Mid-Day Report: Yen Surges after Poor Services and Job Data from US

Market Overview | Written by ActionForex.com | Dec 03 08 15:18 GMT |

Japanese yen strengthens across the board today after another round of poor services data from around the world. Released in US session, ISM non-maufacutring index dropped to record low of 37.3 in Nov, suggesting contraction in services section is accelerating. Price paid index dropped sharply from 53.4 while employment component also dived further in sub-50 region from 41.5 to 31.3. Also released from US, ADP employment showed largest contraction since 1991 by -250k in Nov. Challenger planned job cut rose 148% to over 181k in Nov, hitting the highest level in six years. While most major currencies, except dollar and yen, remains weak, there is another round of free Canadian selling in early US session, dragged down by crude oil's fall to below 46 level. Though, EUR/USD and AUD/USD remains in range so far. Market's focus will turn to Fed's Beige book later in US afternoon as well as RBNZ's rate decision in the comming Asian session. UK services PMI surprised on the downside to 40.1(consensus: 41.2, Oct: 42.4), the 7th straight month of contraction and the lowest level since the index began in 1996. Readings of employment, incoming new business, outstanding business and business expectation were all at record lows. Earlier this week, the UK reported manufacturing and construction PMI whose declines were sharper than market anticipated. Poor data indicated weak economic conditions in the nation and underscored BoE's aggressive rate cut in the meeting tomorrow. Markets expect another 100bps cut but the BoE might surprise the market again by a deeper cut. Other data saw retail sales in Eurozone shrank -0.8% in October, worse than consensus of -0.4% and 0% (revised from -0.2%) in September, amid rising unemployment and weakening consumer confidence. On annual basis, the figure came in at -2.1%, also lower than market's expectation of -1.4%. September figure was also revised upward to -1.4%. Sales of food, drinks and tobacco products fell 0.5% that of non-food products lost 0.9% in October. Eurozone revised down the final number for November's services PMI to 42.5 from 43.3 initially. Falling from 45.8 in October, the figure marked the sharpest drop in 10 years and the 6th consecutive month that the sector is in contraction. Composite PMI for November also fell more than expected to record low at 38.9 from 43.6 in October. Moreover, the German figure was also revised to 45.1 from 46.2, compared with 48.3 in October. Readings for new business, input and output all dropped sharply. USD/CAD Mid-Day Outlook Daily Pivots: (S1) 1.2368; (P) 1.2475; (R1) 1.2569; More. USD/CAD's strong rally and sustained trading above 1.2478 confirms that correction from 1.2984 has completed at 1.2125 already, contained above 1.2908 support as expected. At this point, intraday bias remains on the upside as long as 1.2381 minor support holds. Retest of 1.2984/3015 resistance zone should be seen first. Break will confirm that medium term up trend has resumed. On the downside, below 1.2381 will turn intraday outlook neutral again. Further break of 1.2125 low will dampen the immediate bullish view and indicate that consolidation from 1.3015 is still in progress. In the bigger picture, preferred interpretation of the up trend from 0.9056 is that first wave rally is completed at 1.0248. Subsequent second wave consolidation was in form of triangle and finished at 0.9823. Rise from 0.9823 is treated as third wave rally and should have completed at 1.3015 already. Hence, some medium scale consolidation might be seen now. However, note that firstly, downside of such consolidation should be contained by bottom of the fourth wave in a lower degree at 1.1304. Secondly, sustained break of 1.3015 will confirm that the medium term up trend has resumed, with the fifth wave started and should then target 61.8% retracement of 1.6196 to 0.9056 at 1.3469. Though, note that sustained break of 1.1304 will indicate that the fifth wave as likely completed at 1.2984 already. In other words, whole rise from 0.9056 has possibly completed too. Deeper correction should then be seen in such case.

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Belgium’s Economy Grows More Than Initially Estimated

By Jurjen van de Pol

Dec. 3 (Bloomberg) -- Belgium’s economy expanded more than initially estimated in the third quarter, helped by a rebound in the construction industry and a jump in inventories.

Growth in gross domestic product slowed to 1.3 percent from the year-earlier quarter, compared with 1.9 percent annual growth in the prior three months, the National Bank of Belgium in Brussels said today. While the third-quarter figure is higher than the 1.2 percent estimated earlier, it still is the lowest rate of growth in almost five years and quarter-on-quarter expansion was just 0.1 percent.

“The GDP should have contracted if it was not for inventories,” which increased 0.6 percent from the prior quarter, said Dominique Barbet, an economist at BNP Paribas in Paris. “When manufacturers and retailers get rid of this inventory accumulation, we will get a much weaker output and GDP.”

European economies are under pressure as the financial turmoil that has prompted interest-rate cuts and bank bailouts spreads to industries beyond banking. The economy of the 15- nation euro zone contracted in the third quarter for the first time since the introduction of the single currency.

“It is clear that the first GDP drop of the Belgian cycle will be reported in the fourth quarter, and it should be a large one,” Barbet said.

Building Industry

The quarter-on-quarter growth rate was lower than in the previous three months, when the economy grew 0.3 percent. The building industry expanded 0.4 percent from the previous quarter, while industrial activity fell 0.5 percent and services expansion slowed to 0.2 percent from 0.4 percent in the second quarter.

Belgian new-car registrations tumbled 16 percent in November, while consumer and business confidence dropped to the lowest level in 15 years on increased pessimism about the labor market as economic growth stagnates. The Belgian federal government’s planning bureau yesterday cut its inflation forecast for this year to 4.5 percent from 4.6 percent and said it expects price growth to slow to 1.5 percent next year.

The European Central Bank tomorrow may lower borrowing costs for the third time since early October. European services shrank at a record pace last month and retail sales fell more than forecast in October, data today showed, increasing pressure on the ECB to cut rates further this week.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net

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Productivity Rose More Than Forecast; Labor Costs Up

By Timothy R. Homan

Dec. 3 (Bloomberg) -- U.S. worker efficiency rose more than forecast in the third quarter and labor costs increased less than anticipated, signaling company efforts to rebuild profits are paying off.

Productivity, a measure of employee output per hour, rose at a 1.3 percent annual rate, compared with a 1.1 percent gain estimated last month, revised figures from the Labor Department today in Washington showed. Labor costs climbed at a 2.8 percent rate, less than the 3.6 percent pace forecast.

Companies reduced expenses as the economy contracted by reducing employee hours at the fastest pace in six years and holding the line on wages. The drop in raw-material prices combined with the smaller-than-expected increase in labor costs indicates companies are moving to shore up profits as the economy heads for what may be the longest recession in seven decades.

“Companies can be expected to react by further cost- cutting, which inevitably means reductions in employee head count and hours worked,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc in New York, said in a note to clients. “While this will help support productivity and restrain unit labor costs, it will also reinforce the consumer-led aspect of the economic slump.”

U.S. companies eliminated an estimated 250,000 jobs in November, the most since November 2001, ADP Employer Services said today in a report based on payroll data. The drop was larger than forecast.

Better Than Forecast

Economists had forecast productivity would rise at a 0.9 percent annual pace, according to the median of 57 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.6 percent to 1.5 percent.

The gain in unit labor costs, which are adjusted for efficiency gains, followed a 2.6 percent drop from April through June that was larger than previously estimated.

Hours worked fell at a 3.1 percent pace, the biggest drop since the first three months of 2002. Non-farm output fell at a 1.9 percent rate, the most since the last recession.

Compared with the third quarter of 2007, productivity rose 2.1 percent, close to the 2.5 percent annual average since 1995. Labor costs were up 1.4 percent year-over-year.

The drop in commodity costs is also helping shore up profits and may help companies retain some of the staff they would otherwise have cut in incoming months, said Brian Bethune, an economist at IHS Global Insight in Lexington, Massachusetts.

Cost Management

“We are moving into the point where companies reduced hours as much as they can,” Bethune said. “Cost management is still a major challenge, but there is still some scope to do more on the material-cost and supplier-costs side,” Bethune said.

A Labor Department report Dec. 5 is projected to show the economy lost 325,000 jobs in November, the most since October 2001, according to the survey median. The decline would bring the total drop in payrolls to 1.5 million so far this year.

Gross domestic product contracted at a 0.5 percent annual pace last quarter.

The U.S. economy entered a recession in December 2007, according to a panel at the National Bureau of Economic Research that dates American business cycles. The last time the U.S. was in a recession was from March through November 2001.

Some economists are concerned that the productivity surge that began in 1996 is waning.

Productivity Boost

In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.

U.S. companies are cutting jobs to improve productivity and to counter a global slowdown in demand. Xerox Corp., the world’s largest maker of high-speed color printers, is eliminating 3,000 jobs and reducing manufacturing costs to save money next year.

“We’re managing our operations with a close eye on the bottom line,” Chief Executive Officer Anne Mulcahy said in a Nov. 24 statement. “The restructuring actions we’re taking this quarter are expected to deliver $200 million in savings next year, giving us greater flexibility to operate even more efficiently and effectively in an uncertain economic environment.”

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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U.S. ISM Services Index Fell to Record Low Last Month

By Shobhana Chandra and Bob Willis

Dec. 3 (Bloomberg) -- U.S. service industries contracted in November at the fastest pace on record, sinking the economy deeper into what may become the worst recession in decades.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 37.3, the lowest level since records began in 1997, from 44.4 the prior month, the Tempe, Arizona-based ISM said. Readings below 50 signal contraction.

Americans, hurt by mounting job losses, a lack of credit and falling home and stock values, are losing confidence and cutting spending on everything from cars and furniture to food and vacations. Slumping sales are prompting even more job cuts, signaling the economic slump will persist well into 2009.

“Business activity has shut down, along with the consumer,” Stephen Gallagher, chief economist at Societe Generale in New York, said in an interview with Bloomberg Television. “There is no reason for an immediate turnaround; financial markets have not stabilized; consumers have not stabilized.”

The index was projected to decline to 42, according to the median forecast in a Bloomberg News survey of 64 economists. Estimates ranged from 37 to 46.5.

Stocks retreated further after the report. The Standard & Poor’s 500 Index was down 113 percent, to 838.4, at 10:18 a.m. in New York. Treasury securities fell as investors judged the rally that pushed yields to record lows was unsustainable amid government efforts to revive growth.

Job Losses

Private reports today showed the labor market deteriorated further last month. ADP Employer Services reported that companies cut an estimated 250,000 jobs in November, the most since the 2001 recession. The number of announced firings surged 148 percent last month from November 2007, led by a jump at financial firms as the credit crisis deepened, according to Chicago-based Challenger, Gray & Christmas Inc.

The Labor Department’s November jobs report, due Dec. 5, may show the biggest one-month payroll drop since the 2001 terrorist attacks, according to the Bloomberg survey.

Companies, trying to shore up profits as the economy sinks, cut worker hours in the third quarter by the most in six years, a report from the Labor Department showed. The decline contributed to a higher-than-forecast gain in productivity and an increase in labor expenses that was smaller than economists surveyed by Bloomberg News anticipated.

Record Lows

The ISM group’s index of new orders for non-manufacturing industries decreased to 35.4 from 44 the prior month. Its gauge of employment dropped to a record-low 31.3 from 41.5, and a measure of prices paid fell to 36.6, also the lost since at least 1997.

ISM said earlier this week that its factory index dropped in November to the lowest level since 1982.

The U.S. entered a recession a year ago this month, the National Bureau of Economic Research, which dates American business cycles, said this week. At 12 months, the contraction is already the longest since the 16-month slump that ended in November 1982, and exceeds the postwar average of 10 months.

Later today, the Federal Reserve’s beige book survey, a compendium of regional economic activity, may underscore the worsening outlook. The information will be used by policy makers when they meet later this month to discuss whether of cut interest rates again to revive the economy.

Spending Slump

Consumer spending, which accounts for about 70 percent of the economy, faltered last quarter and is likely to keep sliding. Purchases from July through September posted the biggest drop since 1980, causing the economy to shrink. The housing downturn, likely to extend into a fourth year, will remain a drag.

Retailers are concerned the holiday shopping season may be the worst in at least six years. Sears Holdings Corp., the largest U.S. department-store company, yesterday abandoned its earnings forecast for the remainder of the year, citing “severe conditions in the economy.”

Financial services remain in distress. Citigroup Inc., which is planning to eliminate 52,000 jobs, this week said it dropped a portion of the severance payment offered to employees who have been at the bank for a decade or longer.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

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Persian Gulf Tanker Rates May Surge as Storage Curtails Fleet

By Alaric Nightingale

Dec. 3 (Bloomberg) -- The cost of shipping Middle East crude to Asia may surge on accelerated bookings in anticipation of profit from higher oil prices in the future.

As many as 12 supertankers, each designed to hold 2 million barrels of oil, and four vessels half the size are booked with options to use them as storage, Johnny Plumbe, chief executive officer of London-based broker ACM Shipping Group Plc, said by phone today. February contracts for West Texas Intermediate oil, a global benchmark, are trading about 3 percent higher than January contracts.

The “market is on fire,” because of “storage caused by the low oil prices,” said Nikos Varvaropoulos, an official at Optima Shipbrokers in Athens. That’s cut supply and may have boosted the price an oil company paid by 20 percent compared with yesterday’s single-voyage, or spot, rental rate, he said.

Slumping demand for crude oil has created a pricing structure where futures prices are more than those for more- immediate purchase. That compensates traders who can afford to store barrels and sell them at higher prices in the future.

“This is a situation that only happens when oil price is in the situation where it is now,” said Plumbe, whose company specializes in tanker rentals and sales. “If you take enough ships out on storage, it’s going to affect supply and demand.”

Frontline Ltd., the world’s largest owner of very large crude carriers, or VLCCs, said Nov. 28 it leased out two vessels for storage and was working on a third such transaction. Crude oil prices in six months time are anticipated to be as much as $8 a barrel more than supplies for more immediate delivery, it said.

Rates Rise

Rates for VLCC shipments to the U.S. from West Africa gained 19 percent to 109.62 Worldscale points on Dec. 2, according to the London-based Baltic Exchange. They advanced at the fastest pace in at least nine-and-a-half years on Dec. 1.

There was speculation that one booking was concluded at 75 Worldscale points, Varvaropoulos said, adding that no details of the transaction have emerged. The Baltic’s rate for Saudi Arabian cargoes to Japan gained 0.6 percent to 62.73 Worldscale points.

Halvor Ellefsen, a broker at Sealeague AS in Oslo, said there was speculation about a booking at more than 70 points.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

A rate of 62.73 works out at $39,497 a day, according to the Baltic Exchange. Globally the carriers are making $35,072 a day. Frontline said Nov. 24 it needs $34,700 a day to break even on each of its supertankers, a 10 percent gain from Aug. 21.

To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net

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Russia Won’t Sell Kyoto Carbon Credits, Blinov Says

By Alex Morales and Mathew Carr

Dec. 3 (Bloomberg) -- Russia will refuse to sell surplus carbon-emissions credits to other nations, removing from the market the biggest single pool of licenses to pollute under the Kyoto global-warming treaty, a government official said.

Victor Blinov, the deputy chief of Russia’s delegation to the United Nations climate talks in Poland, said in an interview yesterday evening that the country will hold the credits beyond the Kyoto Protocol’s 2012 deadline so they may be used in a successor treaty that’s being negotiated.

Russia has enough spare credits to release 3.3 billion metric tons of carbon dioxide through 2012, the World Bank said. While Kyoto credits are sold over-the-counter without published prices, Russia’s holding is worth 46 billion euros ($58 billion) based on a similar UN-certified credit trading in London. Global carbon trades totaled $64 billion in 2007, the World Bank said.

“These extra emissions should be banked for the next period” covered by a new pollution-limiting treaty, Blinov said. “We want to keep them because of the potential for economic development for the Russian Federation.”

Economic growth is easier for a nation when it has more room to increase emissions of carbon dioxide. CO2 is the main gas blamed for global warming and a common air pollutant from steel factories and electricity plants to cars and buses.

Under the treaty, 37 nations were given greenhouse-gas emissions targets for the 2008-2012 period and were granted pollution credits that can be sold if they undershoot the goals.

Under Limit

Russia’s Kyoto target was to match its average annual emissions in the measurement period compared with 1990, a goal it will easily meet, the World Bank and carbon analysts have predicted. As of 2006, output of the gases in Russia had fallen 34 percent from 1990, according to the UN.

A United Nations certified emission reduction for December, a CO2 allowance similar to a Kyoto credit, rose 5 cents to 14.15 euros a metric ton ($17.86) euros a ton on the European Climate Exchange as of 11:43 a.m. in London.

Russia’s estimated 3.3 billion spare credits are equivalent to one-and-a-half years of greenhouse-gas emissions from all of the factories and power plants in the 27-member European Union.

Refusing to sell credits, called “assigned amount units” under the Kyoto treaty, will remove a potential pool of CO2 licenses that might be bought by nations such as Italy or Spain, which are headed to exceed their credits granted under Kyoto.

The 1997 treaty gave the 37 nations emissions targets. Each must buy credits or similar permits for each ton of CO2- equivalent they release in excess of their limits. CO2 equivalent is a unit of measurement that includes carbon dioxide and five other greenhouse gases regulated by Kyoto.

To contact the reporters on this story: Alex Morales in Poznan, Poland, via amorales2@bloomberg.net Mathew Carr in London at m.carr@bloomberg.netKatarzyna Klimasinska in Poznan at kklimasinska@bloomberg.net

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Sibir Plunges 60% on Russian Billionaire ‘Bailout’

By Greg Walters and William Mauldin

Dec. 3 (Bloomberg) -- Sibir Energy Plc, a London-traded Russian oil producer, lost more than half its value after announcing plans to buy $340 million worth of property from billionaire shareholder Chalva Tchigirinski.

Sibir slid 61 percent to 39 pence at 1:31 p.m. in London, valuing the company at about 155 million pounds ($228 million). Sibir’s board “concluded that the company must take over the bulk” of Tchigirinski’s real-estate business, the company said in a statement today.

“My advice for shareholders is to fire the management,” said Ivan Mazalov, a fund manager at Prosperity Capital Management in Moscow who helps oversee $5 billion of assets, and doesn’t own Sibir shares. “Investors in this company certainly don’t like the way it is bailing out the company’s major shareholder.”

Sibir is the second company in as many months to provoke criticism for buying assets to help billionaire investors, after Russian power generator OAO OGK-3 announced plans to purchase shares in companies controlled by Vladimir Potanin’s Interros holding company. Potanin owns a stake in Norilsk Nickel, which controls OGK-3. The Moscow brokerage dubbed OGK-3 the “bank of Interros” in a client note.

Stalin’s Hotel

Sibir has agreed to buy the Sovietsky Hotel in Moscow, built in 1952 under the order of Soviet leader Josef Stalin, among at least $158.9 million of real-estate, oil refining and marketing assets from companies connected to Tchigirinski and shareholder Igor Kesaev.

“This amounts to a significant transfer of value from the company to one of its shareholders,” said Alexander Burgansky, oil and gas analyst at Renaissance Capital. “It looks like the minority shareholders will not really have a say.”

In a separate statement, Sibir said Finance Director Alexander Betsky resigned yesterday, and that his replacement will be announced in due course.

Sibir is seeking to preserve its shareholder structure, after the global credit crisis “had a domino effect on Mr. Tchigirinski’s financial position,” according to its statement today.

Tchigirinsky’s net worth was estimated at $2.5 billion by Forbes magazine in May, making him the Russia’s 44th-richest man.

To contact the reporter on this story: Greg Walters in Moscow gwalters1@bloomberg.net

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Total Decides Against Bidding for Canada's Nexen, Times Reports

By Colin Keatinge

Dec. 3 (Bloomberg) -- Total SA decided against bidding for Nexen Inc., the Canadian oil explorer, the London-based Times reported, without saying where it got the information.

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EDF Defies Buffett With Constellation Nuclear Offer

By Tara Patel and Jim Polson

Dec. 3 (Bloomberg) -- Electricite de France SA, the world’s biggest operator of atomic reactors, offered to pay $4.5 billion for half of Constellation Energy Group Inc.’s nuclear business to gain generating capacity in the U.S. and thwart a rival bid from billionaire Warren Buffett.

The proposal includes a $1 billion cash investment in preferred stock and an option for the U.S. utility to sell to EDF non-nuclear assets of as much as $2 billion, Paris-based EDF said today. Buffett’s MidAmerican Energy Holdings Co. agreed earlier this year to buy all of Constellation for $4.7 billion.

“They’re much closer to what we thought all along was the fair value of the company,” James Halloran, who helps manage about $34 billion, including Constellation shares, at National City Private Client Group in Cleveland, said in a telephone interview. “They’ll have to give it serious consideration.”

EDF, which owns 9.5 percent of Constellation, in October backed out of a $6.2 billion bid for the whole company with buyout firms KKR & Co. and TPG Capital LP. Its new approach, through a proposed joint venture with the Baltimore-based utility, is designed to ensure EDF can own and operate plants in the U.S. and avoid possible opposition to foreign ownership of nuclear facilities.

Constellation spokesmen Larry McDonnell and Robert Gould didn’t immediately return messages placed before normal business hours in Baltimore. MidAmerican, based in Des Moines, Iowa, has no comment to make on the offer, spokeswoman Ann Thelen said.

‘Good Time’

“EDF has to come up with the cash now, which could be negative in the current climate, but it’s a good time to make acquisitions because the market is at such a low point,” said Arnaud Scarpaci, a fund manager at Agilis Gestion in Paris.

EDF slid as much as 6.6 percent in Paris and traded down 2.395 euros at 42.175 euros as of 2:05 p.m. local time. Constellation surged 19 percent to $30 a share before the start of regular trading on the New York Stock Exchange. That’s the highest price since Constellation accepted the MidAmerican offer.

“The offer is aimed at consolidating our role in developing new nuclear in the U.S.,” EDF Chief Executive Officer Pierre Gadonneix said in an interview in Paris. “It would bring long-term resources to Constellation,” he said, adding it was “far superior” to MidAmerican’s bid.

EDF said the proposal “is not subject to a financing condition” and approval from Constellation’s stockholders is not required. The Paris-based utility said its offer values the whole of Constellation at $52 a share, more than double yesterday’s closing price.

‘Significantly Undervalues’

“Constellation is fundamentally strong and EDF, like many others, believes that the proposed MidAmerican transaction significantly undervalues Constellation and its future opportunities,” Gadonneix said earlier in a statement. The offer provides “more than sufficient liquidity” to allow it to remain a standalone company, he said.

EDF agreed to buy Eagle Energy Partners I LP from bankrupt investment bank Lehman Brothers Holdings Inc. in September to expand gas and power trading in North America. The acquisition gave it power production, gas-storage and transportation assets.

MidAmerican moved to snap up Constellation in September for less than half its end-August market value after Constellation plunged 58 percent in New York amid investors’ concern that turmoil in financial markets would wreck its energy-trading business.

Competing Offer

“The timing of the bid is worrying investors because of the current credit climate,” Chicuong Dang, a Paris-based analyst at KBL Richelieu Gestion, which has about $6.2 billion under management, said by telephone. “EDF’s offer is reasonably priced. Buffett’s offer is really low.”

Constellation has called on shareholders to approve the deal with MidAmerican, priced at $26.50 a share, in a vote scheduled for Dec. 23.

“We haven’t had any independent talks with Warren Buffett or MidAmerican,” Gadonneix said in the interview, adding he hoped Constellation’s board would examine EDF’s offer “objectively.”

EDF’s offer of $1 billion in cash and the possible purchase of non-nuclear assets for as much as $2 billion “will more than cover” liquidity needs related to the termination of the agreement with MidAmerican, the French utility said in a document filed with the U.S. Securities and Exchange Commission.

Breakup Fee

MidAmerican would walk away with a 9.9 percent stake, $593 million in cash, and $1 billion of senior notes paying 14 percent interest, Constellation said yesterday in an SEC filing. The cash portion includes a $175 million breakup fee.

Constellation would also have to return any unused portion of a $350 million credit line.

EDF’s offer is for a 50-50 joint venture that would own Constellation’s five nuclear-power reactors in the U.S., two at the Nine Mile Point plant and another at the Ginna plant in New York, and the two-unit Calvert Cliffs station in New York.

Constellation and EDF already have a 50-50 joint venture that was created last year called Unistar Nuclear Energy LLC to develop new nuclear reactors in the U.S. using Areva SA’s EPR Evolutionary Power Reactor design.

The U.S. power company said yesterday that 2009 profit will fall to as little as $1.50 per share should shareholders reject the takeover by MidAmerican.

The offer comes after EDF agreed in September to buy British Energy Group Plc for 12.5 billion pounds ($18.5 billion) to become the U.K.’s biggest power producer and gain control of eight sites to build reactors.

Exelon Corp., the biggest U.S. utility company by market value, offered in October to buy NRG Energy Inc. for $6 billion in stock, betting it will be able to refinance NRG’s $8 billion in debt at lower costs. NRG, based in Princeton, New Jersey, has urged its shareholder to reject the bid, which would create the largest U.S. power producer.

J.P. Morgan is the financial adviser for EDF, the French utility said.

To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.netJim Polson in New York at jpolson@bloomberg.net.

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Pound Weakens as Consumer Confidence Slumps, Services Contract

By Matthew Brown

Dec. 3 (Bloomberg) -- The pound weakened after reports showed U.K. services shrank at the fastest pace in at least 12 years and consumer confidence worsened, giving the Bank of England more reason to cut interest rates tomorrow.

The British currency declined against all 16 of the major currencies tracked by Bloomberg, losing as much as 1.7 percent against the dollar and 1 percent versus the euro. An index based on a survey of about 700 service companies fell to 40.1, the lowest since the gauge began in 1996, Markit and the Chartered Institute of Purchasing and Supply said today. Nationwide Building Society said consumer confidence slipped to the lowest level since at least 2004.

The reports “weren’t taken too well by the markets,” said Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, the investment-banking unit of France’s Credit Agricole SA. “There are big expectations the central bank’s going to remain pretty aggressive. The market will be disappointed if it’s anything less than 100 basis points.”

The pound dropped to $1.4778 by 2:40 p.m. in London, from $1.4920 yesterday. It was at 85.57 pence per euro from 85.23 pence.

The pound slipped 26 percent against the dollar this year, the most since at least 1972, as the Bank of England lowered its key rate four times to fend off the worst of the fallout from the global credit crisis. The economy shrank 0.5 percent in the third quarter, after showing zero growth in the second.

Buiter Comments

Former U.K. policy maker Willem Buiter said yesterday the central bank may reduce the benchmark rate to zero early next year. The Bank of England will cut the rate by 1 percentage point to 2 percent tomorrow, according to the median forecast of 60 analysts surveyed by Bloomberg.

Buiter’s views “appear to have stimulated the imagination of the market,” Greg Gibbs, director of foreign-exchange strategy at ABN Amro Holding NV in Sydney, wrote in a note to clients today.

Interest-rate futures slid as traders increased wagers on cuts in borrowing costs. The yield on the contract expiring in March declined five basis points to 2.22 percent.

U.K. government bonds gained, keeping yields near record lows. The yield on the 10-year bond fell five basis points to 3.43 percent, four basis points off the least since 1989, when Bloomberg began collating data. The two-year gilt yield dropped five basis points to 1.70 percent. Yields move inversely to bond prices.

Falling Yields

The yield on the two-year note, which is more sensitive to interest-rate movements, declined 276 basis points, or 2.76 percentage points, since the collapse of Lehman Brothers Holdings Inc. on Sept. 15. That compares with a 224 basis-point decline in the yield on the two-year U.S. Treasury note.

Federal Reserve Chairman Ben S. Bernanke said Dec. 1 the central bank may buy Treasury securities to revive the economy because his room to lower the main U.S. rate from the current 1 percent is “obviously limited.”

“Bernanke’s comments the other day kicked off the rally and that’s bringing gilts with it,” Elisabeth Afseth, a fixed-income analyst in London at broker Evolution Securities Ltd., said in a telephone interview. “We have the central bank announcement tomorrow, so that should keep it going. There’s no reason yields can’t go a bit lower still.”

The cost of hedging against losses on gilts rose to a record in the market for credit-default swaps today.

Five-year contracts on U.K. government debt climbed 1.5 basis points to 109, according to CMA Datavision prices. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to its debt agreements. A rise indicates a deterioration in the perception of credit quality; a decline, the opposite.

To contact the reporters on this story: Matthew Brown in London on mbrown42@bloomberg.net

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Mexico Peso Falls as U.S. Companies Cut More Jobs Than Forecast

By Valerie Rota

Dec. 3 (Bloomberg) -- Mexico’s peso declined after a report showed U.S. companies eliminated more jobs last month than forecast, threatening to cut demand for Mexican exports.

The peso fell 0.5 percent to 13.6354 per U.S. dollar at 8:54 a.m. New York time, from 13.5649 yesterday. Mexico’s peso has fallen 28 percent from a six-year high on Aug. 4.

U.S. payrolls shrank by 250,000 in November, the most in seven years, ADP Employer Services said. Economists had forecast jobs to shrink 205,000, according to the median estimate in a Bloomberg survey. The U.S. buys about 80 percent of Mexico’s exports.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.

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Yen Rises as Weakening Economy Cuts Appetite for Higher Yields Email | Print | A A A

By Ye Xie and Bo Nielsen

Dec. 3 (Bloomberg) -- The yen rose against the dollar and the euro as a report showed U.S. companies eliminated more jobs last month than forecast, prompting investors to sell higher- yielding assets and pay back low-cost loans in Japan’s currency.

Japan’s yen gained against the pound after a report showed U.K. consumer confidence slid last month to the weakest in at least four years. The euro fell against the dollar as economists forecast the European Central Bank will cut its main refinancing rate by a half-percentage point to 2.75 percent tomorrow.

“We still get poor economic data, and you’ve got to think there’s danger there,” said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. “Until we get stabilization in both financial markets and economic data, it’s difficult to see any significant reversal of the gains in the yen.”

The yen rose 1.2 percent to 117.13 versus the euro at 8:45 a.m. in New York, from 118.44 yesterday. Japan’s currency gained 0.3 percent to 92.94 per dollar from 93.18. The euro lost 0.6 percent to $1.2637 from $1.2714.

U.S. companies eliminated 250,000 jobs in November after a reduction of 179,000 in the prior month, ADP Employer Services reported today. The median forecast of 22 economists surveyed by Bloomberg News was for a cut of 205,000 from a previously reported 157,000.

The Labor Department’s November jobs report, due Dec. 5, may show the biggest one-month payroll drop since the 2001 terrorist attacks, according to a Bloomberg survey.

U.S. Productivity

Productivity, a measure of employee output per hour, rose at a 1.3 percent annual rate in the third quarter, compared with a 1.1 percent gain estimated last month, revised figures from the Labor Department in Washington showed. Labor costs climbed at a 2.8 percent rate, less than the 3.6 percent pace forecast.

European retail sales declined by a worse-than-expected 2.1 percent in October from a year earlier, the European Union’s statistics office reported. A Bloomberg News survey had predicted a 1.5 percent decline.

Europe’s Dow Jones Stoxx 600 Index lost 1.6 percent. More than $32 trillion has been erased from the value of global equities since the U.S. mortgage market’s collapse sparked financial turmoil.

The yen also rose against the New Zealand dollar and the Swedish krone. It typically gains when investors reverse so- called carry trades, where they borrow funds in a country with low interest rates and invest in those with higher lending rates. The benchmark interest rate of 0.3 percent in Japan compares with 3.25 percent in the euro region, 6.5 percent in New Zealand and 3.75 percent in Sweden.

‘Risk Appetite’

“The lack of good news seems likely to weigh on risk appetite,” wrote Adrian Schmidt, a London-based senior foreign- exchange strategist at Royal Bank of Scotland Group Plc, the fourth-biggest currency trader.

Standard & Poor’s 500 Index futures slipped 1.9 percent after the index rose 4 percent yesterday.

The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 42, the lowest level since records began in 1997, according to the median forecast in a Bloomberg News survey. The report is due at 10 a.m. New York time. Readings below 50 indicate a contraction.

The U.S. economy entered a recession in December 2007, the first since 2001, the National Bureau of Economic Research said on Dec. 1.

‘Disappointing’ Data

“There is a risk that the dollar will go lower,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest publicly traded lender. “Disappointing economic data would highlight the extent of the U.S. recession and undermine confidence in buying the dollar.”

The pound fell for a third day against the euro after a report showed U.K. consumer confidence slid last month, giving the Bank of England more reason to cut interest rates tomorrow.

An index of sentiment fell 6 points to 50, the lowest since the survey began in May 2004, Nationwide Building Society, Britain’s second-biggest mortgage lender, said today. The BOE is forecast by economists to lower its main rate by one percentage point to 2 percent. The pound dropped 0.2 percent to 85.44 pence per euro.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

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Gold Falls in London as Stronger Dollar Reduces Bullion Demand

By Nicholas Larkin

Dec. 3 (Bloomberg) -- Gold declined in London as the dollar traded close to its highest in more than a week against the euro, reducing the metal’s appeal as an alternative investment.

The euro slipped against the U.S. currency as a report showed the region’s retail sales fell more than forecast, giving the European Central Bank more reason to cut interest rates tomorrow. The U.K. may cut rates as consumer confidence slid to the lowest level in at least four years. Gold has fallen 7 percent this year as the U.S. Dollar Index, which tracks the currency against six trading partners, gained 14 percent.

“As long as the dollar continues to strengthen against the euro, gold will continue to fall,” Liran Kapeluto, a senior dealer at trading-system operator Finotec Trading U.K. Ltd., said by phone from London. “We don’t see any reason to buy gold. Inflation is going down too.”

Gold for immediate delivery lost $5.95, or 0.8 percent, to $776.40 an ounce by 12:42 p.m. in London. December futures were $7, or 0.9 percent, lower at $774.30 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal fell to $773.50 in the morning “fixing” in London used by some mining companies to sell production, from $780 at the morning fixing. Gold has slumped 25 percent since reaching a record $1,032.70 in March.

Lower Rates

Economists predict ECB policy makers will cut its benchmark interest rate by a half-percentage point tomorrow. The Bank of England will probably lower its key rate by 1 percentage point, according to a Bloomberg survey. U.K. services from banks to recruiters contracted at the fastest pace in at least 12 years in November, while consumer confidence fell to the lowest since at least 2004.

“Gold could come under pressure ahead of tomorrow’s interest rate decision,” Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote today in a note. “A worse-than- expected retail sales figure today and a possible 100 basis points cut by the ECB could see the euro under pressure against the dollar. This could drag gold down and it may also depress both platinum and palladium.”

European retail sales declined 2.1 percent in October from a year earlier, the biggest drop since June. Europe’s economy slipped into its first recession in 15 years in the third quarter after the global financial crisis pushed up borrowing costs, eroded confidence and hurt demand for exports.

The dollar increased 0.5 percent against the euro and climbed 1 percent against the pound. Crude oil, little changed at $47.04 a barrel in New York today, has plunged 51 percent this year. Falling oil prices typically reduce demand for gold as a hedge against inflation.

Job Cuts

U.S. service industries probably contracted in November at the fastest pace on record, a report may show at 10 a.m. New York time, according to a Bloomberg survey of economists. ADP Employer Services may report at 8:15 a.m. New York time that companies cut an estimated 205,000 jobs in November, the most since the 2001 recession, according to a Bloomberg Survey.

Platinum gained a second day, rising $9, or 1.1 percent, to $815 an ounce. The metal, used in autocatalysts, has slipped 47 percent this year.

General Motors Corp. and Chrysler LLC told Congress they need $15 billion just to survive until next month, when President-elect Barack Obama takes office. Democrats pledged to keep them out of bankruptcy without saying how.

U.S. November sales declined 41 percent at General Motors and 31 percent at Ford Motor Co. Toyota Motor Corp. and Honda Motor Co. posted drops of 34 percent and 32 percent respectively. European and Japan vehicle sales also slumped, while growth of cars sales in China slowed.

‘Expect The Worst’

“The platinum group metals market has come to expect the worse, and much of this bearish news has been priced in already,” de Wet said.

Among other metals for immediate delivery in London, silver fell 1.3 percent to $9.4513 an ounce, and palladium was $1, or 0.6 percent, lower at $172.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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Canada’s Dollar Weakens on Drop in Stocks, ‘Political Noise’

By Chris Fournier

Dec. 3 (Bloomberg) -- Canada’s currency depreciated against its U.S. counterpart as stock markets in Europe fell and the prime minister threatened to suspend Parliament to stave off defeat at the hands of a united opposition.

“Weakness in the Canadian dollar corresponds to weakness in equities,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “The political noise is also adding a little bit to the drop in the currency.”

The Canadian dollar dropped as much as 0.9 percent to C$1.2570 per U.S. dollar, from C$1.2463 yesterday. It traded at C$1.2560 at 7:55 a.m. in Toronto. One Canadian dollar buys 79.60 U.S. cents.

BNP Paribas predicts the Canadian dollar will weaken to C$1.33 by year-end.

Europe’s Dow Jones Stoxx 600 Index lost 0.8 percent to 195.58, extending this year’s retreat to 46 percent. U.S. equity- index futures also weakened, indicating the Standard & Poor’s 500 Index may fall at the open.

Canadian Prime Minister Stephen Harper may suspend Parliament after the main opposition Liberal Party agreed two days ago to form a coalition with the New Democratic Party that would be backed by the separatist Bloc Quebecois during key votes. The alliance may replace Harper’s Conservative Party government as early as next week.

The coalition proposal requires the backing of the country’s head of state, Governor General Michaelle Jean, who returns to Canada today after cutting short a state visit to central Europe. Should she refuse the request to let the coalition govern, the country would be forced into its fourth election since 2004.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Hedge Funds Lose Influence on Copper, Bloomsbury Says

By Claudia Carpenter

Dec. 3 (Bloomberg) -- Hedge funds and index funds that helped drive copper to a record in July have “dropped out” in the last several weeks, leaving “almost traditional” factors such as inventories more influential, according to Bloomsbury Minerals Economics Ltd. in London.

“What we see now is a new price-to-inventory relationship so we have a much clearer picture of how fundamentals will move the price,” Managing Director Peter Holland said in a phone interview today. “We can begin analyzing the market in an almost traditional way, looking at the rate of demand growth, inventories and exchange rates.”

Copper has dropped 61 percent from a record in July as recessions in the U.S., Germany and Japan curbed demand for cars and homes and the dollar gained against the euro, raising costs for buyers in Europe. Prices climbed every year from 2002.

Copper for immediate delivery will fall to $3,239 a metric ton in 2009 from $6,977 a ton this year, Bloomsbury forecast in a report today. The 2009 forecast was lowered from $3,784 estimated last month.

Production will outpace demand by 244,000 tons next year after 109,000 tons this year and 47,000 tons last year, it said.

Copper for immediate delivery closed yesterday at $3,535.50 a ton on the London Metal Exchange.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net

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Copper Prices Fall Most in 3 Weeks on Concern Demand Will Slump

By Millie Munshi

Dec. 3 (Bloomberg) -- Copper prices fell by the most in three weeks on mounting concern that a global recession will reduce demand for the metal used in pipes and wires.

More than $31 trillion has been erased from the value of global equities as the collapse of the U.S. subprime mortgage market sparked financial turmoil that pushed economies worldwide into contraction. Copper inventories monitored in London have more than doubled since June 30 as demand waned. Before today, the metal’s price had fallen 47 percent this year in New York.

“The outlook for the global economy continues to weaken” and weigh on prices, Alex Heath, the London-based head of industrial metals at RBC Capital Markets, said today in a report.

Copper futures for March delivery sank 6.8 cents, or 4.2 percent, to $1.5325 a pound at 9:19 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest one-day drop since Nov. 11.

On the London Metal Exchange, copper for delivery in three months fell $167, or 4.7 percent, to $3,388 a metric ton ($1.54 a pound.)

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.

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Oil Little Changed Near Three-Year Low Before U.S. Supply Data

By Christian Schmollinger and Grant Smith

Dec. 3 (Bloomberg) -- Crude oil traded near a three-year low before a report forecast to show that U.S. crude inventories expanded for a 10th week.

The Energy Department will probably say crude-oil supplies rose 1 million barrels last week, according to a Bloomberg News survey, as the recession hit consumer spending. Gasoline demand declined for a 32nd week in a row, a report by MasterCard Inc. showed yesterday.

“Expectations that the recent pattern of stock builds will continue are doing nothing to help this market, where the demand picture is already rather bleak,” said Christopher Bellew, senior broker with Bache Commodities Ltd. in London.

Crude oil for January delivery fell as much as 54 cents, or 1.2 percent, to $46.42 a barrel on the New York Mercantile Exchange. That’s the lowest since May 20, 2005. The contract, which earlier advanced as high as $48.10, and traded for $47.12 as of 1:41 p.m. in London.

Brent crude fell below $45 a barrel for the first time in more than three years. Brent for January settlement on London’s ICE Futures Europe exchange declined as much as 57 cents, or 1.3 percent, to $44.87 a barrel.

The contract was unchanged at $45.44 a barrel at 1:43 p.m. London time.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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European Stocks, U.S. Index Futures Fall; Infineon, ASML Drop

By Adam Haigh

Dec. 3 (Bloomberg) -- Stocks fell in Europe and U.S. index futures dropped on disappointing earnings from Infineon Technologies AG and Research In Motion Ltd., a record contraction in European services and higher-than-forecast job cuts in America.

Infineon, Europe’s second-largest maker of semiconductors, tumbled 29 percent on a wider-than-expected net loss. ASML Holding NV and Nokia Oyj sank more than 3 percent. Research In Motion, whose BlackBerry competes against Apple Inc.’s iPhone, declined 7.9 percent after third-quarter profit missed its forecast.

Europe’s Dow Jones Stoxx 600 Index lost 2.3 percent to 192.66 at 2:13 p.m. in London, extending this year’s retreat to 47 percent. More than $31 trillion has been erased from the value of global equities as the collapse of the U.S. mortgage market sparked financial turmoil that pushed economies into recession.

“Everybody has been surprised by the scale of this mess and it is going to get worse,” said Hans Goetti, who oversees $10 billion as chief investment officer at LGT Bank in Liechtenstein (Singapore) Ltd., part of the bank for the wealthy owned by Liechtenstein’s royal family. “We may see this downturn lasting well into 2010.” Goetti is underweight global equities.

Standard & Poor’s 500 Index futures slipped 2.6 percent before a report that will probably show service industries shrank in November at the fastest pace on record, sending the world’s largest economy deeper into what may become the worst recession in decades. Futures on the Dow Jones Industrial Average fell 2.3 percent.

The 30-company Dow average has swung by an average of 517 points between intraday highs and lows over the last two months, and the 20-day average exceeded a record 600 points in October.

Job Cuts

European stocks and U.S. index futures extended declines after the ADP Employer Services report indicated that American companies cut a more-than-forecast 250,000 jobs in November, the most since 2001. Economists predicted a decline of 205,000 jobs, according to a Bloomberg survey.

The MSCI Asia Pacific Index gained 1.3 percent as GST Holdings Ltd., a Chinese fire-alarm maker, and China Mobile Ltd. rallied.

Stocks worldwide will withstand a “full-blown” global recession, according to UBS AG. The S&P 500 may jump to 1,300 by the end of 2009, a 53 percent rally from its current level, New York-based strategist David Bianco wrote in a report dated Dec. 2.

U.S. stocks climbed yesterday, rebounding from the market’s worst tumble since October, after General Electric Co. announced plans to maintain its dividend and the Federal Reserve extended terms of three emergency loan programs. GE jumped 14 percent, while Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. advanced at least 9 percent.

Bankruptcy ‘Not an Option’

House Speaker Nancy Pelosi yesterday said she believes either Congress or the Bush administration will step in to aid domestic automakers because bankruptcy is “not an option.”

National benchmarks slid in 16 of the 18 western European markets. The FTSE 100 lost 1.8 percent, as Stagecoach Group Plc slipped after forecasting tough times ahead. France’s CAC 40 dropped 2.9 percent, led by Electricite de France SA after it bid $4.5 billion for half of Constellation Energy Group Inc.’s nuclear power business. Germany’s DAX slid 2.8 percent.

European services shrank at a record pace and retail sales fell more than forecast in October, reports today showed. In the U.K., services contracted at the fastest pace in at least 12 years in November, and consumer confidence dropped.

The reports bolstered the case for interest-rate cuts. Economists predict European Central Bank policy makers will lower their benchmark rate by a half percentage point, and the Bank of England will probably slash its key rate by 1 percentage point. Both central banks are due to announce decisions tomorrow.

Bigger Cut

HSBC Holdings Plc said it now forecasts the ECB cutting the rate by 0.75 percentage points, having previously estimated a 0.5 percentage point decrease.

Infineon declined 29 percent to 1.17 euros after saying it sees full-year 2009 sales down at least 15 percent from this year and reported a 763 euros fourth-quarter net loss, missing analysts’ estimates for a 321 million-euro loss.

ASML, Europe’s largest maker of semiconductor equipment, lost 3.1 percent to 10.80 euros. Nokia, the world’s biggest maker of mobile phones, declined 3.2 percent to 10.53 euros.

Research In Motion sank 7.9 percent to $34.38 in pre-market trading in New York. Profit rose to no more than 83 cents a share in the quarter ended Nov. 29, missing a company forecast of as much as 97 cents. The results were preliminary, with the full financial report due on Dec. 18.

Stagecoach fell 18 percent to 140.9 pence after the owner of the U.K.’s biggest rail franchise said it may cut jobs as the slowdown begins to threaten passenger numbers.

Pressure on Margins

Bouygues SA fell 9.5 percent to 28.815 euros after signaling orders and building margins may decrease next year. The world’s second-largest construction company is already seeing “pressure” on profit margins at road-building unit Colas and predicts fewer orders and a similar squeeze on new civil-works contracts, the Chief Financial Officer Philippe Marien said yesterday during a conference call on the company’s third-quarter earnings.

Analysts have slashed earnings estimates this year as economies from Germany and the U.K. to the U.S. slip into recession. Profit for companies in the Stoxx 600 will slide 13 percent in 2008, compared with 11 percent growth forecast at the start of the year, according to Bloomberg data. Earnings for S&P 500 companies will slide 11 percent in 2008, the data show.

Since Oct. 7, quarterly earnings for the 329 companies in the Stoxx 600 that reported results declined 15 percent on average, trailing expectations by 6 percent, Bloomberg data show. For the 465 companies in the S&P500 that have reported results, earnings sank 17 percent and missed estimates by 4.2 percent, the data show.

Thwarting Buffett

EDF slumped 5.4 percent to 42.175 euros after the world’s biggest operator of nuclear reactors bid for half of Constellation’s nuclear business to expand in the U.S. and thwart a rival bid from billionaire Warren Buffett. Constellation agreed earlier this year to be bought by Berkshire Hathaway Inc.’s MidAmerican Energy Holdings Co. for $4.7 billion.

GST surged 38 percent to HK$2.62 after United Technologies Corp. offered to buy the remaining 71 percent of the company it doesn’t already own for HK$1.9 billion ($245 million). The stock resumed trading today after being suspended since Nove. 10.

China Mobile climbed 3.2 percent to HK$72.55. State radio said the country will invest a total of 800 billion yuan ($116 billion) to provide 3G mobile services, and issue three licenses by the end of the year.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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Stocks to Rise in ’09, UBS Says; S&P 500 May Gain 53%

By Alexis Xydias

Dec. 3 (Bloomberg) -- Global stocks will withstand a “full-blown” recession and surge in 2009 as cheap valuations and efforts by governments to restore confidence in the financial system lure investors back to equities, UBS AG said.

The Standard & Poor’s 500 Index, which tumbled 42 percent to 848.81 this year, may rally 53 percent to 1,300 by the end of 2009, David Bianco wrote in a note dated yesterday. The New York-based strategist, who a year ago predicted a 2008 advance of 16 percent for the S&P 500, is now forecasting a gain that would exceed the index’s best annual performance on record.

The U.K.’s FTSE 100 Index may increase 41 percent from yesterday’s close to 5,800 in 2009, while the FTSEurofirst 300 Index may climb 25 percent from current levels, Zurich-based UBS said in separate notes.

“The consensus outlook for 2009 is a full year of gloom,” Bianco, 33, wrote in his 2009 market outlook. “We believe 2009 will bring signs of a dawn in confidence with the first faint light appearing earlier than most investors expect.”

UBS, Switzerland’s largest bank, is more bullish on stocks than some of its Wall Street rivals. Citigroup Inc.’s chief U.S. equity strategist Tobias Levkovich last month cut his 2009 forecast for the S&P 500 to 1,000 from 1,300. New York-based Morgan Stanley said this week that European stocks are likely to be little changed in 2009.

Citigroup, Fed

The S&P 500 climbed 13 percent from an 11-year low on Nov. 20 as the government agreed to protect New York-based Citigroup from further losses and the Federal Reserve stepped up efforts to unfreeze credit markets. This year’s slump gives investors a chance to buy the biggest “growth” stocks in the S&P 500 at “deep discounts to intrinsic value,” according to Bianco, who recommends energy, technology and industrial shares.

The benchmark for American equities is heading for its worst annual performance since 1931, while the MSCI World Index has dropped 47 percent after almost $1 trillion in financial- company losses and writedowns froze credit markets and pushed the U.S., Europe and Japan into recessions.

The S&P 500 is now valued at 11.3 times the estimated earnings of its 500 companies, data compiled by Bloomberg show. The index on average over the past five years has traded at 19.5 times the reported profit of its companies.

The U.K.’s FTSE 100, which is currently valued at 7.4 times profit, may advance to 5,800 next year, based on a price earnings multiple of 13, strategist Gareth Evans wrote in a separate note. Price-earnings valuations may climb to lift the FTSEurofirst 300 Index 25 percent from current levels, a team of London-based strategists led by Nick Nelson forecast.

European per-share earnings will still tumble 25 percent as the euro-zone economy contracts 0.9 percent, they said.

‘Is Horrible’

“The macroeconomic and corporate profit outlook for 2009 is horrible,” Nelson’s team wrote. “But share prices have moved well ahead of this and are now pricing in a multiyear recession/depression.”

Latin American indexes will also rise in 2009, led by Brazil, UBS said in a separate report. The bank recommended Belo Horizonte, Brazil-based Cia. Energetica de Minas Gerais, Brazil’s biggest combined electricity generator and distributor, and Mexico City-based America Movil SAB, Latin America’s largest mobile-phone company.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.

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German Stocks Drop, Led by Infineon on Loss; Carmakers Fall

By Stefanie Haxel

Dec. 3 (Bloomberg) -- German stocks declined for a second day this week after Infineon Technologies AG reported a wider- than-estimated loss and carmakers said U.S. sales dropped.

Infineon, Europe’s second-largest chipmaker, plunged 30 percent to a record low after posting the seventh straight quarterly loss. Bayerische Motoren Werke AG and Daimler AG, the world’s biggest makers of luxury cars, slid at least 2 percent as the shrinking U.S. economy hurt sales. MAN AG sank 4.2 percent after saying it will cut production on slumping truck orders.

“We are in a recession and those are the cyclical sectors where you can see this best,” Christoph Riniker, a European strategist at Bank Julius Baer & Co. Ltd. in Zurich, said in a Bloomberg Television interview. “More bad news will come and also indicators in general will point to a recession.”

The benchmark DAX Index retreated 1.8 percent to 4,452.21 as of 3 p.m. in Frankfurt. DAX futures expiring this month declined 2.3 percent. The broader HDAX Index slipped 1.6 percent.

Germany’s DAX Index is down 45 percent this year as almost $1 trillion in credit-related losses and writedowns at financial firms worldwide push the global economy toward a recession, damping the outlook for earnings.

Infineon slumped 30 percent to 1.165 euros, the lowest since the company’s initial public offering in March 2000. The fiscal fourth-quarter net loss widened to 763 million euros ($969 million), compared with the 321 million-euro median estimate of analysts surveyed by Bloomberg.

Revenue will drop in the fiscal year through September 2009 as global demand wanes and prices fall, Infineon said today.

Recommendation Cuts

Analysts at Royal Bank of Scotland Group Plc, Commerzbank AG, Deutsche Bank AG and Natixis SA cut their recommendations on the shares.

BMW, the world’s biggest maker of luxury cars, fell 3 percent to 19.06 euros as vehicle deliveries in the U.S. declined 27 percent last month. Daimler, the second-largest, slipped 2.7 percent to 22.94 euros after saying U.S. sales by its Mercedes- Benz Cars unit dropped 38 percent.

MAN lost 4.2 percent to 32.37 euros. Europe’s third-largest truckmaker will rein in commercial-vehicle production next year and shut plants for as many as 50 days during the first half of next year as the global credit crisis erodes demand.

E.ON AG, the country’s biggest utility, retreated 2.6 percent to 24.96 euros. RWE AG, the second-largest, declined 1.6 percent to 62.25 euros.

Credit Suisse Group AG reduced its forecasts for energy prices and said investors should prepare for a prolonged lull as economic growth slows, hurting earnings at European utilities.

The following stocks also rose or fell in German markets. Symbols are in parentheses.

Arcandor AG (ARO GY) surged for a second day, climbing 17 percent to 2.22 euros. Germany’s biggest department-store owner proposed appointing Karl-Gerhard Eick to replace Thomas Middelhoff as chief executive officer as of March 1.

Conergy AG (CGY GY) lost 9.1 percent to 1 euro, dropping for a third day. Germany’s second-largest solar company said Dresdner Bank AG purchased 155 million new shares in a sale that concluded yesterday, where the bank was one of the underwriters.

Constantin Film AG (CFA GY) rallied 8.4 percent to 17.45 euros after receiving a squeeze-out request from Highlight Communications AG. The Swiss film-licensing company now holds about 97.83 percent in the German maker of movies and television programs.

Medion AG (MDN GY) gained 1.1 percent to 5.39 euros after the distributor of personal computers and mobile navigation systems said it will buy back as much as 2 percent of its own shares, adding to the percent it had acquired through October.

SAP AG (SAP GY) lost 1.2 percent to 25.58 euros. WestLB AG lowered its share-price projection for the world’s largest maker of business-management software 17 percent to 20 euros.

Separately, Chief Executive Officer Henning Kagermann told Handelsblatt the company may give quarterly forecasts in future rather than an annual outlook.

Software AG (SOW GY) dropped for a third day, falling 1.8 percent to 38.14 euros. WestLB AG downgraded Germany’s second- largest software company to “hold” from “add.”

Zapf Creation AG (ZPF GY) tumbled 8 percent to 1.50 euros. Europe’s largest doll maker cut its 2008 outlook on disappointing Christmas season sales it said were due to the weak economy.

To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.

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