News That Matters (July 28, 2011)

by The Trader, thetrader.se

For all news continue below,

FT.com
Diageo, the world’s largest spirits company, has agreed to pay $16m to resolve US allegations that it bribed government officials in India, Thailand and South Korea to boost sales and receive favourable tax treatment. http://ftalphaville.ft.com/thecut/2011/07/28/636686/diageo-to-settle-with-sec-over-bribery/

Ford plans to invest $1bn to build a factory in western India in a drive to gain a greater share of one of the fastest-growing car markets, the FT reports. The factory in Gujarat, which should be in production by 2014 employing 5,000 people, http://ftalphaville.ft.com/thecut/2011/07/28/636671/ford-to-build-1bn-indian-factory/

Visa, the world’s largest electronic payments company, exceeded Wall Street’s expectations by reporting a 40 per cent surge in quarterly profit as more consumers turned to credit cards and other forms of electronic transaction, http://ftalphaville.ft.com/thecut/2011/07/28/636646/visa-results-beat-expectations/

Royal Bank of Scotland has been ordered by the US Federal Reserve board to improve compliance and governance in its US operations, the WSJ reports. The Fed issued similar cease-and-desist orders to HSBC and Barclays in 2010. http://ftalphaville.ft.com/thecut/2011/07/28/636566/fed-demands-rbs-improve-compliance/

Standard & Poor’s president told a US House of Representatives panel that the country is unlikely to default on its debt obligations but its credit rating could still be lowered if it doesn’t come up with an adequate plan to address spending and its soaring budget deficit Representatives of leading emerging market countries at the International Monetary Fund have warned the fund’s management against pouring more large sums of money into another Greek bail-out with uncertain prospects http://ftalphaville.ft.com/thecut/2011/07/28/636591/emerging-markets-warn-imf-over-greek-loan/

The cost of buying insurance against a default by the US rose to a record on Wednesday, the FT reports, in a sign of growing unease that gridlock in Washington over raising the federal debt ceiling may result in the Treasury failing to pay interest to bondholders. Premiums for one-year US sovereign CDS rose sharply this week and traded at about 90 basis points in London on Wednesday, http://ftalphaville.ft.com/thecut/2011/07/28/636576/treasury-cds-reach-record-highs/

The Brazilian real tumbled on Wednesday after the country introduced measures to curb foreign exchange speculation in a bid to bring down the currency from a 12-year high against the dollar and protect its manufacturers http://ftalphaville.ft.com/thecut/2011/07/27/636521/real-tumbles-as-brazil-imposes-fx-curbs/

As much as half US companies’ record $1,240bn in cash balances is being held overseas, according to Moody’s research, with groups wary of incurring a 35 per cent repatriation tax, writes the FT. While debates rages in Washington about the state of public finances, http://ftalphaville.ft.com/thecut/2011/07/27/636511/us-firms-keep-cash-abroad-away-from-tax/

Wall Street bankers, from senior executives to traders, are complaining that the Federal Reserve is refusing to engage in scenario planning for a US downgrade or default. With days until the Treasury’s August 2 deadline to raise the debt ceiling, bankers say they are not getting a response to efforts to discuss the market impact of a failure to reach a deal in Washington or if credit ratings agencies cut the US triple A rating. http://www.ft.com/intl/cms/s/0/6aed9f82-b85e-11e0-8d23-00144feabdc0.html#axzz1TBR7mQo3

WSJ.com
Asian stock markets were lower Thursday as uncertainty over the U.S. debt ceiling debate continued to weigh market sentiment, while concerns over a stronger yen dragged exporters in Tokyo.  Japan’s Nikkei Stock Average fell 1.1%, Australia’s S&P/ASX 200 slid 1.2%, South Korea’s Kospi Composite lost 0.8% and New Zealand’s NZX-50 fell 0.5%. Dow Jones Industrial Average futures were up 19 points in screen trade. http://online.wsj.com/article/SB10001424053111904800304576472903501102840.html?mod=WSJ_hp_LEFTWhatsNewsCollection

The International Monetary Fund, concerned about its enormous long-term exposure to the euro zone, is likely to contribute a smaller share of official financing in the new Greek aid package than it did for the Portuguese and Irish rescue programs, according to people familiar with the situation. The IMF has pledged to lend €78.5 billion ($113.91 billion) to Greece, Ireland and Portugal through 2014. That amount is many times the IMF shareholding of these three countries, a growing source of worry to fund officials. http://online.wsj.com/article/SB10001424053111904888304576471812186354764.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Financial investors grew increasingly worried Wednesday about lawmakers’ failure to reach accord on raising the debt ceiling, pushing U.S. stocks to their worst one-day drop in two months and weakening the demand for Treasury securities. The Dow Jones Industrial Average fell 198.75 points, or 1.6%, to 12302.55. The daily decline was the fourth straight, leaving the Dow down 3.3% in that period and on pace for its worst week since August 2010. Risk-averse investors began selling Treasury bills maturing in coming weeks, and an auction for Treasury debt drew lackluster interest. Asian markets opened lower on Thursday morning, with the http://online.wsj.com/article/SB10001424053111904888304576472580028486102.html?mod=WSJEurope_hpp_LEFTTopStories

Banco Santander SA reported a 38% slump in second-quarter net profit, after the Spanish bank set aside €620 million ($899.7 million) to cover potential claims for payment-protection insurance policies sold to U.K. customers. Santander, the largest bank in the bloc of euro-using nations by market value, said net fell to €1.39 billion from €2.23 billion a year earlier. Net interest income, Santander’s main income stream, rose 3.5% to €7.64 billion, just ahead of market expectations of €7.59 billion. Fee income jumped 9.9% to €2.73 billion. http://online.wsj.com/article/SB10001424053111904800304576471360038647984.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Most steelmakers are gloomy about the third quarter as steel prices sag and raw material costs rise. But the world’s biggest steelmaker, ArcelorMittal, raised its forecast for global steel demand on Wednesday and said it expects a strong quarter, partly because of its geographic diversity and rising demand from auto makers. Luxembourg-based ArcelorMittal reported an 11% fall in second-quarter profit to $1.54 billion from $1.71 billion a year earlier, when the company benefited from a one-time gain. But ArcelorMittal said sales jumped 25% to $25.13 billion.http://online.wsj.com/article/SB10001424053111904888304576472102814348190.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Sober warnings that the European debt crisis didn’t end with last week’s summit of European Union leaders reignited concerns of contagion risks on Wednesday, boosting borrowing costs for high-debt governments and pressuring the euro. German Finance Minister Wolfgang Schäuble said Wednesday in an open letter to lawmakers belonging to his Christian Democratic Party that the euro-zone debt crisis isn’t over and that more discipline is needed. http://online.wsj.com/article/SB10001424053111904800304576471501119691290.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

The debt stalemate in Washington is creating stress in a little-known but vital corner of the bond market, increasing the risk that banks, hedge funds and other investors will have to pay billions of dollars in additional costs if the U.S. defaults or is downgraded. Rates are rising for repurchase agreements, or repos—a roughly $4 trillion market that greases the wheels of the U.S. financial system—as officials in Washington feud over how to bring down the nation’s debt. And Wall Street is now calculating the damage that could ensue if the nation was forced to default on its debt earlyhttp://online.wsj.com/article/SB10001424053111903635604576472600045259640.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Marketwatch.com
Japanese retail sales rose 1.1% in June from a year earlier, according to government data released Thursday, rebounding from a 1.3% drop in May. The result exceeded market forecasts for a 0.5% year-on-year decline, according to a poll of economists by Reuters. Part of the rise was attributed to an increase in machine sales. Apparel and food and beverage sales also rose during the period, while car and general merchandise sales declined. http://www.marketwatch.com/story/japan-june-retail-sales-rise-11-2011-07-27

China’s trade surplus is likely to narrow 14% to $157 billion in 2011 from a year earlier, a government think tank said Thursday. The country’s exports are likely to rise 20% this year, while its imports are likely to increase 24.5%, the State Information Center said in a research note published on the China Securities Journal. In the first half of the year, China’s exports rose 24% to $874.3 billion and imports grew 28% to $829.4 billion, resulting in a $44.9 billion trade surplus, down 18.2% from the same period a year earlier. http://www.marketwatch.com/story/china-2011-trade-surplus-may-fall-14-economists-2011-07-27

House Speaker John Boehner and Senate Majority Leader Harry Reid were building support for their reworked deficit-cutting plans Wednesday, after congressional analysts said the rivals’ original proposals didn’t cut deficits as much as estimated. Boehner’s plan reportedly was gaining ground with Republicans. Reid insisted his plan was a true compromise with his political rivals, but tweaked it to get more savings. http://www.marketwatch.com/story/boehner-debt-plan-finds-legs-after-rewrite-2011-07-27

Soft labor markets and weak real estate offset a slight boost to consumer spending and an encouraging start to the tourism season, the Federal Reserve reported Wednesday in its Beige Book of anecdotal evidence on the U.S. economy.  The Beige Book, which is based on information collected on or before July 15, said growth has slowed in the majority of districts, particularly those nearest the Atlantic seaboard, with the Minneapolis district hurt by the now-concluded state government shutdown. http://www.marketwatch.com/story/growth-slows-as-labor-markets-soft-beige-book-2011-07-27-149390

Weaker orders for airplanes and automobiles translated into a steeper-than-forecast 2.1% decline in durable-goods orders in June, the Commerce Department estimated Wednesday. It was the second large drop in the past three months for durable-goods orders, raising fears that manufacturing is running out of steam after leading a tepid recovery over the past two years. Without a strong manufacturing sector, it is hard to see how forecasts of a strong second-half recovery can be realized. http://www.marketwatch.com/story/us-durable-goods-orders-fall-21-in-june-2011-07-27

Reuters.com
Spot gold edged up 0.1 percent to $1,614.86 an ounce by 0219 GMT, off an all-time high of $1,628 set on Wednesday. U.S. gold was flat at $1,615.50. Adding to the safe haven demand, Standard & Poor’s cut Greece’s sovereign credit rating further into junk territory, saying the European Union’s proposed debt restructuring would put the country into “selective default.” http://www.reuters.com/article/2011/07/28/us-markets-precious-idUSTRE7592IU20110728

U.S. crude for September fell 16 cents to $97.24 a barrel by 0353 GMT, hitting a 7-session low of $96.51 earlier. It settled down $2.19 at $97.40 a barrel on Wednesday. Brent September crude rose 41 cents to $117.84 a barrel. Oil is unlikely to slide much further even with the economic uncertainty surrounding the U.S. and Europe as demand is expected to grow steadily amid reduced global output, analysts said. The U.S. hurricane season may also put a floor on prices over concerns of disruption in output. http://www.reuters.com/article/2011/07/28/businesspro-us-markets-oil-idUSTRE7592LE20110728

Russian Prime Minister Vladimir Putin is close to a decision to bid for the presidency in an election next year because he has doubts about his protege, President Dmitry Medvedev, senior political sources say. Putin ruled as president from 2000 to 2008 before handing over to Medvedev to comply with a constitutional ban on a third consecutive term. He will be free to run in the March presidential election.http://www.reuters.com/article/2011/07/27/us-russia-election-idUSTRE76Q2M320110727

Japanese Economics Minister Kaoru Yosano, under pressure to curb the yen’s latest spike in value, said currency intervention as big as 1 to 2 trillion yen ($13-26 billion) would be quite difficult, Jiji news agency reported on Thursday. Japan is faced with the prospect of acting alone to hold down its currency, with markets seeing little chance of a repeat of the Group of Seven’s coordinated action to hold down the yen in the aftermath of the March 11 earthquake. Last time Japan intervened alone, in September last year, it spent around 2 trillion yen. http://www.reuters.com/article/2011/07/28/japan-economy-yosano-idUSL3E7IS0IC20110728

Employment in the retail sector fell in the second quarter compared to last year, the British Retail Consortium and business law firm Bond Pearce said Thursday, and weakening sentiment among retailers pointed to further job losses. The number of employees in the retail sector fell by 0.4 percent compared to the second quarter of last year and was down 0.7 percent in June, the BRC said. Staff numbers were below the year-ago level for three consecutive months for the first time since the BRC launched its employment survey in October 2008, the industry body said. http://uk.reuters.com/article/2011/07/27/uk-britain-retail-embargo-idUKTRE76Q7G320110727

Contrasting statements by euro zone politicians to domestic audiences have underlined the fragility of last week’s deal to rescue Greece and unsettled financial markets already on edge because of the U.S. debt impasse. Greek Prime Minister George Papandreou told lawmakers from his Pasok socialist party on Wednesday that debt-stricken Athens will effectively receive the first joint eurobonds in the form of loans at close to cost price from the euro zone’s rescue fund.The decision of our European partners to lend us at 3.5 percent, an interest rate just above the one at which Germany itself is borrowing, is in essence tantamount to introducing a European bond, regardless of the fact that this system has not been completed yet,” he said. http://uk.reuters.com/article/2011/07/27/uk-eurozone-idUKTRE76Q1G920110727

The International Monetary Fund warned France on Wednesday it would miss its 3 percent deficit target for 2013 unless it took further steps to cut medium-term spending, which were needed to safeguard its AAA credit rating. With France gearing up for presidential elections in April, the Fund backed President Nicolas Sarkozy’s proposal to write balancing the budget into the constitution — a move bitterly opposed by the opposition Socialist Party. Sarkozy has staked his reputation on cutting France’s deficit from 7.1 percent of GDP last year to the limit of 3 percent under the euro zone’s Stability and Growth Pact by 2013. http://uk.reuters.com/article/2011/07/27/uk-imf-france-idUKTRE76Q2VW20110727

Bloomberg.com
Asian policy makers need to tackle rising inflationary pressures in their economies even as global growth weakens, the Asian Development Bank said. The region can use monetary and fiscal policies as well as exchange rates to ease price pressure, the Manila-based lender said in its Asia Economic Monitor report today. Asian economies also face the risk of increased financial market volatility and destabilizing capital flows, the ADB said. http://www.bloomberg.com/news/2011-07-28/asia-faces-rising-price-pressures-adb.html

Foreclosure filings dropped in 84 percent of the largest U.S. cities in the first half of the year as paperwork delays and a glut of seized properties slowed the repossession of homes, according to RealtyTrac Inc. Notices of default, auction and home seizure fell in 178 of the nation’s 211 biggest metropolitan areas, the Irvine, California-based data seller said today in a report. Cities in judicial states, where courts supervise the foreclosure process, showed the biggest declines from a year earlier. http://www.bloomberg.com/news/2011-07-28/foreclosure-filings-decline-in-84-of-u-s-cities-after-paperwork-backups.html

South America is the next retail frontier as Brazil, Uruguay and Chile top China and India for new expansion opportunities. The region made the biggest gains in an annual ranking of the top 30 emerging countries for retail development, according to a report by management consulting firm A.T. Kearney. That improvement puts four South American countries in the top 10 for the first time, said Hana Ben-Shabat, a New York-based partner at A.T. Kearney who started the ranking 10 years ago. http://www.bloomberg.com/news/2011-07-28/chile-behind-uruguay-converge-on-brazil-for-world-best-expanding-retailers.html

South Korea’s current-account surplus rose to an eight-month high in June as global demand for cars and steel bolstered exports, putting pressure on the won to strengthen further. The surplus was $2.99 billion, compared with a revised $2.18 billion in May, the Bank of Korea said in a statement in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income. http://www.bloomberg.com/news/2011-07-27/south-korea-s-current-account-surplus-widened-to-2-99-billion-in-may.html

Dailyfinance.com
Surging inflation, a weak post-tsunami economic recovery in Japan and debt woes in the U.S. and Europe threaten East Asia’s economic outlook, the Asian Development Bank said Thursday. The Manila-based lender maintained its economic growth forecasts for 14 emerging and newly industrializing East Asian countries in 2011 and 2012. But it said the region faces risks that also include more volatile financial markets and destabilizing inflows of short term capital, also known as “hot money.” http://www.aolnews.com/story/adb-inflation-threatens-east-asian/1889470/

Foxbusiness.com
We will continue to diversify the asset allocation of our reserve assets and continue to optimize the holdings based on market conditions,” the foreign exchange regulator said in a statement, responding to questions from the public. The SAFE said the rapid build-up of China’s reserves, the world’s largest that swelled by $152.8 billion in the second quarter, was “not a direct” cause of inflation, which hit a three-year high of 6.4 percent in June http://www.foxbusiness.com/markets/2011/07/27/china-says-to-press-ahead-with-fx-reserves/#ixzz1TNEJYsqa

Washingtonpost.com
Plunging rates for chartering container vessels that carry sneakers, furniture and flat-screen TVs may signal a U.S. consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year. Fees for hiring vessels have fallen 9.3 percent since the end of April, according to the Howe Robinson Container Index, which tracks charter rates for a range of vessels. Last year, the index surged 56 percent in the period, as lines added ships on demand from U.S. and European retailers restocking for the back-to-school and holiday shopping periods. http://washpost.bloomberg.com/story?docId=1376-LOZHXM0UQVI901-6MJLCM7QSV4C5BOEVU480VI7UF

BBC.co.uk
Cyprus may be the latest EU country to find it harder to borrow money after its credit rating was cut. Moody’s said it had cut Cyprus’s credit rating by two notches, from A2 to Baa1, and warned it may downgrade it further. It increases the chance that Cyprus may become the latest country to require an EU bailout. http://www.bbc.co.uk/news/business-14309971

Telegraph.co.uk
The German finance minister has warned that he will not bail out every troubled eurozone country in a move that rattled confidence in Europe’s response to the debt crisis. In a strongly worded report to German parliamentarians, Wolfgang Schaeuble explained that the €159bn Greek bail-out was a one-off. He said: “In the future such purchases must only take place under very tight conditions, when the European Central Bank establishes that there are extraordinary circumstances in financial markets and dangers to financial stability.” http://www.telegraph.co.uk/finance/financialcrisis/8666789/Greek-bail-out-was-a-one-off-says-German-finance-minister-Wolfgang-Schaeuble.html

Higher bank capital ‘would not hit recovery’, says Bank of England’s David Miles. A leading Bank of England policymaker has rubbished banks’ claims that forcing them to hold significantly more equity capital will damage the recovery and inhibit future growth. If lenders are given time to adjust, David Miles told the London School of Economics, they could double capital ratios to around 20pc without hurting the supply of credit to households and businesses. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8666301/Higher-bank-capital-would-not-hit-recovery-says-Bank-of-Englands-David-Miles.html

Xinhuanet.com
Profits for China’s industrial businesses rose 28.7 percent year-on-year to 2.41 trillion yuan (374 billion U.S. dollars) in the first half of this year, the National Bureau of Statistics (NBS) announced Wednesday. The NBS figures showed that combined revenues for the country’s industrial firms rose by 29.7 percent from a year earlier to reach 38.86 trillion yuan from January to June. The report was based on a survey of industrial companies with annual sales exceeding 20 million yuan each. Surveys of industrial companies conducted before 2011 used a sales threshold of 5 million yuan.http://news.xinhuanet.com/english2010/china/2011-07/27/c_131013516.htm

The Indonesia government has unveiled steps to ease inflation pressures in the second half of this year which seasonally higher than in the first six months. The Muslim dominated country with over 240 million population is to face fasting month of Ramadhan which falls in August and will be followed by Islamic festivity. At the end of this yea r the country is to celebrate Christmas and New Year. Weather phenomenon, which disturbed foods supply and triggered inflation to a 21-month high to 7.02 percent in January, is still threatening. http://news.xinhuanet.com/english2010/business/2011-07/28/c_131015106.htm

Thehindu.com
In an effort to promote cross-Line of Control (LoC) trade, India and Pakistan have doubled the trading days between them to four in an effort to promote LoC trade.  Truck movement will take place on Tuesdays, Wednesdays, Thursday and Friday both on Srinagar-Muzaffarabad and Poonch-Rawalakot routes. http://www.thehindubusinessline.com/industry-and-economy/economy/article2298291.ece?homepage=true

Finance Minister Pranab Mukherjee on Wednesday cautioned that year-end inflation may not be less than 6-7 per cent even as the government and the RBI are making sustained efforts to fight price rise. “We are fighting against inflation…increase in repo and reverse repo by the RBI on Tuesday conveys a strong signal… (but) we shall have to keep in mind that year-end inflation may not be less than 6-7 per cent,” Mr. Mukherjee told reporters here. http://www.thehindu.com/business/Economy/article2298747.ece

Economictimes.com
From next year, atta,bread,biscuits ,snacks and everything made frommaida andsooji will become seriously more expensive. Even after a bumper crop, there just won’t be enoughwheat for us. ET helps you join the dots. The trigger for wheat inflation that will hit each one of us is the Food Security Act, which kickstarts next year. The Food Corporation of India (FCI) will need substantially more wheat to supply three out of four Indian households, meet the new buffer stocking norms that stipulate larger quantities, and also keep aside a strategic reserve for emergencies. http://economictimes.indiatimes.com/policy/food-security-to-create-permanent-wheat-shortage/articleshow/9391239.cms

Yohnapnews.co.uk
The South Korean economy is expected to expand 4.1 percent in the second half of the year in the face of rising global and domestic uncertainties, a private think tank said Thursday. The growth forecast marks a modest gain from 3.8 percent growth in the first half, the Korea Economic Research Institute (KERI) said, adding Asia’s fourth-largest economy is likely to grow 3.9 percent for all of 2011. The full-year projection is well below the 6.2 percent increase reached in 2010 when the economy was able to make a comeback from the global financial crisis triggered by the collapse of U.S. investment giant Lehman Brothers in late 2008. http://english.yonhapnews.co.kr/business/2011/07/28/50/0502000000AEN20110728005000320F.HTML