK building materials group, Tarmac UK, with the UK arm of French firm Lafarge.

Combined, the two businesses had sales of $2.8bn in 2010.

The merger will save at least £60m per year in costs, Anglo said.

The company said that prices had risen for all the company’s mining production, including a 48% gain for nickel and 34% for platinum.

The De Beers diamond business enjoyed strong demand from Asia.

“While there remain a number of uncertainties in the immediate term, not least in the developed economies, our medium-to long-term view of demand growth for our commodities remains positive, driven by the resource intensive nature of economic growth in emerging markets,” said chief executive Cynthia Carroll.

Last week its rival Rio Tinto saw its 2010 profits nearly treble on the back of rising commodity prices and strong growth in emerging markets.

Source: BBC NEWS – March 2011

 

 

United Nations Carbon Credit Prices May Rise by 42% by 2012, Barclays Says

Prices of United Nations Certified Emission Reduction credits will increase by as much as 42% by 2012 as new rules reduce supplies, Barclays Plc said.

CERs under the UN’s Clean Development Mechanism program may rise to about 18 euros a metric ton in two years, and to as much as 25 euros in the third phase of the European Union’s carbon- trading plan starting 2013, Trevor Sikorski, London-based chief analyst at Barclays Capital, said yesterday. UN CERs for December fell 1.6% to 12.69 euros a ton yesterday on London’s European Climate Exchange.

The issuance of as many as 30 million tons of CERs under the UN’s Clean Development Mechanism may be delayed to next year, cutting this year’s supplies by about 30%, Sikorski said in an interview at the Carbon Asia Forum 2010 conference in Singapore.

Prices of CERs may average 14.5 euros a ton in the first half of 2011, and 16 euros in the second half, according to a Barclays report on Oct. 21. CDM offsets are currently used for compliance in the European carbon market, the world’s biggest exchange.

The UN and the European Union said they may issue new rules on the methodology of issuance and acceptance of carbon credits for hydro-fluorocarbon (HFC) combustion plants and other industrial gases.

The European Commission, regulator of the EU program, plans to publish an impact assessment on offset restrictions by November and said in May that projects related to two industrial gases, HFC-23 and nitrous oxide, create significant windfall profits and may be banned after 2012. A proposed U.S. energy law bans HFC credits.

Prices of CERs, which typically track prices of European Union carbon allowances, will rise as UN restrictions will reduce supplies of HFC-linked CERs and EU rules will force utilities and other users to switch to credits from renewable energy industries, Sikorski said.

Source: Bloomberg News – March 2011

 

 

Science Daily

If someone told you there was a way you could save 2.5 million to 3 million lives a year and simultaneously halt global warming, reduce air and water pollution and develop secure, reliable energy sources — nearly all with existing technology and at costs comparable with what we spend on energy today — why wouldn’t you do it?

According to a new study co-authored by Stanford researcher Mark Z. Jacobson, we could accomplish all that by converting the world to clean, renewable energy sources and forgoing fossil fuels.

“Based on our findings, there are no technological or economic barriers to converting the entire world to clean, renewable energy sources,” said Jacobson, a professor of civil and environmental engineering. “It is a question of whether we have the societal and political will.”

He and Mark Delucchi, of the University of California-Davis, have written a two-part paper in Energy Policy in which they assess the costs, technology and material requirements of converting the planet, using a plan they developed.

The world they envision would run largely on electricity. Their plan calls for using wind, water and solar energy to generate power, with wind and solar power contributing 90 percent of the needed energy.

Wind and solar are complementary, Jacobson said, as wind often peaks at night and sunlight peaks during the day. Using hydroelectric power to fill in the gaps, as it does in our current infrastructure, allows demand to be precisely met by supply in most cases. Other renewable sources such as geothermal and tidal power can also be used to supplement the power from wind and solar sources.

Source: Science Daily – March 2011

 

 

Forest Carbon Credits Poised for Global Growth

When it comes to purchasing carbon offsets, a growing number of companies are thinking — and acting — about forestry projects as a desirable type of offset to invest in. The results come from the second annual Forest Carbon Offsetting Report, produced by EcoSecurities with Conservation International, The Climate, Community & Biodiversity Alliance, ClimateBiz and the Norton Rose Group. The report, which focuses on corporations’ attitudes towards carbon offsets from forestry projects, found positive attitudes toward forest offset projects from 80 percent of respondents, up from 58 percent in 2009.

“Forestry has always been at the center of international climate change negotiations,” said Paul Kelly, the CEO of EcoSecurities. “It’s hugely encouraging to see that despite the lack of clarity which still surrounds impending regulation the majority of survey respondents have a very positive attitude to forestry and are actively seeking ways to reduce GHGs and mitigate climate change through forest carbon offsets.”

 

 

Carbon Credit Investors see prospects for 2012

Investors in the United Nations’ Clean Development Mechanism (CDM) now have more confidence in the carbon offset market after 2012 after the number of post-2012 carbon credit deals rose in recent weeks. The CDM is part of a U.N. treaty to fight climate change, the Kyoto Protocol, whose first commitment period (2008-2012) sets emissions targets for rich nations that drive demand for carbon credits called certified emissions reductions (CERs).

Investors earn CERs for developing clean energy projects in poorer nations. However, the Kyoto Protocol expires in 2012 and talks on a successor have so far failed to make much progress.

Earlier this year, many investors were not very confident that CERs would have a market value after 2012, as concerns grew over the shape or even existence of the CDM after that time.

On Thursday, UK-based project developer Camco International reported for the first time that it had secured options in CERs due to be issued after 2012 because of more interest from buyers and more market transactions taking place.

“The market has evolved. There is a tangible value for post-2012 credits,” Yariv Cohen, Camco’s chief carbon officer, told Reuters.

In a project development update, Camco said it has contracts for a risked 28.1 million tonnes and holds contractual rights of up to a further risked 27.6 million tonnes.

MORE DEALS, CLARITY

This week alone saw three post-2012 deals announced.

A consortium agreed to buy 2 million pre-2012 and post-2012 CERs from a Moroccan wind farm project, while Vitol SA bought 8.5 million CERs from carbon asset manager KYOTOenergy Pte, of which 92 percent are expected to be issued after 2012.

German chemical company Lanxess invested 7 million euros ($9.67 million) in an Indian biomass project to earn post-2012 CERs, Point Carbon reported.

In September, French carbon investor CDC Climat set up a subsidiary to manage 60 million euros of investment in carbon assets, including post-2012 credits.

“Demand been up for a quite a while. People are making sure they are positioned properly for 2012,” said Simon Glossop, partner at CF Partners.

Over the past few months, there has also been more clarity about what will and will not be eligible for use in the EU’s Emissions Trading Scheme (EU ETS) from 2013, investors said.

The European Union will propose how to restrict the use of some CERs from industrial gas projects in the third phase of its carbon market (2013-2020) before U.N. climate change talks in Cancun, Mexico, which start on November 26.