News That Matters (September 6, 2011)

Tuesday, September 6th, 2011

FT.com
Investment vehicle NBNK is discussing the takeover of National Australia Bank’s UK assets, the Telegraph reports, in a deal that will kick-start the formation of a new banking group that could challenge Britain’s largest lenders. http://ftalphaville.ft.com/thecut/2011/09/06/669726/nbnk-looks-to-strengthen-lloyds-bid/

Big US banks in talks with state prosecutors to settle claims of improper mortgage practices have been offered a deal that is proposed to limit part of their legal liability in return for a multibillion dollar payment. The FT says talks aim to settle allegations that banks including Bank of America, http://ftalphaville.ft.com/thecut/2011/09/06/669681/us-banks-in-robosigning-settlement-talks/

Eurozone bank sector tensions have increased the volume of euros parked overnight at the European Central Bank to levels not seen for more than a year, the FT reports. Some €151.1bn was left by banks in the ECB’s deposit facility over last weekend, http://ftalphaville.ft.com/thecut/2011/09/06/669596/banks-park-record-volume-of-euros-at-ecb/

George Osborne needs to “step up a gear” and deliver a game-changing growth plan if he is to have a chance of reviving a flagging British economy in 2012, the CBI warned as it downgraded its forecasts for next year after a tumultuous August. http://ftalphaville.ft.com/thecut/2011/09/06/669526/cbi-presses-osborne-on-growth/

President Barack Obama used a Labor Day rally to call again for more infrastructure spending and a payroll tax cut ahead of Thursday’s nationally televised jobs speech, reports Reuters. “We’ve got more than 1 million unemployed construction workers ready to get dirty right now. http://ftalphaville.ft.com/thecut/2011/09/05/669511/obama-previews-big-jobs-speech/

Indian authorities have arrested a top mining baron as part of a crackdown on illegal iron ore extraction, in the latest move to stamp out political corruption in the country, reports the FT. Janardhan Reddy,http://ftalphaville.ft.com/thecut/2011/09/05/669426/indian-tycoon-held-in-illegal-mining-swoop/

Libyan oil production will not return to pre-war levels until late next year at the earliest, with many of the country’s oil facilities having suffered heavy damage and looting during the conflict, according to the newly appointed chairman of the country’s National Oil Company. Offering the most detailed assessment yet of the outlook for Libya’s oil output in an interview with the Financial Times, Nuri Berruiensaid it would be late 2012 or early 2013 before the country was again producing the 1.6m barrels per day it had before this year’s uprising agains Muammer Gaddafi . http://www.ft.com/intl/cms/s/0/c382946a-d7b5-11e0-a06b-00144feabdc0.html#axzz1X96Le14n

A Chinese official confirmed on Monday that Colonel Gaddafi’s regime sent representatives to China to discuss buying weapons from arms companies long after the imposition of UN sanctions but said the Chinese government was unaware of the visit at the time. Jiang Yu, the official, also stressed that no contracts were signed and no arms shipments were made. The revelations were first reported by the Globe and Mail of Toronto. http://www.ft.com/intl/cms/s/0/77a3e566-d7bb-11e0-a06b-00144feabdc0.html#axzz1X96Le14n

WSJ.com
Asian shares fell on Tuesday, while the euro slid to a one-month low against the U.S. dollar as euro-zone sovereign debt concerns and global growth worries continued to drive investors from riskier assets. Japan’s Nikkei Stock Average shed 1.2%, Australia’s S&P/ASX 200 fell 1.2%, South Korea’s Kospi Composite lost 0.6% and New Zealand’s NZX-50 gave up 0.5%. Dow Jones Industrial Average futures were sharply down 246 points in screen trade. http://online.wsj.com/article/SB10001424053111904537404576553373055634128.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Australia’s central bank left its cash rate target unchanged at 4.75% Tuesday, as expected by economists. Interest rates have now been on hold for almost a year, with the Reserve Bank of Australia balancing inflation concerns against an increasingly fragile world environment and signs of slowing in some industries locally. A high Australian dollar has also taken pressure off the central bank to tighten interest rates beyond its current “mildly restrictive” stance. The RBA raised interest rates seven times between October 2009 and November 2010, giving Australians some of the highest interest rates in the developed world. http://online.wsj.com/article/SB10001424053111904537404576553621174335878.html?mod=WSJASIA_hpp_LEFTTopWhatNews

International financial markets tumbled as a darkening global economic outlook and deepening fissures in Europe over its debt crisis fueled fears the world economy could slip into a period of prolonged malaise.The Stoxx Europe 600 index fell 4.1% Monday, with banks hard hit. The euro slid below $1.42, its lowest in a month. The declines followed a slide in Asia, where stock indexes in China and Japan dropped by about 2% Monday. On Tuesday morning Asian markets again moved lower, with Japan shares falling 1.2% by late morning. During early Asian trading the 10-year U.S. Treasury yields hit ashttp://online.wsj.com/article/SB10001424053111904537404576552871868770308.html?mod=WSJ_hp_LEFTTopStories

Italy’s industry minister has dismissed widespread calls for Rome to speed up its timetable for passing budget-tightening measures, rebutting criticism that the Italian government’s austerity package isn’t tough enough to dig the country out of the euro-zone debt crisis. http://online.wsj.com/article/SB10001424053111904537404576552383582883442.html?mod=WSJEurope_hpp_LEFTTopStories

South Korea’s revised second-quarter gross domestic product growth grew a revised, seasonally adjusted 0.9% from the previous quarter, confirming that Asia’s fourth-largest economy is slowing amid growing concerns about the possibility of the world economy falling into a double-dip slump. The revised growth rate is slightly faster than the 0.8% rate estimated by the Bank of Korea in July, but slower than the 1.3% on-quarter expansion in the first quarter. http://online.wsj.com/article/SB10001424053111904537404576553332497846662.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

U.K. retailers are braced for more downbeat news as summer earnings are expected to show continued weak consumer demand, especially for hard-hit electrical retailers, with the sector still nursing the wounds of the August riots and economic and market turmoil.  Analysts expect no respite until December. Meanwhile, consumer confidence continues to fall and the threat of a return to recession looms large. Polling firm GfK NOP Wednesday said its main measure of consumer confidence fell to minus 31 in August, equalling the low it hit in April. In July, the index stood at minus 30. http://online.wsj.com/article/SB10001424053111904900904576552333414548232.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Swiss bankers and politicians on Monday tried to deflect growing pressure from U.S. authorities on Switzerland to reveal additional client data in a continuing tax dispute between the two countries. Concerns arose over the weekend that the banks may have to hand over more client data by Tuesday, as details of a letter from U.S. Deputy Attorney General James Cole asking for more account information from potential U.S. tax dodgers became public, triggering a sharp response http://online.wsj.com/article/SB10001424053111904537404576552132246760552.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Deutsche Bank AG Chief Executive Josef Ackermann warned that prospects for the financial sector are constrained by the mounting debt burden of sovereign and private debtors and that Germany’s largest bank might need to shed jobs if the negative market trend from August continues. Mr. Ackermann conceded that European banks don’t face a “rosy” future in their home markets unless they can gain market share. Deutsche Bank has made an attempt at this by taking over retail bank Deutsche Postbank and other units. http://online.wsj.com/article/SB10001424053111904537404576552110978260194.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Reuters.com
Spot gold hovered around $1,900 an ounce on Tuesday, as renewed fears over the euro zone’s debt crisis and concerns about stalled global growth drove investors to seek safety in bullion. Spot gold was flat at $1,900.64 an ounce by 0257 GMT, after hitting an intra-day high of $1,903.09 earlier, about $8 off the record of $1,911.46 set on August 23. U.S. gold gained 1.4 percent to $1,903.80. Spot gold is expected to touch $1,916 before it starts a moderate retracement, said Reuters market analyst Wang Tao. http://www.reuters.com/article/2011/09/06/us-markets-precious-idUSTRE78401J20110906

Oil fell more than 2 percent for a third successive day of losses on Monday, tumbling in tandem with other risk assets as European bank and debt jitters and doubts over global growth haunted traders. ICE Brent futures for October fell $2.25 to $109.92 a barrel by 3:30 EDT, nearing the 200-day moving average support line at $109.26. U.S. crude futures dropped $2.85 to $83.61 a barrel, putting the closely watched Brent/WTI spread at what would be a record close of $26.31. Volume was predictably thin, with Brent crude at only about 40 percent of its average and U.S. trading at 10 percent.http://www.reuters.com/article/2011/09/05/us-markets-oil-idUSTRE77838320110905

China’s economic growth may ease to below 9 percent in 2012, partly due to a weak global economy, a senior Chinese foreign exchange official said on Tuesday, backing market expectations that the world’s No. 2 economy is set for a mild easing. But even as the economy cools, Huang Guobo, the chief economist at China’s currency regulator, the State Administration of Foreign Exchange, told a forum that inflation is still a policy focus for Beijing in coming months. “The Chinese economy is facing serious challenges despite strong growth,” Huang said. http://www.reuters.com/article/2011/09/06/us-china-economy-safe-idUSTRE7850F020110906

Australian banks will need to meet new global capital rules ahead of the internationally agreed timetable under proposals made on Tuesday, although the move is unlikely to force any of them to raise any new equity immediately. The new Basel III rules, aimed at preventing another global banking crisis, require lenders to hold more capital aside in the form of equity, reserves and retained earnings in case of a sharp economic downturn. http://www.reuters.com/article/2011/09/06/us-australia-banks-idUSTRE78501D20110906

Bloomberg.com
German Chancellor Angela Merkel told members of her Christian Democrats that Greece will not receive aid payments due this month unless it meets conditions of the rescue, two party officials said. The remarks, made at a meeting of ruling party lawmakers in Berlin late yesterday, were repeated by Finance Minister Wolfgang Schaeuble and reiterate existing policy, one of the officials said, speaking on condition of anonymity because the talks were in private. http://www.bloomberg.com/news/2011-09-05/merkel-said-to-tell-cdu-members-that-greece-must-meet-conditions-for-aid.html

Hurricane Katia “strengthened considerably” to a category 4, the second-highest level, as it churned over the Atlantic, the National Hurricane Center said. Katia had maximum sustained winds of 135 miles (215 kilometers) per hour, according to an advisory at 11 p.m. New York time yesterday. The system was about 450 miles south of Bermuda traveling northwest at 10 mph. http://www.bloomberg.com/news/2011-09-06/hurricane-katia-strengthens-to-category-4-travels-in-northwest-direction.html

The number of chief executive officers cutting profit forecasts fell 38 percent below average last month, even as the slowing economy pushed valuations to the lowest level at the start of September since 1985. A total of 138 companies reduced earnings forecasts in August, compared with the average of 221 for the same month since 2000, according to data compiled by Bloomberg. At the same time, the Standard & Poor’s 500 Index slumped 5.7 percent, pushing its price-earnings ratio to 13.3, the data show. Futures on the S&P 500 that expire this month fell as much as 2.8 percent today.http://www.bloomberg.com/news/2011-09-06/ceos-cutting-forecasts-fall-38-with-s-p-cheapest-in-september-since-1985.htmlCnbc.com

CNBC.com
The current liquidity support measures being used by the European Union to stem the region’s banking and sovereign debt crisis won’t be enough, World Bank President Robert Zoellick told CNBC in an interview on Tuesday. “They’ve tried to pump money into it, they’ve tried in the past month… the ECB bought a lot of bonds. But, I think dealing with these problems through liquidity measures will not be sufficient,” Zoellick said during a visit to Singapore. http://www.cnbc.com/id/44403874

Republican presidential hopeful Mitt Romney will propose a jobs plan to cut corporate taxes, reduce federal regulations and get tough against China on trade. In a column set to appear in Tuesday’s USA TODAY newspaper, the former Massachusetts governor said his plan would consist of 59 proposals, including 10 that he would introduce on his first day in office. http://www.cnbc.com/id/44402688

The austerity measures implemented by British finance minister George Osborne risk pushing the UK economy into recession, Bill Gross, the manager of PIMCO, said in an interview with the Times newspaper. Gross, who manages the world’s biggest bond fund, told the newspaper that a “mid-course correction” of the fiscal plans would lift the economy and should not damage the country’s standing with bond investors. http://www.cnbc.com/id/44225214

NYTimes.com
The German constitutional court could, but probably won’t, throw the euro into chaos when it issues a key ruling Wednesday on Germany’s participation in the rescue mechanism for fiscally troubled euro members. But, analysts say, the judges are likely to impose restrictions on the German government that could make decision making in the zone even more cumbersome than it already is.http://www.nytimes.com/2011/09/06/business/global/german-court-ruling-could-complicate-euro-zone-decisions.html?_r=1&ref=global

Foxbusiness.com
Australia’s current-account deficit narrowed by 3.69 billion Australian dollars ($3.87 billion), or 33%, to A$7.41 billion in the April-June quarter, the Australian Bureau of Statistics reported Tuesday. Exports increased 8% to A$5.83 billion, while imports increased 4% to A$2.98 billion, the ABS said. In seasonally adjusted terms, the net deficit rose 19% to A$10.22 billion in the quarter. This is expected to detract 0.5 percentage points from April-June gross domestic product growth, the ABS said. http://www.foxbusiness.com/2011/09/05/australias-current-account-deficit-narrows/#ixzz1X9A3fRuj

The World Trade Organization’s top court on Monday upheld a prior ruling that the United States has the right to impose additional duties on imports of Chinese tires, U.S. Trade Representative Ron Kirk said in a statement. The WTO decision involves a dispute that began after the U.S. imposed 35% duties in September 2009 after the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union complained rising Chinese imports were damaging U.S. producers. The WTO verdict is a “tremendous victory for the United States as well as for American workers and manufacturers,” Kirk said in the release. http://www.foxbusiness.com/2011/09/05/wto-rules-against-china-over-us-tire-tariffs/#ixzz1X9A8ote8

BBC.co.uk
A number of European banks would not survive a cut in the value of their sovereign debt investments, the chief executive of Deutsche Bank has warned. Speaking at a gathering of bank bosses in Frankfurt, Josef Ackermann said he was “stating the obvious”. His comments come as Greece is asking private investors to swap their current Greek bonds for others that pay less interest over a longer term.http://www.bbc.co.uk/news/business-14786589

Europe will not slide back into recession, and the euro remains “strong and resilient”, the president of the European Commission has said.Jose Manuel Barroso added that the Commission and national governments were “doing all it takes” to tackle the debt problems in the eurozone area. His comments came after rating agency Standard & Poor’s (S&P) said last week that the risk of a double dip recession in the eurozone had grown. http://www.bbc.co.uk/news/business-14784180

Telegraph.co.uk
Forty-nine billion pounds was wiped off the value of the UK’s leading shares on Monday following renewed fears over the health of the British economy and concerns over the fate of British banks being sued by US regulators.  The FTSE 100 tumbled 3.6pc – 189.45 points – to close at 5,102.58 after investor confidence was knocked by an unexpectedly sharp fall in services sector growth in August. The Markit/CIPS services purchasing managers’ index fell to 51.1 in August from 55.4 in July, the biggest drop since the foot and mouth crisis a decade ago. Economists were alarmed by the scale of the fall, which had been far larger than expected and triggered fears that the UK is now on course for a double-dip recession. http://www.telegraph.co.uk/finance/financialcrisis/8742841/FTSE-100-sees-49bn-wiped-off-shares-on-euro-fears-and-bank-lawsuit.html

Alarm bells were sounded over prospects for the British economy after growth in Britain’s dominant services sector slowed last month at its fastest pace since the 2001 foot and mouth crisis. The decline in growth increased the likelihood of further stimulus from the Bank of England, economists said. Activity was much weaker than economists had expected, falling to 51.1 in August from 55.4 in July on the Markit/CIPS services purchasing managers’ Index (PMI). It was the second-biggest fall on record, and confounded forecasts for a gentler drop to 54, although it remained above the crucial 50-mark that divides growth from contraction. http://www.telegraph.co.uk/finance/economics/8742519/Services-growth-slows-at-fastest-pace-since-2001.html

Guardian.co.uk
Bank bosses fighting proposals to force them to ringfence their high street operations from higher-risk investment banking businesses have been handed fresh ammunition today with a warning that the suggested split could wipe 0.3% off gross domestic product at a time when economic growth looks increasingly fragile. http://www.guardian.co.uk/business/2011/sep/05/item-club-ringfencing-gdp

Smh.com.au
In leaving its cash rate unchanged at 4.75 per cent today, the Reserve Bank effectively conceded that the next move in rates will be determined by events outside its and Australia’s control. The signs are however that it will cut rates if it gets the room to do so. In its statement announcing that its key rate had been left unchanged for a ninth consecutive month, the Reserve cited a litany of worries. http://www.smh.com.au/business/rates-out-of-rbas-control-20110906-1jvfa.html#ixzz1X9BvSDIJ

Economic data released today poured cold water on expectations tomorrow’s national accounts will reveal a big bounce in economic activity in the june quarter. In short, the seasonally adjusted real-terms figures showed government spending fell and imports grew faster than exports.The 0.4 per cent fall in government spending – mainly the result of falls in capital investment – will trim a tenth of a percentage point from growth. http://www.smh.com.au/business/big-gdp-rise-looks-less-likely-20110906-1jvb2.html#ixzz1X9C14lYi

A global recession is more likely than not as the US and European economies are at “stall” speed, Singapore’s finance minister says. Tharman Shanmugaratnam told a conference that the world has now “entered a phase where there is a self reinforcing cycle” of a loss of consumer confidence, which is leading companies to hold back on investing. “Asia will not be immune to a global slowdown. We are already at stall speed in US and Europe, which means we are now more likely than not to see a recession,” Mr Tharman said. http://www.smh.com.au/business/world-business/global-recession-likely-singapore-says-20110906-1jv8e.html#ixzz1X9C5o7Fm

Russia’s central bank has urged the country’s finance houses to sell stocks and diversify their portfolios in preparation for another European market implosion in the months to come. The bank said it had conducted a stress test showing the country’s banks losing 351 billion rubles ($11.3 billion) from a 20 per cent decline on the main European exchanges – a figure equivalent to more than six months of industry profits. “The main foreign markets threat is not coming from the US and its low (debt) rating, but from the European market,” said Sergei Moiseyev of the central bank’s financial stability department.http://www.smh.com.au/business/world-business/russian-central-bank-warns-of-european-crisis-fallout-20110906-1jurx.html#ixzz1X9CClqRp

Theglobeandmail.com
Will a cut follow the pause? The question of how long Mark Carney will wait before he raises interest rates has shifted to include the possibility he could reduce borrowing costs in the face of a global slowdown. As warning signs for the recovery flash red, Mr. Carney is expected to keep Canadian interest rates on hold this week and could indicate that his year-long pause will continue for several months. http://www.theglobeandmail.com/report-on-business/carney-rate-pause-expected-but-cut-could-follow/article2154036/

Straitstimes.com
European Commission chief Jose Manuel Barroso said he is confident the euro will survive and that the European Union will emerge stronger from the current economic crisis. Speaking as European markets tumbled on renewed fears over the risk of recession and euro zone debt, Mr Barroso expressed confidence that the fiscal consolidation and structural reform efforts underway would work.http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_709928.html

The head of the World Bank on Monday urged China to rebalance its export-driven economy and said taming rising inflation remained the most important challenge for the country in the short term.  Robert Zoellick said the world’s second-largest economy would have to focus more on domestic demand, and warned that the coming months would be a ‘sensitive time’ for many of the major developed economies.http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_709687.html

Xinhuanet.com
South Korean economy is facing high inflation at home and growing external uncertainties from abroad, the finance ministry said Tuesday. “Amid high inflation at home, the economy is faced with downside risks of the global economy and expanding volatilities in the financial markets at home and abroad,” the Ministry of Strategy and Finance said in a so-called Green Book, a monthly report assessing the nation’s economic conditions. “Our economy saw employment continue to improve, but consumer price inflation rose sharply to the 5 percent range with some economic indicators faltering,” the report said. http://news.xinhuanet.com/english2010/business/2011-09/06/c_131102567.htm

Food banks like this one distributed 823,000 free meals to New Yorkers in 2010, up 30 percent from the previous year. Almost a fifth of New York residents are living below the federal poverty level, according to a 2009 study by the U.S. Census Bureau. A 2010 survey by the NYC Hunger Experience concluded that one out of three residents reduced their food intake during the recession to get by financially. http://news.xinhuanet.com/english2010/business/2011-09/06/c_131100867.htm

Retail trade volume in the eurozone rose by 0.2 percent in July compared with the previous month, the European Union’s (EU) statistical bureau Eurostat said on Monday. In July, food, drinks and tobacco dropped by 0.4 percent, while the non-food sector increased by 0.5 percent in the 17-member bloc. Year-on-year, the retail sales index declined by 0.2 percent in the euro area, according to Eurostat.  Revised figures showed retail sales in the eurozone in June rose by 0.7 percent month-on-month and dropped by 0.7 percent year-on-year. http://news.xinhuanet.com/english2010/business/2011-09/05/c_131100620.htm

Cs.com.cn
The fiscal policy would strengthen the goal of anti-inflation to ease the inflation affecting the domestic consumers, especially those mid & low income families, Bai Jingming, the deputy director of the Research Institute For Fiscal Science with the Ministry of Finance, said in a forum recently. Bai Jingming said, China`s fiscal policy tries to ease the inflation affecting the common people through subsidy. The policymakers might enlarge the subsidy scope in the later days. http://www.cs.com.cn/english/ei/201109/t20110905_3044255.html

Thehindu.com
The large-scale illegal mining in Karnataka, which is spilling over to Andhra Pradesh, has started taking its toll, with the first arrests by the CBI of Mr Gali Janardhana Reddy, a mining baron and former Tourism Minister of Karnataka, and Mr B.V. Srinivasa Reddy, Managing Director of Obulapuram Mining Corporation (OMC).  In an early morning swoop on the palatial ‘Kuteera’, residence of Mr Reddy in Bellary town, about 350 km from Bangalore, a 12-member team of the CBI (Central Bureau of Investigation) took into custody Mr Janardhana Reddy. They also questioned his wife Aruna Lakshmi.http://www.thehindubusinessline.com/industry-and-economy/economy/article2425828.ece?homepage=true

Monsoon is now running in ‘surplus’ mode, having precipitated two per cent more than the normal for the season until now. Peninsular and central India has notched up nine per cent surplus while the northwest has run up five per cent in what has been a roller-coaster ride thus far.  EAST IN DEFICIT. East and northeast is slowly falling back into deficit, assessed latest at 16 per cent. The rains have been biased to the west, central and northwest, which is normally a pattern identified with La Nina conditions in the Pacific. West Rajasthan (+44 per cent) and east Rajasthan (+32 per cent) are leading the surplus charts in the northwest, with no other subdivision in the region reaching anywhere near. http://www.thehindubusinessline.com/industry-and-economy/agri-biz/article2427147.ece?homepage=true

Keeping India’s credit outlook unaltered, global rating agency Moody’s on Monday projected the country’s GDP (gross domestic product) growth for the current fiscal at 7.5-8 per cent and cited high domestic interest rates coupled with the current global uncertainties as the near-term factors that could affect its economic expansion. Pegging India’s overall growth for 2011-12 at the same level as estimated by the Reserve Bank of India, Moody’s noted in its annual sovereign credit update on India that the ‘cyclical slowdown’ was unlikely to alter its credit outlook. http://www.thehindu.com/business/Economy/article2427338.ece

The slowdown in the U.S. economy has not seen any immediate pull back on existing projects. Investments into the existing projects are continuing, claims Phaneesh Murthy, Chief Executive Officer of iGATE Patni. Nevertheless, he expects customers to start monitoring more closely investments into newer projects. “My concern is that if the current slowdown persists for another quarter, customers could get into budgeting discussions in a negative environment. If that happens, the IT budgets for 2012 could be impacted and that does not augur well for 2012 for the Indian IT industry,” he said.http://www.thehindu.com/business/companies/article2426557.ece

Economictimes.com
The country’s textiles and clothing exports are expected to touch USD 32.35 billion in the 2011-12 fiscal, Parliament was informed today. “An exports target of USD 32.35 billion has been prescribed for the textiles and clothing sector for 2011-12. During 2010-11, the textiles sector achieved an export figure of USD 26.8 billion,” Textiles Minister Anand Sharma said in a written reply to the Lok Sabha here.http://economictimes.indiatimes.com/news/economy/foreign-trade/textiles-clothing-exports-to-touch-32-35-billion-in-fy12-textiles-minister-anand-sharma/articleshow/9872074.cms

Fin24.com
Nigeria’s central bank plans to diversify its $33bn in foreign exchange reserves away from the dollar by switching a tenth of the stockpile into yuan, underlining the momentum behind China’s drive to internationalise its currency.  “We are looking at anything to start with from 5% to 10% of our reserves,” central bank governor Lamido Sanusi said on Monday. The central bank has already said that it is considering reducing its reliance on the dollar, which economists say accounts for the bulk of its $32.96bn in reserves. The bank does not publish the currency composition of its assets.http://www.fin24.com/Economy/Nigeria-to-put-reserves-into-yuan-20110905

Tehrantimes.com
To prevent a freeze of its foreign reserves Iran withdrew its deposits from foreign banks and allocated 13 billion dollars of that reserves to buying gold and now that value of that gold has tripled.  Bahmani said the central bank bought gold at a price of $656 per ounce and now the price of each ounce of gold has jumped to 1870 dollars and this shows that value of the gold that Iran bought has increased about three times. The central banker also added that value of Iran’s foreign exchange reserves has increased 6.5 billion dollars as the central bank changed some its reserves from dollar to other currencies.http://tehrantimes.com/index.php/economy-and-business/2255-value-of-irans-gold-reserves-triples-cbi-

Khaleejtimes.com
The struggling decade-old Doha Development Round of free-trade talks must not be allowed to collapse, India’s trade minister said on Monday.  The call came as failure threatens the negotiations on expanding the global free trade system by cutting subsidies and barriers for farm produce and reducing import tariffs on industrial goods and services. “We must not allow this round to collapse,” Anand Sharma told a trade gathering also attended by World Trade Organization (WTO) chief Pascal Lamy. http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/internationalbusiness/2011/September/internationalbusiness_September11.xml&section=internationalbusiness

Thetrader.se
From one of the most intelligent minds and the father of Black Swans. Taleb on banks, moral hazard, and bonuses. Don’t forget he is probably rather short the market…. For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. For banks that have filings with the US Securities and Exchange Commission, the sum stands at an astounding $2.2 trillion. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits. http://www.thetrader.se/2011/09/06/the-great-bank-robbery/

Probably one of the better papers on the European situation and the possible solutions, that was presented on The Trader some time ago. With renewed dynamics in the region, a report well worth reading. We see three plausible scenarios in the coming months: http://www.thetrader.se/2011/09/05/europe-on-the-brink-2/

Sell in May…? Once again, we had the usual “this time is different” arguments at the time. Back in May (3 months ago), people couldn’t think clearly, as QE2 was giving Investors a blurry picture. Many were talking of the resilient Economy, and “this time IS different”. But, boy, were they wrong. It is NEVER different. From ING research back in May; http://www.thetrader.se/2011/09/05/sell-in-may-this-time-is-different/

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Energy and Natural Resources Market Cheat Sheet (September 6, 2011)

Monday, September 5th, 2011

Energy and Natural Resources Market Cheat Sheet (September 6, 2011)

Strengths

• The Global Resources Fund rebounded this week, driven by gains in the shares of energy, mining, and agricultural-related companies. Commodities were mostly up week-over-week with the average price of crude oil gaining 3.5 percent, copper up 2.7 percent, and the average price of corn up over 2.4 percent versus last week.
• The latest data for August indicates oil output in Russia hit a new post-Soviet high of 10.28 million barrels per day, up 220 thousand barrels per day on a year-over-year basis.
• Analysts at Macquarie Capital noted that mine mouth coal prices in China are reportedly rising in anticipation of a tight market at the end of the year, going into the winter. Prices in Northern Shanxi rose by RMB5-10 per ton, according to the China Coal Resource.

Weaknesses

• Data from Peru, the world’s second-largest copper producer, showed July output fell 5.6 percent year-over-year due to shrinking reserves and lower quality ore.
• In the U.K., the latest data from DECC indicates oil production in June was at its lowest absolute level since April 1978. At 1.075 million barrels per day, production is now lower year-over-year by 97 thousand barrels per day as technical problems in the Buzzard field aggravated in June.

Opportunities

• David Joyce, Rio Tinto’s managing director for iron-ore expansion projects, told delegates at the Africa Downunder conference in Perth, that global iron-ore, copper, and aluminum demand would double over the next 15 to 20 years. “To put this in perspective, the mining industry would need to mine, process and move more raw materials and minerals in the next 20 years than it has done in the past 10,000 years.” In the case of iron-ore, global supply would have to grow at a rate of 100 million tons each year, over the next eight years, to satisfy the demand growth, the Rio Tinto executive said.
• The New York Times wrote this week that after shutting down the oldest eight of its fleet of 17 nuclear reactors practically overnight, German power producers are nervous about power supplies this winter. The country is currently importing electricity from neighboring countries France and the Czech Republic which, ironically, generate much of their power from nuclear sources. Though Germany has made very good progress in terms of renewable sources, it still has plans to build 23 GWs of gas and coal fired plants by 2020 because it has limited capacity to store or transport renewable power. The issue is under control currently, but it’s being said that there may be blackouts if the nation sees days this winter without much wind or solar power, and neighboring countries need all their power.

Threats

• Deutsche Bank expects base materials are likely to come under pressure following fresh moves in China to control liquidity. Local press (Oriental Morning Press) reported the People’s Bank of China decision to include margin deposits in the deposit base for calculating the reserve requirement. This move is likely to be negative, according to Deutsche Bank’s China economists, who believe this surprising policy move reflects growing uncertainty on macro policy-making.
• A Colombian group named Large Scale Mining, representing Colombian ventures of companies including Anglo American, Drummond and Glencore has said that the output may fall just short of government’s expectation of up to 82 mt and expects production to be about 80 mt hampered by rainfall this year. The Colombian miners may still have to face more rains as seasonal storms begin again next month according to a report by Bloomberg news.

Tags: Absolute Level, April 1978, China Coal, Coal Prices, Coal Resource, Commodities, Copper Producer, Crude Oil, David Joyce, Decc, Downunder, Global Resources, Global Supply, Iron Ore, Mining Industry, Oil Output, Price Of Crude Oil, Resources Fund, Rio Tinto, Shanxi, Tight Market, Winter Prices
Posted in Commodities, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Market Cheat Sheet (August 8, 2011)

Sunday, August 7th, 2011

Energy and Natural Resources Market Cheat Sheet (August 8, 2011)

Strengths

• Due to recent defensive positioning of the portfolio, the Global Resources Fund weathered this week’s market’s turmoil relative to its benchmark, the Morgan Stanley Commodity Related Index.
• In spite of escalating macro fears, analysts at Credit Suisse find that many of the ‘real economy’ data points that they track are actually showing improvement. Specifically, rail carloads posted the second-highest level year-to-date during the week ended July 30; the Cass Freight Shipment Index increased 11 percent year-over-year in July (comparable to +5 percent in June); and the ATA Truck Tonnage Index rose 7 percent year-over-year in June (accelerating from the +3 percent in May).
• According to Mineweb, the U.S. car market is rebounding off an annualized rate of 9.5 million units at the 2009 bottom, and could reach 13 million units this year. This may rise as high as 15 million units by 2015.
• Analysts at Macquarie highlighted that commodities for which China sets the market price remained strong, with iron ore holding at $179.5 per ton CFR China (62 percent Iron) in the latest Platts assessment, the highest level since mid-May. Meanwhile, Platts’ assessment of Chinese hot-rolled steel coil prices rose $5 per ton week-over-week to $707.50 per ton.

Weaknesses

• The S&P energy sector was one of the weakest sectors this week, falling approximately 10 percent on a slide in crude oil and mixed results from earnings reports. Small cap exploration & production was one of the worst performing sub-sectors, down 12.7 percent for the week, negatively impacting the Global Resources Fund.
• Crude oil was down approximately 9 percent, to $87.03 per barrel, the lowest close since February. Traders are concerned with slowing global economic growth and worries over contagion of European sovereign debt problems.
• China’s Purchasing Managers Index (PMI) fell to 50.7 last month but the HSBC PMI fell to under the 50-mark for the first time in one year. This indicates that shrinkage in that country’s manufacturing sector is underway according to Kitco Metals.
• Chinese imports of uranium slowed during the first half of the year, amid industry uncertainty caused by Japan’s Fukushima nuclear crisis. China imported 5,356 tons of uranium in the first six months of 2011, a 13 percent drop year-over-year, according to figures released by the General Administration of Customs. In contrast, China had tripled its uranium imports from 2009 levels to 17,136 tons in 2010.

Opportunities

• Chile’s Escondida mine workers accepted a company offer to end a two-week strike that shut the world’s largest copper deposit and raised fears of a supply shortage, according to Reuters.
• Ernst and Young predicts a record $120 billion in transactions this year as the pace of deals within the resource sector have picked up in recent weeks, putting the sector on track to top a record.
• Because of ongoing nuclear power development in China, Africa and the Middle East, uranium prices could bounce back to pre-Fukushima levels of $70 per pound in 2012 according to the Energy Report.
• According to JP Morgan Market Intelligence, China is aiming to increase its self-sufficiency in non-ferrous metals over the next 5 years by increasing domestic exploration and making overseas acquisitions.

Threats

• In Rio Tinto’s first half of 2011 results, the company noted an approximate 30 percent increase in capital intensity for its cornerstone Pilbara expansion to approximately $175 per ton annual capacity. This is in line with previous hikes noted by BHP Billiton, and provides yet another example of spiraling capital costs afflicting Australian iron ore projects.
• Chile’s copper output may be 5 percent below the target of 5.6 million tons this year on the back of various unforeseen events, according to the CEO of the world’s largest copper producer, Codelco. Year-to-date, Chile’s copper production has already been 2 percent below comparable figures for the previous year.

Tags: Car Market, Cheat Sheet, Commodities, Contagion, Credit Suisse, Crude Oil, Debt Problems, Earnings Reports, Economy Data, energy sector, Global Economic Growth, Global Resources, Hot Rolled Steel, Iron Ore, Morgan Stanley, Platts, Purchasing Managers Index, Resources Fund, S Market, Shipment Index, Sovereign Debt, Steel Coil
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Rev Up for Resources Boom in China

Friday, July 29th, 2011

Last week I sat down with Laura Mandaro from Marketwatch to discuss what’s currently driving commodity markets. One of the key drivers today is the robust economic activity and commodity demand taking place in Asia.

Frequent Frank Talk readers know there is something profound and significant happening in China—the building of a massive high speed rail network. It’s a $300 billion project that will connect more than 250 Chinese cities, span 18,461 miles and reach roughly 700 million people. This is going to create massive demand for commodities and a wave of investment into the sector. We believe that resource companies associated with coal, iron ore and steel are well positioned to benefit from China’s long-term sustainable bull market.

I also discuss a few individual stocks I think are structurally sound as well as talk about a market ready to take off and The Fear and Love Trade.

Tags: Asia, Boom, China, Chinese Cities, Coal, Commodities, Commodity Markets, Economic Activity, Fear, High Speed Rail, Iron Ore, Love, Marketwatch, Massive Demand, Resource Companies, Stocks
Posted in Commodities, Markets | Comments Off

Emerging Markets Cheat Sheet (May 9, 2011)

Saturday, May 7th, 2011

Emerging Markets Cheat Sheet (May 9, 2011)

Strengths

• In April, a survey of 24 economists by Diyi Caijing, a financial journal, showed a consensus CPI of 5.2 percent, lower than the March number of 5.4 percent. The economists also predict that China’s trade surplus will be at $2.7 billion in April, versus $0.12 billion in March.
• Xinhua News reported Tan Rongyao, director of the State Electricity Regulatory Commission, as saying that China is able to make short-term increases in on-grid power prices as part of their efforts to reduce supply shortage. Since a drought southwest of China has hindered hydropower, increasing power production has to come from burning more coal, which is positive for coal price and demand.
• Ecorodovias, a Brazilian toll road operator, reported a healthy 11 percent increase in traffic during April underpinned by strong economy.
• Higher remittances to Mexico have been supporting the local retailers – Walmex reported a 7 percent increase in same store sales in April with total sales rising by 15.2 percent. Sales in Central America grew by 18.8 percent.
• Through the first three months of 2011, Turkey recorded a budget deficit of 4.1 billion lira, a noticeable improvement compared to an 11.3 billion lira deficit in the same period last year. Central government revenues are up 20.5 percent year-over-year, while non-interest expenditures increased 10.3 percent year-over-year. The primary balance posted a 9.8 billion lira surplus.

Weaknesses

• Brazil auto sales in April were down 5.5 percent month-over-month, following strong sales in the prior two months.
• Last year, the average profit margin of the Chinese steel makers was only 2.9 percent. This year, it can get worse in the face of increasing iron ore and coal prices without increasing steel prices.
• China’s industrial production continues to expand. In April, China’s official purchasing managers index was 52.9 percent, only 0.5 percent lower than March’s 53.9 percent. However, the new order index decreased 1.4 percent, showing some slowing down.
• Russian inflation pressures edged higher in April, rising 9.6 percent year-over-year, faster than the 9.5 percent year-over-year pace in March. Despite a gradual recovery in economic growth, government stimulus and extra spending from higher-than-expected oil revenues could keep inflation elevated throughout the remainder of 2011.

Opportunities

• According to Citigroup, corporate earnings based on the MSCI Asia ex Japan Index have exceeded a prior high, yet the market is not at a high, nor are valuations. We find the same discrepancy applies to HSCI Index. Therefore, we expect there is room for stock prices in Hong Kong and Asia region to improve. The chart to the right shows Asia’s equity price-to-earnings is at its historical average, despite their earnings at a historical high. Again, it shows the potential for multiples to expand.

• A weakness in commodities, including oil, has created an opportunity for airline stocks, some of which rallied this week. We have a constructive view of Copa with operations in Central America.
• Chilean retailers continue their Latin America diversification – Cencosud is expecting that Brazil will account for 20 percent of its sales this year.
• Despite uncertainty associated with a presidential election in Peru, local companies are in the “business as usual” mode. Grana y Montero (infrastructure/construction play) won a sizeable mining contract in Chile that will take 45 months to complete. Intergroup reported a strong set of numbers during the first quarter of 2011 with a return on equity of 31 percent and earnings per share growing by 20 percent quarter-over-quarter.
• According to Credit Suisse, a relaxation of bank lending standards leads credit growth by 12 months. The current trajectory of lending in Poland appears to be consistent with Credit Suisse’s projection of at least 10 percent private sector credit growth in 2011.

Threats

• In the last three weeks, the People’s Bank of China (PBOC) had a net Rmb 420 billion that matured. The market is worried that the PBOC might increase the bank’s required reserve ratio (RRR) another 50 basis points to withdraw that money. Also in the week, the PBOC governor said there is no limit for the RRR, indicating a further tightening of bank lending, if necessary.
• Domestic demand for gas has remained flat since 2007, but the sale of state giant Gazprom’s gas dropped by 19 billion cubic meters (bcm) on top of the same fall in Europe. Gazprom is coming under pressure from independent gas producers, which are on track to double their production to 116 bcm by 2015.
• The Supreme Court of Mexico backed the ruling of telecom regulator, Cofetel, regarding a 61 percent cut in interconnect rates imposed on America Movil (AMX). The decision has put pressure on the company, which in the past resorted to injunctions. The shares will likely remain volatile until it becomes apparent how the consumer will react and the net impact it may have on the finances of AMX.

Tags: Brazil, Budget Deficit, Coal Price, Coal Prices, Electricity Regulatory Commission, First Three Months, Government Revenues, Grid Power, Infrastructure, Iron Ore, Noticeable Improvement, Profit Margin, Purchasing Managers Index, Remittances, S Industrial, State Electricity Regulatory Commission, Steel Makers, Steel Prices, Strong Sales, Toll Road, Trade Surplus, Xinhua News
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Africa: Opportunities in Nigeria, Ghana and Kenya (Mobius)

Thursday, April 28th, 2011

by Mark Mobius, Vice Chairman, Franklin Templeton Investments

Those who are optimistic about Africa say that after many years of colonialism, it is beginning to demonstrate its potential. The continent does have its detractors, who say that while it may have been free of colonial rule for 60 years, the continent continues to battle poverty, corruption, AIDS and armed conflict. However, while Africa does have challenges, I am encouraged by another side of Africa that is gradually emerging with the development of capital markets, consumerism and technology.

(Mark Mobius visits a paper factory, in photo)

I believe the opportunities for the development of Africa’s markets are appealing primarily because of the strong growth numbers now emerging out of the continent. Africa is expected to grow more than 7% annually in the next 20 years, due to an improving investment environment, better economic management and China’s rising demand for Africa’s resources.[1] More than 100 African companies have revenues in excess of $1 billion.[2] Africa also has impressive stores of resources, not only in minerals but also in food — 60% of the world’s uncultivated arable land is found in Africa.[3] As global demand for hard and soft commodities continues to grow, I believe Africa is in an enviable position with its vast natural resources. The potential for long-term growth in consumer-related areas is also very attractive, with around 1 billion inhabitants on the African continent.[4] These are people, just like many others all over the world, with aspirations to own their own homes and buy possessions such as cars, refrigerators, washing machines and the like.

Within Africa, Nigeria is one of the frontier markets that I like. The country has a population of about 155 million people.[5] It is rich in oil and gas reserves and raw materials such as iron ore, coal and bauxite. In addition, its climate and large areas of fertile land lend themselves favorably to agriculture. Nigeria’s economy has benefited from strong commodity prices; it is estimated to have grown 7.4% in 2010 and is forecasted to grow 7.4% again in 2011.[6] The highly-anticipated Nigerian presidential election may be seen by many as a measure of the country’s progress and stability despite the clashes and unrest running up to the election. Our local sources remain confident about the elections overall and are not expecting any significant derailing event. We share this sentiment for the most part, given the current positive economic environment, fueled by high oil prices, as well as more tangible reforms in the country. Moreover, banks in Nigeria are particularly interesting. In our view, the government’s recent bailout of banks has made the nation’s bank stocks cheap, creating some very interesting investment opportunities.

I also see a lot of potential in markets such as Ghana and Kenya. Ghana was the first sub-Saharan country in colonial Africa to gain independence. Although it endured an extended period of military rule, a new constitution and multi-party politics were introduced in 1992. Currently, Ghana is seen by many as one of the most politically stable democracies in sub-Saharan Africa. We are excited about the prospects for consumer-related sectors in this market, given its relatively young and dynamic population of more than 20 million.[7] The country is also rich in natural resources such as oil and gold. Oil production in the offshore Jubilee field commenced in December 2010 and is likely to make a significant contribution to the country’s economic growth going forward. Of course, related investment in infrastructure is also likely to require financing, so we are looking closely at the financial sector as well.

The Kenyan economy appears to be doing well at the moment. The post-election violence in late 2007 and early 2008 took many by surprise, but it culminated in the establishment of a coalition government and the adoption of a new constitution in 2010, creating a solid foundation for future stability and growth. Kenya’s position on the east coast of Africa allows it to act as a hub for trade and investment flows from the east into the rest of the continent. Exports, predominantly tea and horticultural products, have recovered strongly, and the tourism sector is also seeing a strong rebound in the form of incoming foreigners.

There are also many challenges to investing in Africa. In my next post, I will discuss these further as well as my overall outlook on the region.

Tags: Africa Nigeria, African Continent, Arable Land, Armed Conflict, Bauxite, Colonial Rule, Colonialism, Detractors, Economic Management, Fertile Land, Franklin Templeton Investments, Frontier Markets, Gas Reserves, Global Demand, Gold, Growth Numbers, Infrastructure, Investment Environment, Iron Ore, Mark Mobius, Nigeria Ghana, Soft Commodities
Posted in Infrastructure, Markets | Comments Off

Energy and Natural Resources Market Cheat Sheet (April 18, 2011)

Saturday, April 16th, 2011

Energy and Natural Resources Market Cheat Sheet (April 18, 2011)

Strengths

• Copper inventories in warehouses monitored by the Shanghai Futures Exchange dropped 4.8 percent.
• China has exported 42,600 metric tons of refined copper during the first two months of 2011, eight times the amount in the last year.
• Mexico (up 13 percent year over year) and Argentina (up 20 percent year over year) became the largest contributors to mine supply according to Gold Fields Mineral Services (GFMS), GFMS estimates a rise of 2.5 percent to a record 22.9kt, driven by growth from the primary and Lead/Zinc sector.
• Seasonally adjusted US auto sales for the month of March remained above 13 million vehicles per year; the sales figures crossed the 13 million vehicle level the second time since the cash for clunkers program that ended on Nov 1, 2009.
• The National Bureau of Statistics reported this week that China’s crude steel rose 9 percent to 59.42mt in March from a year ago and 9.4 percent higher than February’s 54.3mt. This boosted China’s production to the second-highest level on record amid higher demand from builders.
• China’s Gross Domestic Product (GDP) increased 9.7 percent in the first quarter, which was higher than expected and despite inflation rising to the highest level in almost three years.

Weaknesses

• Manufacturing growth, which makes up about 80 percent of India’s industrial production index, was at 3.5 percent for the month, down from 16.1 percent a year ago.
• A drop of 16 percent to 8.37 million tons for the first quarter iron ore shipments was reported by Fortescue’s due to heavy rains in Australia, the company said it will raise output to 12 million tons in second quarter.
• China Iron and Steel Association reported a decline in China’s daily crude steel output in the last ten days of March to 1.922 million tonnes per day.
• After the African Union said Muammar Gaddafi had accepted a roadmap to end the civil war in Libya, as a result Brent crude fell below $126. Furthermore, Brent crude fell sharply to below $122 and U.S. crude dropped by $2 a barrel this week on concern high fuel prices will destroy demand.

Opportunities

• China’s preliminary March trade data shows a 29 percent month over month increase in copper imports. This could provide more support to this metal, which ended the week at a one month high.
• Gasoline is crowding out retail sales at rapid pace, its share of total retail sales exploded higher in March to 10.72 percent from an upwardly revised 10.49 percent in February.
• A Transocean owned rig has drilled the deepest-ever water depth well off the coast of India, drilling in 10,194 feet of water, more than the previous record of 10,011 feet.
• Diego Hernandez, CEO of state mining giant Codelco, said this week that the global salmon farming industry could need up to 50,000 tonnes of copper a year to build rearing cages thanks to the metal’s anti-bacterial qualities.
• One of the world’s main suppliers of grain, Argentina, may revive a controversial tax system on grain export. A similar plan to raise taxes on soy exports in 2008 sparked nationwide farmer protests that rattled global commodity markets and hit the popularity of President Cristina Fernandez, who plans to bid for re-election in October.
• The Association of American Railroad reported this week that Major Class 1 cross-continental railroads hauled almost 200,000 multi-modal shipping containers, which was easily a record for this time of the year, conforming business survey data suggesting the U.S. economy has entered a mini boom as cheap money revs up the recovery.

Threats

• Although copper prices have almost quadrupled after a two-year rally, largely driven by the belief that China has an insatiable appetite for this metal. Evidence recently surfaced of previously unreported copper stockpiles, which shows signs of about 15 percent of the country’s annual consumption of Copper hasn’t been yet put to use. Chinese buyers are facing a dual problem of higher copper prices and the government’s aggressive move to tighten credit.
• Eskom, a South African power supplier, has said power supply is likely to remain tight for the next five years; a potential risk for the Platinum Group Metals (PGMs) production.
• Plans to halt the approval of new aluminium plants in China to tackle serious overcapacity in the industry. The decision would put a hold on investment worth $ 11 billion.
• Mohammad Ali Khatibi, governor of OPEC, was quoted last week as saying that the global oil market is oversupplied; despite prices that have been pushed up by upheaval in the Middle East.
• Global 2010-11 cocoa surplus estimates last week have expanded to 184,000 tonnes and prices look set to fall further from the 32-year high hit last month. Cocoa exports from Cameroon, the world’s fifth largest grower, hit 186,305 tonnes by the end of March from the start of the season in August, up 21 percent year over year.

Tags: Bureau Of Statistics, China, Crude Oil, Crude Steel, Eight Times, Fortescue, Gold, Gold Fields, Heavy Rains, India, Industrial Production Index, Iron And Steel, Iron Ore, Metric Tons, Million Vehicles, Mineral Services, Month Of March, Muammar Gaddafi, National Bureau Of Statistics, oil, Refined Copper, S Industrial, Shanghai Futures Exchange, Steel Association, Steel Output
Posted in Credit Markets, Energy & Natural Resources, Gold, India, Markets, Oil and Gas | Comments Off

Update on Japan (Mobius)

Wednesday, March 23rd, 2011

by Mark Mobius, Vice-chairman, Franklin Templeton

I’m saddened by the devastation and the lives lost in Japan as a result of the massive earthquake, tsunami and multiple aftershocks. I worked in Japan during the 1960s and have been visiting the country at least on an annual basis to meet with clients, even though our emerging markets-focused portfolios do not invest directly in Japan. Living on a fault line, many Japanese people have experience with disaster drills to prepare for such natural disasters. If there’s one thing that I’m confident of, it is the ability of the Japanese people to bounce back from this disaster, as evidenced by their quick recovery after the 1995 Kobe earthquake, which occurred in a more economically vibrant area.

The fiscal stimulus package to get the Japanese economy back on track is expected to be much bigger than that for the Kobe earthquake. Although Japan has a large fiscal deficit, unlike the U.S. or European countries, it also has one of the largest foreign reserves in the world, second only to China at almost US$1 trillion.[1] Most of the Japanese debt is also domestically funded.

Some concerns have been raised on the impact to commodity prices. Demand for iron ore or steel from affected plants in Japan is likely to decline in the aftermath of the earthquake, but could be balanced by the higher demand for raw materials used in the country’s widespread rebuilding efforts. Hence, I believe the net impact on the demand for raw materials is unlikely to be significant in the long term.

Panic selling in the markets is a common knee-jerk reaction in times of crisis. At Templeton, we believe in looking beyond short-term events and volatility to consider the longer-term picture. Our investment philosophy instills in our managers and analysts the discipline to re-evaluate our holdings with a five-year investment horizon in mind.

Tags: Aftershocks, China, Commodity Prices, Disaster Drills, Emerging Markets, Fiscal Deficit, Fiscal Stimulus, Franklin Templeton Investments, Investment Horizon, Investment Philosophy, Iron Ore, Japanese Economy, Knee Jerk Reaction, Kobe Earthquake, Kobe Japan, Living On A Fault Line, Mark Mobius, Massive Earthquake, Natural Disasters, Stimulus Package, Vibrant Area
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Energy and Natural Resources Market Cheat Sheet (March 7, 2011)

Sunday, March 6th, 2011

Energy and Natural Resources Market Cheat Sheet (March 7, 2011)

Strengths

• Oil is trading at a 29-month high after rising 3 percent during the week. The unrest that has swept Africa and the Middle East, ignited by the ouster of the Tunisian and Egyptian leaders, has spread to Oman and Libya, raising concern production may be further disrupted.
• The International Agency (IEA) this week reported that only 500,000 to 750,000 barrels of crude oil per day have been removed from the world market, which represents less than 1 percent of worldwide consumption. IEA stated that members have 145 days of emergency oil supplies in inventory.
• China’s National Development and Reform comission reported this week that Turkmenistan had committed to supply approximately 2.1 trillion cubic feet of gas annually to China, up from the previously agreed 1.4 trillion cubic feet, and a deal would be formally signed in the second half of 2011. Turkmenistan’s deputy prime minister in charge of energy said talks were still ongoing between the two.
• Platinum prices have traded above $1,800 an ounce so far this year.
• Corn futures prices climbed to $7.24 per bushel, a 30-month high.

Weaknesses

• Thermal coal prices at China’s Qinhuangdao port were 760-770 yuan per ton. Stockpiles at the port went up by 12 percent to 8.47 million tons.
• Iron ore shipments from India will probably fall 25 percent to 64 million tones in the year starting April 1 from a revised forecast of 85 million tones this year, said the Federation of Indian Mineral Industries.

Opportunities

• The global copper price will average $9,850 per ton in 2011, up 31 percent year-over-year, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).
• Saudi Arabian Oil Minister Ali al-Naimi stated that his country and other OPEC members would offer extra crude supplies to offset lost Libyan production.
• U.S. Interior Secretary Salazar said he hopes to approve a significant number of permits for deep water drilling in the Gulf of Mexico and the government will comply with court order to decide on five permits.
• World food prices rose to a record in February and grain costs may continue to rise in the next several months, with only rice keeping the world from a repeat of the crisis three years ago, the United Nations said. An index of 55 food commodities rose 2.2 percent to 236 points from 230.7 in January, the eighth consecutive gain, the United Nation’s Food and Agriculture Organization said this week. Wheat rose as much as 58 percent on the Chicago Board of Trade in the past 12 months, corn gained 87 percent and rice added 6.5 percent. “I’ve never loved rice more than now,” said Abdolreza Abbassian, a senior economist at the FAO (Food and Agriculture Organization) in Rome.

Threats

• China will find it difficult to stabilize prices this year although the nation will not see vicious inflation because it has sufficient reserves of agricultural commodities and has had bumper grain harvests, the China Securities Journal reported, citing Yao Jingyuan, Chief economist of the National Bureau of Statistics.
• Rising oil prices driven by turmoil in North Africa and the Middle East may undermine eastern Europe’s economic recovery because industry in the former communist region is less energy efficient than in the west.

Tags: Bushel, China, Coal Prices, Commodities, Copper Price, Corn Futures Prices, Cubic Feet, Deputy Prime Minister, Egyptian Leaders, Emergency Oil, energy, India, Interior Secretary, Iron Ore, Mineral Industries, oil, Oil Minister, Oil Supplies, Opec Members, Platinum Prices, Qinhuangdao, Resource Economics, Saudi Arabian, Thermal Coal, Worldwide Consumption
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BRIC Self Sufficiency Index

Wednesday, February 16th, 2011

Demand for natural resources in the emerging world is increasing, but how much of this increased demand is met by the country’s own production?

This interesting chart from Bank of America-Merrill Lynch shows the supply/demand fundamentals of several key industrial metals and basic materials.

The dotted line represents a key tipping point. The resources to the left of the line are those the BRIC countries must obtain outside of their own borders in order to meet domestic demand. The BRICs produce an excess amount of the two metals to the right of the line and export the remaining amount to other countries.

Last year, copper, nickel and coal were all top-half performers of the 14 commodities we track in our popular periodic table. The two metals the BRIC nations produce an excess amount of (aluminum and zinc) were among the worst-performers.

These materials are the necessary elements needed for emerging nations to take the next steps in their development. You can see that the BRICs must rely on imports in order to meet demand for metallurgical coal, copper concentrate, thermal coal, iron ore, refined copper and uranium.

For example, BRIC production of metallurgical coal is less than 20 percent of BRIC consumption. Met coal, or coking coal, is used to make iron and steel—very important to the infrastructure build-out taking place in Asia.

Thermal coal is also important because it is principally used for power generation. Coal is the primary source of electricity in the emerging world, supplying more than 50 percent of Asia’s power. The BRICs consumed nearly 2 billion tons of coal for electricity in 2009, according to BP’s World Energy Statistics.

In order to combat these supply deficiencies, the BRICs have looked beyond their borders. In India, there were 27 cross-border deals in the metals and ores sector last year, according to research firm Grant Thornton.

China has been especially proactive in this regard. From 2005 through early 2010, the country inked more than $45 billion worth of cross-border deals for coal, copper and iron ore. These are deals in countries near (Vietnam, Mongolia) and far (Peru, Canada).

We think these areas are especially important for investors because these are the areas where we’re seeing wider profit margins and stronger returns on capital. This is why our Global Resources Fund (PSPFX) is currently seeking the best opportunities in this area.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

BRIC refers to the emerging market countries Brazil, Russia, India and China.

Tags: Bank Of America, Basic Materials, Brazil, BRIC, Bric Countries, BRICs, Canadian Market, China, Commodities, Copper Nickel, Cross Border, Currency, energy, Energy Statistics, Grant Thornton, India, Industrial Metals, Infrastructure, Iron And Steel, Iron Ore, Merrill Lynch, Metallurgical Coal, Necessary Elements, Power Generation Coal, Refined Copper, Russia, Self Sufficiency, Source Of Electricity, Thermal Coal, Tipping Point, World Energy
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