Economic Calendar

Sunday, February 6, 2011

European Stocks Gain After Two Weeks of Losses; BHP Billiton, Rio Advance

European stocks rose this week, snapping two weeks of losses, as reports showed manufacturing in the U.S., China and Europe expanded and the U.S. unemployment rate unexpectedly declined in January.

Basic-resource shares posted the best performance among 19 industry groups as a report showing that Chinese manufacturing expanded last month boosted metal prices. EFG Eurobank Ergasias SA and Alpha Bank SA led gains as Credit Suisse Group AG upgraded its stance on Greece. ARM Holdings Plc surged 13 percent this past week after posting fourth-quarter revenue that beat analysts’ estimates.

The benchmark Stoxx Europe 600 Index advanced 1.9 percent to 285.9 this week. The gauge has gained 3.7 percent so far this year as reports suggested the global economy continues to recover and investors speculated that European leaders will increase their efforts to contain the region’s debt crisis.

“We had really good manufacturing numbers that helped the market this week,” said Markus Huber, the head of German sales trading at ETX Capital in London. “Payrolls rose less than estimated, but this was due to the weather and job numbers are overall good with unemployment decreasing. Americans are negotiating to solve issues in Egypt, but tensions could be a concern for equity markets if they spread to other countries.”

In the U.S., a report showed manufacturing increased at the start of the year at the fastest pace since May 2004. The Institute for Supply Management’s factory index jumped to 60.8 in January from 58.5 in December. Readings greater than 50 mean that manufacturing expanded. Economists had forecast a reading of 58 for the gauge, according to the median projection in a Bloomberg News survey.

Chinese Manufacturing

In China, a purchasing managers’ index released by the country’s logistics federation gave a reading of 52.9 for January, exceeding the 50 level dividing expansion and contraction. A PMI from HSBC Holdings Plc and Markit Economics climbed to 54.5 from 54.4.

In Europe, manufacturing expanded more rapidly than estimated in January, accelerating to the fastest pace in nine months because of stronger output in Germany. A gauge of manufacturing in the euro area rose to 57.3 from 57.1 in December, Markit Economics said.

A separate report this week showed the U.S. jobless rate unexpectedly fell in January to the lowest level since April 2009, even as payrolls rose less than forecast because of winter storms. Another report in the U.S. showed consumer spending climbed more than forecast in December, concluding consumers’ strongest quarter in more than four years.

Egyptian Protests

All week, Egyptians protested in the cities of Cairo, Alexandria and Suez, demanding that President Hosni Mubarak step down immediately. The demonstrations continued even after Mubarak said he would not stand in September’s presidential election. The Egyptian goverment said that Hosni’s son, Gamal Mubarak, would not seek election either. European stocks limited gains on concern that the protests could move to other Arab states and some investors speculated that violent unrest could affect trade through the Suez Canal.

Per-share earnings have topped analysts’ estimates at 39 of the 70 companies in the Stoxx 600 that reported results since Jan. 10, according to data compiled by Bloomberg.

National benchmark indexes rose in 14 of Europe’s 18 western markets. France’s CAC 40 Index gained 1.1 percent, the U.K.’s FTSE 100 Index rose 2 percent, while Germany’s DAX Index advanced 1.6 percent. Greece’s ASE Index soared 4.4 percent.

BHP Billiton, Rio

BHP Billiton Ltd., the world’s largest mining company, gained 6 percent, pulling a gauge of basic-resource producers to the biggest gain among the Stoxx 600’s 19 industry groups. Rio Tinto Group, the world’s third-largest mining company, climbed 5 percent, while Anglo American Plc jumped 10 percent.

EFG Eurobank Ergasias and Alpha Bank surged 15 percent and 11 percent, respectively. Credit Suisse upgraded its stance on Greece to “benchmark” from “underweight,” saying “Greek equities look cheap.”

“The Greek equity market starts looking interesting given that Greece is the cheapest of the peripheral markets,” Credit Suisse analysts led by London-based Andrew Garthwaite said in a note.

ARM Holdings Plc soared 13 percent as the designer of semiconductors used in most smartphones, including Apple Inc.’s iPhone, said fourth-quarter revenue rose 34 percent to 113.9 million pounds ($183.3 million). Analysts had estimated revenue at 105.8 million pounds in a Bloomberg survey.

Deutsche Bank Gains

Deutsche Bank AG climbed 6 percent as Germany’s biggest bank said higher revenue from fixed-income and equities trading lifted fourth-quarter earnings at its investment bank.

Pretax profit at the division rose to 625 million euros ($848.4 million) from 398 million euros in the year-earlier period, according to a statement. Revenue from sales and trading climbed 30 percent to 2.44 billion euros, helped by a rebound in asset values, the Frankfurt-based company said.

TUI Travel Plc lost 7.2 percent after Europe’s largest tour operator said that canceled holidays in Egypt and Tunisia and the cost of repatriating some customers may cut second-quarter profit by as much as 30 million pounds.

Thomas Cook Plc slid 5.1 percent after its German brands, including its namesake unit, Neckermann Reisen, Bucher Last Minute and Oeger Tours, said they have stopped tours to Egypt until at least Feb. 14.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net.

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

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Copper Extends Rally to Records as Supply May Tighten on Rising Demand

Copper extended a rally to a record on mounting concern that the global economic recovery will boost consumption of the metal used in cars, homes and appliances while mining companies struggle to increase output.

Freeport McMoRan Copper & Gold Inc., the world’s largest publicly traded producer, said the market will be “tight in 2011, and for the foreseeable future.” The metal has more than tripled since the end of 2008 on rising demand from China, the world’s largest buyer. In the U.S., the second-biggest user, unemployment fell in January to the lowest level since April 2009, the Labor Department said today.

“Demand for copper continues to be robust and growing,” said James Dailey, who manages $185 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Bringing copper production online is very costly and protracted, so it may be some time before production levels are able to grow fast enough to offset the growth in demand.”

Copper futures for March delivery rose 3.5 cents, or 0.8 percent, to close at $4.5795 a pound at 1:26 p.m. on the Comex in New York. Earlier, the price reached a record $4.614. The metal is up 4.7 percent this week, the biggest weekly gain since Dec. 3.

The global supply deficit will reach 822,000 metric tons in 2011, more than double last year’s shortfall, Barclays Capital said on Jan. 20. JPMorgan Securities Ltd. and Macquarie Bank Ltd. also predicted a deficit, and Australia & New Zealand Banking Group Ltd. and Morgan Stanley have boosted their price forecasts.

China Demand

“We have continuing strong demand out of China and the prospects of continued recovery in the U.S. and in parts of Europe,” Kathleen Quirk, Freeport’s chief financial officer, said yesterday in a telephone interview from Phoenix. “That is also overlaid on a situation where supply is very limited. Our industry hasn’t been able to expand capacity fast enough to meet the demand.”

Copper for three-month delivery added $120, or 1.2 percent, to $10,050 a ton ($4.56 a pound) on the London Metal Exchange. Earlier, the metal climbed to $10,100, the highest ever.

Also in London, tin climbed 2.1 percent to $31,200 a ton after reaching a record $31,300. Prices are up 16 percent this year. PT Timah, the biggest supplier of the metal, said on Jan. 14 its production may drop for a fourth straight year in 2011.

Aluminum, lead, nickel and zinc rose.

To contact the reporter on this story: Yi Tian in New York at Ytian8@bloomberg.net.

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net.

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Oil Falls as U.S. Adds Fewer Jobs Than Forecast, Fuel Use Drops

Crude fell after a government report showed that the U.S. added fewer jobs in January than economists forecast, bolstering concern that fuel demand will slip in the world’s biggest oil-consuming country.

Futures dropped 1.7 percent after the Labor Department said employers increased payrolls by 36,000 last month. The number of workers was projected to climb by 146,000, according to the median forecast in a Bloomberg News survey. Gasoline stockpiles rose to the highest level in almost 18 years as demand decreased, according to an Energy Department report on Feb. 2.

“The fuel markets are weighing on crude,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Today’s jobless numbers showed many fewer people got jobs than expected and that many others have simply given up looking for work, which raises concerns about U.S. consumer demand. We already are looking at weak demand and very high stockpiles.”

Crude oil for March delivery declined $1.51 to settle at $89.03 a barrel on the New York Mercantile Exchange. Prices are down 0.3 percent this week and have increased 22 percent over the past year.

Gasoline futures for March delivery tumbled 6.81 cents, or 2.7 percent, to end the session at $2.4353 a gallon in New York.

The unemployment rate dropped to 9 percent in January from 9.4 percent the previous month. The so-called underemployment rate, which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking, decreased to 16.1 percent from 16.7 percent.

‘Poor Number’

“Once you get past the initial headline, the jobs report isn’t very good,” said Kyle Cooper, director of research for IAF Advisors in Houston. “A 9 percent unemployment rate is definitely better than 10 percent, but historically it’s a poor number. This shows that things still aren’t that great.”

The U.S. needs to see faster job growth for a sufficient period of time before policy makers can be assured the economic recovery has taken hold, Federal Reserve Chairman Ben S. Bernanke said yesterday in a speech at the National Press Club in Washington.

Supplies of gasoline rose 6.15 million barrels to 236.2 million last week, the highest level since March 1993, the Energy Department report showed. It was the biggest gain since January 2009. Inventories have climbed in 10 of the past 11 weeks.

Total fuel demand decreased 0.3 percent to 18.8 million barrels a day last week, the lowest level since November, the department said. Gasoline consumption fell 1 percent to 8.55 million barrels a day, the lowest amount since the week ended Feb. 12, 2010.

Egyptian Protest

Futures gained as much as 1.3 percent earlier today as Egyptians poured out of Friday prayer services and into Cairo’s Tahrir Square in the tens of thousands as yesterday’s fighting gave way to a peaceful mass protest.

Other Arab countries gripped by instability include Yemen, where police used tear gas against protesters yesterday, and Jordan, which sacked its government this week. Algeria’s President Abdelaziz Bouteflika said yesterday that a 19-year-old state of emergency will be lifted “in the very near future.” The protests began in Tunisia, where President Zine El Abidine Ben Ali was forced from office last month.

About 2.5 percent of global oil output moves through Egypt via the Suez Canal and the Suez-Mediterranean Pipeline, according to Goldman Sachs Group Inc. The waterway is open and operating normally today, Ahmed El Manakhly, head of traffic for the Suez Canal Authority, said by phone.

Egypt’s Revenue

“A significant part of Egypt’s revenue comes from the Suez Canal and tourism,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “Since tourism will be hurt for a while because of the unrest, whoever is in control will definitely want to keep both the Suez Canal and the SuMed pipeline running smoothly.”

The Organization of Petroleum Exporting Countries should only meet if the Suez Canal closes, Venezuelan Energy Minister Rafael Ramirez told reporters today in Caracas. Oil is rising to a “fair price,” he said. OPEC ministers are next scheduled to gather in June at the group’s Vienna headquarters.

Brent crude for March settlement fell $1.93, or 1.9 percent, to end the session at $99.83 a barrel on the London- based ICE Futures Europe exchange. The contract touched $103.37 yesterday, the highest intraday level since Sept. 26, 2008.

Oil volume on the Nymex was 699,437 contracts as of 3:27 p.m. in electronic trading in New York. Volume totaled 682,075 contracts yesterday, 3.4 percent lower than the average of the past three months. Open interest was 1.56 million contracts, the highest level since Sept. 12, 2007.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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Merkel Makes Euro Indispensable by Turning Crisis Into German Opportunity

Chancellor Angela Merkel is turning Europe’s sovereign-debt crisis into an opportunity to reshape the euro region in Germany’s image.

As Spain raises its retirement age, Greece cuts wages and Portugal imposes the deepest spending reductions in more than three decades, Merkel’s resolve in refusing to aid neighbors unconditionally is showing signs of working.

Seeking to erase doubts that the markets can snuff out the 12-year-old euro, which she has called the “uniting idea” of post-World War II Europe, the 56-year-old scientist who grew up in communist East Germany is set to swap stick for carrot and throw the weight of Europe’s largest and richest economy behind a plan to bolster the area’s rescue effort.

“This is the right time and these are the right ideas,” Helmut Schlesinger, Bundesbank president from 1991 to 1993 when the euro’s founding treaty took effect, said in a telephone interview. Germany, the biggest contributor to bailouts for Greece and Ireland, “has a special responsibility to come up with proposals and see them through,” he said.

By demanding stricter oversight and tougher penalties on fiscal miscreants, Merkel would complete the job begun at the start of the euro. While German leaders in the 1990s equipped the European Central Bank with the same inflation-fighting mission as its Bundesbank, they failed to impose ironclad controls on national budget policies.

The result: a crisis that has frustrated unprecedented efforts by policy makers to calm markets and stoked doubts that the euro would survive.

EU Summit

Merkel and counterparts from the 27-member European Union met in Brussels today to review progress on a package they aim to finish by late March and which may include an increase in the bailout fund’s firepower, a reduction in interest rates on rescue loans and deeper coordination of economic policies.

Her task is two-fold: protect a single currency she views as indispensible and shift the euro-region toward the model of a fiscally virtuous, hard-money, stable-growth economy that underpinned Germany’s post-war recovery.

Still, as Europe prepared to bail out Ireland in November, Merkel’s appeal to her skeptical electorate focused on the euro as a symbol of peace to a nation ravaged by two world wars.

The euro “is about everything. If the euro fails, then Europe fails, the European ideal of common values and unity will fail,” Merkel said in a Nov. 15 speech to members of her party in Karlsruhe, Germany. “This ideal has always given us strength in the face of wars and destruction in Europe for the past centuries -- to fight for peace, for prosperity and for freedom on our continent.”

Merkel’s Task

Merkel is walking a fine line. Her effort could boomerang, raising German borrowing costs and eroding political support among voters hostile to channeling their taxes to those who avoided painful policy choices on their own.

Bunds will suffer whenever “German tax revenue is drawn upon for cross-border purposes” to help weaker euro countries, said Andrew Bosomworth, a Munich-based fund manager at Pacific Investment Management Co. who previously worked for the ECB.

The yield on the benchmark 10-year German bund reached the highest in almost a year this week as euro-area inflation advanced at its fastest pace in more than two years in January.

Germany undercut its own credibility in 2005 by teaming with France to loosen budget rules after both countries overran the EU deficit limit of 3 percent of gross domestic product. No sanctions have ever been slapped on high-deficit states, not even on Greece, a country that never met the targets.

Seeking Payoff

Now Merkel, who gained a degree in physics from the Karl Marx University in Leipzig and a doctorate in quantum chemistry from the Central Institute of Physical Chemistry in East Berlin, is seeking a payoff from a year of crisis-fighting and providing the biggest share of a $1 trillion euro-region bailout package.

A fluent speaker of Russian and English, Merkel, a former aide to Lothar de Maiziere, East Germany’s only democratically elected premier, was picked for Chancellor Helmut Kohl’s post- unification Cabinet. At 36, she became the youngest minister of the post-war era.

Her message of austerity is backed by a personal style recalling life in communist East Germany.

The chancellor and her second husband, Joachim Sauer, reject the sprawling living quarters in the chancellery and instead live in her 19th-century apartment building in Berlin’s central Mitte district. She disdains the official retreat, a restored 18th century Prussian palace, spending weekends at the family country house in the village of Hohenwalde, 80 kilometers (50 miles) northeast of the capital.

Potato Soup

Merkel wheels a shopping cart through her local food store, trailed by her security detail, at least once a month. She even bags her own groceries and during her 2009 re-election campaign she boasted that she makes a “mean potato soup” and does her own laundry when time permits.

For a country where inflation weakened democracy in the 1920s and aided Adolf Hitler’s rise to power, the chancellor says the euro is a pre-requisite for an economically strong, peaceful Europe and protecting it requires the pain of budget cuts in the so-called peripheral economies.

“Indebtedness is the biggest danger for prosperity on this continent,” Merkel told the World Economic Forum’s annual meeting in Davos, Switzerland, on Jan. 28. Any country that gets aid “must receive this solidarity under certain conditions.”

Tighter control of national finances tops Germany’s list of demands. Narrowing Europe-wide differences in taxes, pay and retirement age is also on the agenda, driven by Merkel and French President Nicolas Sarkozy, a convert to her lobbying.

“Mrs. Merkel and I will never -- do you hear me? -- never let the euro fail,” Sarkozy said in Davos.

Market Gains

Merkel may have pulled ahead for now in her battle to restore policy makers’ mastery over the markets. The euro climbed to a three-month high this week and bond-risk premiums for Spain, Portugal, Italy and Belgium narrowed as investors bet that Europe will agree on ways to strengthen its crisis response.

Governments are already taking Merkel’s medicine. Spain cut public wages 5 percent last year, reduced firing costs, made it easier for firms to opt out of collective-bargaining deals and plan further changes to those pacts by March. All but the lowest pensions have been frozen and the government is increasing the retirement age to match Germany’s 67.

“In my 25 years as an economist I can’t recall another advanced economy having undertaken such an agenda of reforms in such a short period of time,” said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc.

Loosening Strings

In return, Merkel may be willing to loosen the purse- strings by bolstering a 440 billion-euro ($600 billion) European Financial Stability Facility, whose lending ability is limited by collateral rules to about 250 billion euros.

Merkel’s bailout tactics underscore her response to previous crises. She was criticized for moving too slowly on stimulus spending as the economy sank into recession, on supporting banks after the collapse of Lehman Brothers Holdings Inc. rocked the global financial system and on extending a lifeline to Greece.

Those who know her say that represents a scientific cast that differs from most of her political counterparts who are mainly lawyers or businessmen.

“It’s policy by trial and error. She passionately takes a position, then turns 180 degrees and changes her mind,” Gerd Langguth, political scientist at University of Bonn and Merkel biographer, in a phone interview today. “She doesn’t do politics from the gut. Sure, therein lies a danger, because those politicians often have a feel for getting it right. Merkel just wants all the facts on the table.”

Debt Limits

Merkel points to constitutional debt limits adopted by Germany in 2009 as a model for the rest of Europe and views the Sweden’s revamping of its welfare state in the 1990s as another inspiration. Years of wage restraint in Germany and cuts in social programs by Gerhard Schroeder, the previous chancellor, further strengthen her hand.

European Commission statistics show unit labor costs shrank in Germany each year from 2004 through 2007 and grew less than 1 percent in each of the six previous years. In that period, the euro-area average was only lower in 1998 and never contracted.

“Germany went through a difficult and painful restructuring,” said Klaus Baader, co-chief European economist at Societe Generale SA in London. “The fruits are clear to see and that’s what Germany expects of other euro member countries.”

German Expansion

Powered by exports, Germany had its fastest economic expansion in two decades last year with gross domestic product jumping 3.6 percent. Unemployment fell to an 18-year low of 7.4 percent in January -- the second lowest among the Group of Seven economies after Japan -- and business confidence reached a record high.

Continental AG, the second-biggest tire maker in Europe, last month reported sales and earnings that beat its 2010 goals, while Siemens AG, Europe’s largest engineering company, said fiscal first-quarter profit increased more than estimated.

Since spooking markets in October by saying bondholders will have to pay in future bailouts and again in November by calling the euro’s condition “exceptionally serious,” Merkel has shifted her public stance to a come-what-may defense of the currency. “We support whatever is needed to support the euro,” she said in Berlin on Jan. 12.

She may have other aims. Merkel may nominate Bundesbank President Axel Weber to replace Jean-Claude Trichet as president of the ECB after his term ends in October, a move that would install a so-called inflation hawk to keep a lid on prices.

Roubini’s Doubts

Merkel will ultimately fail if she attempts to impose the German diet on Europe without giving more in return, said Nouriel Roubini, chairman of Roubini Global Economics LLC. Germany and other countries should slow their deficit cuts and Greece should restructure its debt now, he said.

Germany’s message is “we don’t care about pain and the only solutions are austerity and structural reforms, and anything else has to wait for 2013,” when the EU aims to have a permanent defense system for the euro in place, said Roubini. “You need a more comprehensive solution sooner.”

Most international investors predict at least one of the 17 nations will leave the euro area within five years and that Greece and Ireland will default, according to the January 2011 Bloomberg Global Poll that underscored the urgency leaders face in calming markets. The same poll ranked Merkel as the most favored of nine global policy makers.

State Elections

Constraining Merkel are elections in seven of Germany’s 16 states this year -- with Baden-W├╝rttemberg’s on March 27 -- and public resistance to putting more taxpayer money on the line for bailouts, tinged with nostalgia for the deutsche mark. Within her governing coalition, the Free Democratic Party in January rejected any increase in the bailout fund.

Greater financial support for indebted euro-area countries was opposed by 64 percent of German respondents in a Jan. 28 FG Wahlen poll. About half of Germans would ditch the euro and return to the deutsche mark, a Dec. 26 YouGov survey for the Bild newspaper showed.

That underscores the need for her to keep both euro-region neighbors and her own voters on side, said Harvard University historian Niall Ferguson, who has written about Germany’s economy and yesterday met Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero in Madrid.

“The euro has to survive because it’s in Germany’s interest and the German voters are gradually coming to see they can’t afford to see this fall apart,” Ferguson told Bloomberg Television. Merkel’s strategy means the “outlook for the euro has definitely improved.”

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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