India Must Tighten Monetary Policy, Ex-Governor Says

By Kartik Goyal

Dec. 21 (Bloomberg) -- India’s central bank needs to drain cash from the economy to check speculation in commodities, former Governor Bimal Jalan said, after food price inflation climbed to an 11-year high this month.

“Reduction in availability of money may help in reducing the speculative pressure on retail prices,” Jalan, who headed the central bank between 1997 and 2003, said in an interview in New Delhi on Dec. 18. “Monetary policy could give a signal that it is worried about inflation.”

Reserve Bank of India Governor Duvvuri Subbarao said he discussed the country’s economic situation with Finance Minister Pranab Mukherjee on Dec. 18, fueling expectations he may tighten monetary policy soon. Bonds and stocks fell today, extending their decline from last week on concern the central bank may raise interest rates.

“The market has begun to price in a monetary policy action in the near term to anchor rapidly escalating inflation expectations,” said Shubhada M. Rao, chief economist at Yes Bank Ltd. in Mumbai.

The 10-year government bond yield, which rose 14 basis points last week, gained 2 basis points to 7.74 percent at 4:15 p.m. in Mumbai today. The key Sensitive stock index fell 0.7 percent to 16,601.20 on the Bombay Stock Exchange, sliding 3 percent since Dec. 14.

Surging Food Price

Food prices are rising after the June-to-September monsoon rains, the main source of irrigation in Asia’s third-largest economy, were the weakest this year since 1972, hurting output of rice, pulses and wheat.

Production of monsoon-sown rice may total 71.65 million metric tons this year, less than the 84.58 million tons reaped a year ago, according to government estimates. Sugar crop in India, the biggest grower after Brazil, fell 9.6 percent in the first two months of the season that started Oct. 1 to 1.7 million metric tons from a year ago.

An index of food articles compiled by the commerce ministry advanced 19.95 percent in the week ended Dec. 5, the highest since Dec. 1998. India’s key wholesale-price inflation accelerated to 4.78 percent in November from a year earlier, following a 1.34 percent gain in October, the ministry said.

“You don’t need a stark action because inflation is confined to food prices,” said Jalan. “According to one school of thought, some indicative monetary action is worth considering, a mild one.”

Tighter Policy

Even though the central bank’s next monetary policy statement is due on Jan. 29, Subbarao can make changes to interest rates before the scheduled date.

In his last policy announcement on Oct. 27, the governor ordered lenders to keep a higher proportion of their deposits in government bonds, taking the first step toward withdrawing monetary stimulus. Before the move, Subbarao had injected 5.85 trillion rupees ($125 billion) of cash since September 2008 to protect the economy from the global recession.

Subbarao has kept the key reverse repurchase rate unchanged at 3.25 percent since April.

Australia and Vietnam are the two countries in Asia Pacific that have already raised rates to rein in inflation.

The Organization for Economic Cooperation and Development said last month that India must tighten its monetary policy “fairly soon” to stem inflation.

Jalan, who served as a member of parliament until August this year after his stint at the central bank, said India must also step up import of food items that are in short supply.

Political Pressure

“In addition to the drought, what’s complicated the situation is that we didn’t make arrangements for import of rice,” Jalan said. “And, this could partly be because of overestimation of the likely output.”

Glencore International AG, Louis Dreyfus Corp. and Olam International were among companies that offered to sell rice to India last month.

Political pressure is mounting on Indian Prime Minister Manmohan Singh to arrest the price rise in a nation where two- thirds of the 1.2 billion people live on less than $2 a day.

A parliamentary panel on finance on Dec. 17 warned the Ministry of Finance for failing to act in a timely manner to curb inflation. A day earlier, opposition lawmakers accused the government of being ineffective in tackling prices and disrupted parliament proceedings.

The central bank may ask lenders to set aside more cash as reserves if food prices don’t decline in December, Chakravarthy Rangarajan, chairman of Prime Minister Singh’s economic advisory council, said in New Delhi today.

Inflation is gathering strength in India as its economy recovers from the global recession. The $1.2 trillion economy expanded 7.9 percent in the three months ended Sept. 30 from a year earlier, the quickest pace in six quarters. The growth lagged behind only China among the world’s major economies.

“With a strong growth in GDP and inflation accelerating at the same time, pressure is building on the Reserve Bank to partially retract the monetary stimulus,” said Rahul Bajoria, an economist at Barclays Capital in Singapore.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

Read more...

Japan’s Exports Fall at Slowest Pace in 14 Months

By Keiko Ujikane

Dec. 21 (Bloomberg) -- Japan’s exports fell at the slowest pace in 14 months in November as demand from Asia supported the nation’s recovery from its worst postwar recession.

Shipments abroad slid 6.2 percent from a year earlier, the smallest drop since September 2008, the Finance Ministry said today in Tokyo. From a month earlier, exports rose a seasonally adjusted 4.9 percent, the biggest advance since November 2002.

Worldwide government spending has spurred demand for cars and electronics goods made by companies including Fuji Heavy Industries Ltd. and Elpida Memory Inc. The improvement in shipments may ease concern Japan’s economic recovery will stall after reports this month showed confidence among large manufacturers rose the least in three quarters and companies plan deeper spending cuts.

“Economic growth may slow in the months ahead as domestic demand remains weak,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “But exports are looking solid, so Japan should at least be able to avoid another recession.”

The improvement in exports is partly due to a favorable year-on-year comparison, economists including Shinke said. In November 2008, shipments abroad tumbled 26.8 percent as global trade froze following the collapse of Lehman Brothers Holdings Inc.

The median estimate of 17 economists surveyed by Bloomberg News was for exports to drop 6.8 percent from a year earlier.

Imports Decline

Imports slid 16.8 percent in November from a year earlier, the slowest decline in 12 months, the ministry said. Japan posted a trade surplus for a 10th straight month, totaling 373.9 billion yen ($4.1 billion).

Exports are mending even as the strengthening yen erodes the value of profits companies earn abroad and makes their products less competitive. Japan’s currency traded at 90.41 per dollar at 9:57 a.m. in Tokyo from 90.46 before the report. It has weakened since hitting a 14-year high of 84.83 on Nov. 27. The Nikkei 225 Stock Average rose 0.6 percent.

Fuji Heavy, the maker of Subaru cars, expects to boost sales in the U.S. and China next year by 15,000 vehicles in each market, Chief Executive Officer Ikuo Mori said in an interview on Dec. 16.

Elpida Memory, Japan’s largest computer-memory chipmaker, may return to profit for the first time in three years, thanks to higher demand, Chief Executive Officer Yukio Sakamoto said this month.

China Growth

Exports to China and Asia both rose for the first time since September 2008. Shipments to Asia advanced 4.7 percent from a year earlier, compared with a 15 percent drop in October. Exports to China, Japan’s biggest overseas customer, climbed 7.8 percent, compared with a 14.4 percent decline the previous month.

Asian economies are benefiting from a global trade rebound that’s being driven by interest-rate cuts and more than $2 trillion in government spending worldwide. Growth in China will accelerate to 9.4 percent next year, according to the median estimate of economists surveyed by Bloomberg News.

“Exports to Asia are strong so Japan will be able to avoid a double-dip recession even though a slowdown in domestic demand is unavoidable,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Demand in Asia is strong enough to offset the adverse impact of the yen’s gain.”

U.S. Sales

Sales to the U.S. fell 7.9 percent, easing from October’s 27.6 percent decrease and automobile shipments to the nation rose for the first time since April 2008, the Finance Ministry said. Exports to Europe slid 15.9 percent after declining 29 percent.

“Exports to the U.S. have hit bottom and are starting to gradually rise,” Dai-Ichi Life’s Shinke said. “Even though it’s not as strong as Asia, it’s positive for Japan’s economy.”

Some companies are coping with the rising currency by trimming costs. Toyota Motor Corp. may avoid an annual loss if the yen trades around 90 per dollar because the automaker will postpone investments and cut costs, the Asahi newspaper reported on Dec. 16.

Japanese policy makers are trying to sustain a recovery that’s under threat from the currency’s gains and deflation. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen economic stimulus package on Dec. 8, a week after the Bank of Japan released a 10 trillion yen credit program. The central bank said last week that it “does not tolerate” falling prices.

Export Revival

The export revival has yet to spread to the domestic economy. Large companies plan to cut spending 13.8 percent in the year ending March 2010, the second-worst projection on record, the Bank of Japan’s Tankan survey showed last week. Economic growth slowed to an annualized 1.3 percent in the third quarter, about half the pace of the previous three months.

Household confidence fell in November for the first time this year and wages have slumped for 17 months.

“Even though exports are strong, domestic demand is weaker than people expected earlier this year as employment has worsened rapidly,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “That signals the recovery in external demand and the stimulus effects won’t be enough to sustain growth.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

Read more...

OPEC Has Consensus on No Change in Output, Badri Says

By Ayesha Daya and Matthew Campbell

Dec. 21 (Bloomberg) -- The Organization of Petroleum Exporting Countries has a consensus on “no change” in oil production quotas for the bloc’s meeting tomorrow, its secretary-general said.

Abdalla Salem el-Badri doesn’t envisage any need for the producer group to raise the output ceiling from its current limit of 24.845 million barrels a day, he told reporters in Luanda, Angola, today. The group also doesn’t need to meet again before its next scheduled March 17 conference if market conditions stay the same, he said.

“There is a consensus that there is no change,” el-Badri said. “The price is very comfortable.”

OPEC’s 12 members, who supply about 40 percent of the world’s oil, are meeting in Luanda tomorrow amid expectations that crude demand could recover in 2010 as a two-year global economic slump ends.

El-Badri said he is “not happy” with members’ compliance with oil production targets, adding that overall compliance is about 60 percent. OPEC sets output levels for 11 of its members in an effort to guide prices. Iraq is exempt from quotas.

Oil Minister Ali al-Naimi of Saudi Arabia, the bloc’s biggest oil producer, said earlier this month that oil prices near $75 a barrel are “close to the target.” On Dec. 14, Qatari oil minister Abdullah bin Hamed al-Attiyah said “a price between $70 and $80 is suitable.”

Rally in 2009

Crude oil for January delivery traded 2 cents higher at $73.38 a barrel in electronic trading on the New York Mercantile exchange at 10:36 a.m. London time today. Oil futures have rallied 65 percent this year.

All 36 analysts in a survey by Bloomberg last week said they expected OPEC to maintain its formal production limit at the Angola meeting. International Energy Agency statistics show inventories in North America and Europe are still “well above” their five-year average.

OPEC should work to bring inventory levels down to a “reasonable level” of 52 days’ worth of supply, compared with about 59 days currently, el-Badri said today.

Separately, the OPEC President and Angolan oil minister Jose Maria Botelho de Vasconcelos told Angola’s Radio Nacionale that “everything indicates that we will maintain the present situation” after the group’s meeting.

The two most accurate crude forecasters of 2009 both predict a further rally through next year to about $88 a barrel in the final quarter of 2010. Out of 21 quarterly forecasts compiled by Bloomberg at the start of this year, those of Societe Generale SA’s Mike Wittner and Hannes Loacker at Raiffeisen Zentralbank Oesterreich AG, have proved to be the most accurate, according to Bloomberg calculations.

OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

To contact the reporters on this story: Ayesha Daya in Luanda via adaya1@bloomberg.net; Matthew Campbell in London at mcampbell39@bloomberg.net.

Read more...

Oil Climbing as Rebound Makes Most-Accurate Forecasters Bullish

By Grant Smith and Rachel Graham

Dec. 21 (Bloomberg) -- Oil’s biggest annual rally since 1999 is poised to continue with gains of 20 percent next year as the global economy recovers and OPEC curtails production, the most accurate crude forecasters say.

Societe Generale SA’s Mike Wittner and Hannes Loacker at Raiffeisen Zentralbank Oesterreich AG, whose predictions this year that were within 9 percent of market levels, now say oil will end 2010 near $88 a barrel, up from current prices of about $73 in New York. The median Wall Street estimate is for an increase to $83.

Oil is set to rise as China and India lead the world economy from its biggest economic shock since World War II, while the Organization of Petroleum Exporting Countries caps output, Wittner and Loacker said. Analysts say OPEC will keep supply targets unchanged at a meeting in Luanda, Angola, tomorrow, even as the International Energy Agency predicts fuel consumption will rise 1.7 percent next year.

“With global demand growing and OPEC holding production flat, stockpiles are going to come down, and that’s bullish for prices,” said Wittner, 48, the head of oil market research at Societe Generale in London. Commodities will also benefit from the weak dollar and U.S. interest rates close to zero percent, he said.

Oil futures jumped 5 percent last week, the first weekly gain in a month, after Iranian forces occupied an oil well in neighboring Iraq, raising concern tensions between the two OPEC nations would disrupt supplies. The Iranian troops left the field Dec. 19, Iraq’s deputy minister of oil Abdul Kareem al- Luaibi told reporters in Baghdad yesterday.

CIA Analysis

Wittner, an energy analyst at the U.S. Central Intelligence Agency during the 1980s and the IEA in Paris between 1997 and 2002, said purchases by hedge funds and investors seeking protection from inflation will support prices.

“In contrast to some other banks, we acknowledge quite openly, and believe, that non-fundamental factors do play a role in setting oil prices,” said Wittner, who also worked at Koch Supply and Trading Co. and the Credit Agricole SA brokerage, Calyon, before joining SocGen in October 2007.

Loacker, 33, said he expects OPEC to keep production at current levels “for a good portion of 2010,” supporting prices.

Oil futures have risen 64 percent this year because of OPEC’s output cut and economies recovering from the first global recession since World War II. The IEA’s forecast for increased consumption in 2010 would be the first in three years.

Higher oil prices will reward producers from Saudi Arabia to Exxon Mobil Corp., while hurting airlines that the International Air Transport Association forecast will lose $5.6 billion next year.

‘Getting Scarce’

“Resources are getting scarce, especially if we go out two to three years from now,” said Gordon Kwan, an analyst at Mirae Asset Securities in Hong Kong, who worked in Alaska as an engineer at BP Plc’s Prudhoe Bay, the biggest U.S. oil field.

Prudhoe Bay and its satellites pumped 357,360 barrels a day on Dec. 17, according to Alaska’s Department of Revenue. In the 1980s, daily production was 1.5 million barrels a day.

“Right now scarcity is not a popular word because there’s plenty of inventory in the tanks,” Kwan said. “But once we have a synchronized global economic recovery, maybe 2011 onward, then we’ll see the word scarce coming into the picture.”

Monthly oil contracts for late 2010 trade between $75 and $80, limiting the potential returns for investors. A 20 percent rally from current levels would lag behind the 57 percent gain in 2007 and 40 percent in 2005. Last year, oil started at $99.62 and rose as high as $147.27 before crashing and ending the year at $44.60 a barrel.

Commerzbank Forecast

The third most-accurate oil forecaster, Commerzbank AG senior analyst Eugen Weinberg, predicts oil will fall to $59 in the fourth quarter of 2010 because OPEC will increase supplies.

“Next year, I see risk from the downside,” Weinberg said. “OPEC discipline is receding, and I think this will continue.”

Until there’s evidence of improved demand in developed nations “and real discipline from OPEC, then prices have increased prematurely,” Weinberg said.

For the Bloomberg survey, analysts’ forecasts between December 2008 and January 2009 were compared with actual prices. The average total for the 21 analysts surveyed was off by 18 percent, with Economist Intelligence Unit, Natixis Bleichroeder Inc., JPMorgan Chase & Co. and Deutsche Bank AG farthest away.

Deutsche Bank predicts a decline of 18 percent to an average of $60 a barrel a year from now as the dollar strengthens.

‘Downward Pressure’

“In all likelihood the dollar will be putting downward pressure on the oil market, or at least take away a support,” said Deutsche Bank Chief Energy Economist Adam Sieminski in Washington.

OPEC will probably make no changes to output quotas when it meets tomorrow in Luanda, according to a Bloomberg News survey of 36 analysts last week. Last month the group pumped about 2 million barrels a day less than it did a year earlier as it works through a promised 4.2 million barrel-a-day supply cut.

The group will maintain output levels, Angolan Oil Minister and OPEC President Jose Maria Botelho de Vasconcelos told state radio station Radio Nacionale de Angola.

Members from Algeria, Kuwait, Libya and Qatar have also signaled no need to change quotas, while Iran and Nigeria said the group’s target is unlikely to be altered. Venezuela wants to keep prices above $70.

According to Loacker, who joined Raiffeisen seven years ago, an OPEC decision to hold supply little changed at a time of rising consumption will tighten supplies as output from countries outside the organization lags behind estimates.

“Some forecasts are too optimistic” on non-OPEC supply growth, he said. “There is potential for less good surprises in production.”

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.netRachel Graham in London rgraham13@bloomberg.net

Read more...

Spending, Home Sales Probably Climbed: U.S. Economy

By Timothy R. Homan

Dec. 20 (Bloomberg) -- American consumers probably earned and spent more in November, giving retailers and real-estate agents reason to anticipate business will improve in 2010, economists said before reports this week.

Household purchases rose 0.7 percent for a second month and incomes climbed 0.5 percent, the most since May, according to the median estimate of 60 economists surveyed by Bloomberg News before a Commerce Department report Dec. 23. Combined sales of new and existing homes last month may have reached the highest level since May 2007, other figures may show.

Government efforts to push down interest rates and spur lending, combined with discounts by merchants such as Best Buy Co., may encourage consumers to keep buying in coming months. A jobless rate forecast to average 10 percent next year and mounting foreclosures will serve as reminders that the world’s largest economy is not free from all threats to the recovery.

“We’re still looking at consumer spending expanding, but obviously with a lot of constraints because of the weak job market and tight credit,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “You’re not going to see a full recovery in the housing sector until the job market recovers.”

An increase in consumer spending for goods and services during November would be the sixth in the past seven months. Sales at U.S. retailers last month increased 1.3 percent after a 1.1 percent gain in October, the Commerce Department reported on Dec. 11.

More Discounting

Companies are luring shoppers by offering lower prices during the holiday season. Best Buy, the largest electronics retailer, was offering flat-screen TVs for $299.99 alongside discounted laptops. As a result, the Richfield, Minnesota-based company will see its gross margin decline by as much as 1 percentage point in the fourth quarter, Chief Executive Officer Brian Dunn said on a Dec. 15 conference call with analysts.

Americans are also buying more cars. Sales of cars and light trucks rose to a 10.9 million unit annual pace in November, up 4.5 percent from the previous month, according to industry data. The rate was the highest since 14.1 million in August, when the government’s “cash-for-clunkers” plan expired near the end of that month.

Auto sales probably contributed to a gain in orders at factories. Orders for durable goods, those meant to last at least three years, rose 0.5 percent in November after a 0.6 percent drop, according to the median estimate ahead of a Dec. 24 report from the Commerce Department.

Excluding demand for transportation equipment, which tends to be volatile, orders probably increased 1 percent, the survey median showed.

Consumer Confidence

A slowdown in the pace of job cuts and higher stock prices are boosting consumer sentiment. The Reuters/University of Michigan’s final gauge of December consumer confidence on Dec. 23 is projected to climb to 73.7, its highest level in almost two years, from 67.4 in November.

Payrolls fell by 11,000 last month, the fewest job cuts since the recession began in December 2007, Labor Department figures showed Dec. 4. The unemployment rate in November fell to 10 percent from a 26-year high of 10.2 percent.

The Standard & Poor’s 500 Index has risen 63 percent from a 12-year low in March, closing at a 14-month high on Dec. 14.

Lower interest rates, cheaper homes and a homebuyer tax credit are bolstering a housing market that contributed to the worst economic slump since the 1930s.

Home Sales

The National Association of Realtors is expected to report Dec. 22 that purchases of existing homes rose 2.5 percent in November to an annual pace of 6.25 million, the highest level since February 2007, according to the survey median.

The Commerce Department on Dec. 23 may report sales of new homes rose 1.9 percent to a 438,000 annual pace last month, the fastest since August 2008, according to the Bloomberg survey median.

Gains in the housing market may prove uneven as foreclosures mount. Some 306,627 properties received a default or auction notice or were seized by banks last month and a similar number is expected for December, according to Irvine, California-based RealtyTrac Inc.

The government’s final figure for third-quarter gross domestic product may show the economy expanded at a 2.8 percent annual rate, matching last month’s estimate, according to the survey median. The Commerce Department will report the data on Dec. 22.

                          Bloomberg Survey

================================================================
                       Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
================================================================
GDP Annual QOQ%          12/22      3Q F      2.8%      2.8%
Personal Consump. QOQ%   12/22      3Q F      2.9%      2.9%
GDP Prices QOQ%          12/22      3Q F      0.5%      0.5%
Core PCE Prices QOQ%     12/22      3Q F      1.3%      1.3%
Exist Homes Mlns         12/22      Nov.      6.10      6.25
Exist Homes MOM%         12/22      Nov.     10.1%      2.5%
FHFA HPI MOM%            12/22      Oct.      0.0%      0.2%
Richmond Fed Index       12/22      Dec.       1         4
ABC Conf Index           12/22    Dec. 21     -45       -44
MBA Mortgage Applications12/23    Dec. 19     0.3%      n/a
Pers Inc MOM%            12/23      Nov.      0.2%      0.5%
Pers Spend MOM%          12/23      Nov.      0.7%      0.7%
PCE Deflator YOY%        12/23      Nov.      0.2%      1.6%
Core PCE Prices MOM%     12/23      Nov.      0.2%      0.1%
Core PCE Prices YOY%     12/23      Nov.      1.4%      1.5%
U of Mich Conf. Index    12/23     Dec. F     73.4      73.7
New Home Sales ,000’s    12/23      Nov.      430       438
New Home Sales MOM%      12/23      Nov.      6.2%      1.9%
Initial Claims ,000’s    12/24     19-Dec     480       470
Cont. Claims ,000’s      12/24     12-Dec     5186      5175
Durables Orders MOM%     12/24      Nov.     -0.6%      0.5%
Durables Ex-Trans MOM%   12/24      Nov.     -1.3%      1.0%
================================================================

To contact the reporter on this story: Timothy R. Homan in Washington at Thoman1@bloomberg.net

Read more...

Dollar Strength Seen in Stocks 1st Since Lehman Died

By Matthew Brown and Ye Xie

Dec. 21 (Bloomberg) -- The dollar is rallying in tandem with stocks and commodities for the first time since before Lehman Brothers Holdings Inc.’s bankruptcy last year sparked the financial crisis, signaling the worst may be over for the greenback.

The currency, equities and raw materials are on pace for their first simultaneous two-month gain since 2008 as the U.S. Dollar Index rises the fastest in 10 months. The gauge has moved in the opposite direction of either the Standard & Poor’s 500 Index or the Reuters/Jefferies CRB Index of commodities for 15 months straight and diverged from both in all but four.

Correlated trading reflects growing confidence in the U.S. economy and increasing expectations that the Federal Reserve will start draining some of the $12 trillion used to battle the worst global recession since World War II. Until now, the dollar climbed when traders sought protection from turmoil created by the credit freeze that started in 2007. It weakened when they took advantage of record-low interest rates by selling the currency to finance holdings of higher-yielding overseas assets.

The market’s “tremendous dollar-negative sentiment” is “being corrected,” said Adnan Akant, who helps oversee $39 billion and reversed bets against the currency two weeks ago as head of foreign exchange in New York at Fischer Francis Trees & Watts. “The regime is changing, definitely.”

The Dollar Index -- which measures its performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona -- dropped 4.5 percent this year. Its tendency to fall when stocks rise and vice versa, which has prevailed since Lehman’s September 2008 collapse, is breaking down. Until Dec. 1, stocks and the Intercontinental Exchange Inc. currency gauge moved in opposite directions on seven of every 10 days this year. They’re in sync more than half the time this month.

Gaining Gauge

With eight trading days left in the year, the gauge has gained 1.8 percent since the end of October, while the S&P 500 and the CRB Index added 6.4 percent and 2.1 percent, respectively. The last time all rose in a two-month period was April and May of 2008. The three indexes, which haven’t all increased in the same quarter since 2005, also are up since Sept. 30.

Currency strategists are growing less bearish on America’s legal tender versus the euro, predicting it will fall 1.1 percent next year to $1.45, up from Nov. 30’s weaker $1.48 forecast, median estimates of as many as 47 in Bloomberg surveys show. It will rise 8.6 percent against the yen, the median of 42 estimates shows.

The Dollar Index rose 1.6 percent last week. Its 4.9 percent rise from this year’s Nov. 26 low is the steepest since a 17-day climb ending Feb. 2.

Dollar, Yen, Euro

Last week, the dollar gained 1.6 percent against Japan’s currency to 90.49 yen and 1.9 percent versus the euro to $1.4338. It traded at 90.52 yen and $1.4356 per euro as of 7:44 a.m. in New York. The greenback is little changed against the yen this year and up 6.4 percent from its 14-year low on Nov. 27. The dollar is still down 2.6 percent compared with the euro in 2009, though it strengthened 5.5 percent since Nov. 25.

Euro speculators reversed course after having more bets on dollar losses than gains for seven months, Commodity Futures Trading Commission data compiled by Bloomberg show. Wagers by hedge funds and other large speculators that the dollar will gain against the euro outnumbered bearish bets by 16,448 on Dec. 15. On Dec. 1, bearish dollar contracts were ahead by 22,151, a sentiment that had prevailed since April 28.

U.S. Economy

News that the U.S. unemployment rate had fallen the most in three years pushed the Dollar Index up 1.7 percent on Dec. 4 as traders increased bets that economic growth would spur the Federal Reserve to raise borrowing costs. That was the biggest gain since Jan. 20, when the U.K.’s second bank bailout in three months increased demand for the dollar’s perceived safety.

“We are witnessing a watershed shift in sentiment regarding the dollar,” wrote Dennis Gartman in the Gartman Letter, a daily global markets commentary he publishes from Suffolk, Virginia. “We do not use the term watershed often, but when we do we mean it,” said Gartman, who correctly predicted in June 2008 that commodities would tumble.

The Fed is already taking steps to begin withdrawing money from the financial system. Policymakers will end most emergency lending programs and debt purchases by March because of “improvements in the functioning of financial markets” and stabilizing labor markets, the Federal Open Market Committee said on Dec. 16. At the same time, the central bank reiterated that interest rates will stay “exceptionally low” for an “extended period.”

Fed Drains

The Fed began using Treasuries and agency debt in reverse repurchase agreements this month to test a mechanism for unwinding unprecedented monetary stimulus, removing a total of $990 million in cash from the banking system in five operations since Dec. 3, data from the Federal Reserve Bank of New York show.

“The forex market will anticipate the Fed tightening and price it into the dollar, leading the dollar to rally,” said Steven Englander, chief U.S. currency strategist in New York for Barclays Capital. “Because these programs are so unprecedented, you can already see a high degree of alarm in markets with respect to what the rates implications are going to be when they are withdrawn.”

The unit of London-based Barclays Plc raised its three- month forecast for the dollar against the euro on Dec. 10 to $1.45 from $1.52 and its six-month prediction to $1.40 from $1.45.

Higher Yields

Investors are being drawn to the dollar by U.S. assets that have higher yields than in Japan and Europe. Ten-year Treasuries yielded 40 basis points, or 0.40 percentage point, more than German bunds as of Dec. 18, within 1 basis point of the biggest gap since August 2007. Investment-grade corporate bonds in the U.S. yielded an average of about 4.67 percent, compared with 3.78 percent in Europe and 1 percent in Japan, Merrill Lynch & Co. indexes show.

“The U.S. will be able to attract more capital than its peers in the developed world” for the next couple years, said Mark Farrington who manages $5.8 billion as head of currencies at Principal Global Investors Europe Ltd. in London. “The dollar appreciation will accelerate,” he said, predicting $1.25 per euro in 18 months and 105 yen in 2010.

Thanos Papasavvas, who helps manage more than $5 billion in currencies at Investec Asset Management in London, said the dollar’s strength against the euro is likely to end amid speculation on the timing of interest-rate increases by the European Central Bank.

‘Sell Dollars’

“There is a risk that the ECB could tighten monetary policy before the Fed,” Papasavvas said, predicting the euro will drop no lower than $1.38 before rising back towards $1.50 in the second half of 2010. “Foreign-exchange managers will be looking for opportunities to sell dollars.”

The Fed will raise its near-zero target rate by more than half a percentage point to 0.75 percent next year, while the European Central Bank will increase its rate to 1.5 percent from 1 percent, according median economist forecasts compiled by Bloomberg. Japan’s rate will stay at 0.1 percent, the survey shows.

The cost of hedging against a dollar rise versus the euro increased to the most in more than a year Dec. 17, so-called three-month 25 delta risk reversals show, an indication that options traders are more certain that it will appreciate. The cost of the right to buy the greenback versus the euro exceeded that for options to sell it by 1.80 percentage points.

PowerShares

The PowerShares DB US Dollar Index Bullish Fund ran out of shares on Dec. 18, and trading was halted for the second time in two months. The fund suspended issuing the 200,000-share blocks it uses to match demand for the exchange-traded fund, which is designed to replicate ownership of the dollar versus currencies measured by ICE’s Dollar Index, according to a filing with the U.S. Securities and Exchange Commission.

The dollar is also appreciating against the euro as investors focus on Europe’s economy. Standard & Poor’s and Fitch Ratings downgraded Greece and warned that Spain and Portugal also may have their credit rankings cut. U.S. gross domestic product will expand 2.6 percent in 2010, twice as fast as in the European Union, U.K. and Japan, median economist estimates in Bloomberg surveys show.

“Everyone is on the short dollar trade,” said Ihab Salib, who oversees more than $3 billion as head of international fixed income at Federated Investments Inc. in Pittsburgh and was betting the dollar would decline from March until it hit $1.4950 per euro in October. “When this happens, a reversal of that trade is likely.”

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

Read more...

China Trims Steel Capacity Amid Glut, Minister Says

By Bloomberg News

Dec. 21 (Bloomberg) -- China, the world’s top steelmaker, closed 16.9 million metric tons of obsolete capacity this year as part of an effort to ease domestic oversupply, according to Li Yizhong, minister of industry and information technology.

The nation also shuttered 21.1 million tons of iron-making capacity; 800,000 tons of aluminum capacity; and 74 million tons of cement capacity, Li said today at a conference in remarks broadcast on the Internet. The figures beat targets set by the Ministry of Environmental Protection earlier this year.

China, also the world’s biggest producer of iron, cement and aluminum, is facing a severe oversupply of steel as mills expand faster than outdated plants are closed. The government is studying a “more feasible” plan to tackle steel overcapacity, Li’s ministry said on Dec. 3.

“The 2 percent cut in capacity by the Chinese steel industry is truly a spit in the ocean,” Michelle Applebaum, who runs a steel-research firm in Highland Park, Illinois, wrote in an e-mail. “Many of the country’s high-cost and polluting, older provincial mills continue to run for jobs rather than profitability,” said the analyst at Michelle Applebaum Research.

Steel capacity in China may have reached 700 million tons or more, Xiong Bilin, deputy director at the National Development and Reform Commission’s industry department, said on Dec. 3. The nation may need 549 million tons of the alloy this year, the China Iron and Steel Association said in November.

“Investment has risen too fast in some industries in recent years,” Minister Li said today in the Web cast. “There are blind expansions in steel and cement. A large amount of obsolete capacity needs to be closed.”

China had planned to shut 6 million tons of steel-making capacity and 10 million tons of iron-making capacity this year, the Ministry of Environmental Protection said on Jan. 13. The Ministry of Environmental Protection said on Nov. 13 that the government is planning measures to close plants in the steel, aluminum, coke, cement, paper and utility industries.

--Helen Yuan. Editors: Jake Lloyd-Smith, Richard Dobson

To contact the Bloomberg News Staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

Read more...

Palm Oil Drops for First Day in Four on Demand Fall, Crude

By Jae Hur

Dec. 21 (Bloomberg) -- Palm oil declined for the first time in four days after Malaysian exports declined, crude oil’s advance stalled and investors booked profits ahead the Christmas and New Year break.

Prices fell as Malaysia’s palm oil exports dropped to 858,307 metric tons in the first 20 days of December from 930,133 tons in the same period in November, independent market surveyor Intertek said today. Crude fell as much as 0.6 percent before trading unchanged at $73.36 a barrel.

“We are now heading into the Christmas and year-end holidays, prompting investors to take profits,” Merlissa Paramitha Trisno, an analyst at PT Mandiri Sekuritas in Jakarta, said today by phone. The market was also under pressure from slowing exports from Malaysia and after crude oil fell, Trisno said.

March-delivery futures fell as much as 2.5 percent to 2,555 ringgit ($743) a ton on the Malaysia Derivatives Exchange and were at 2,563 ringgit by 12:30 p.m. local time break.

To contact the reporter on this story: Jae Hur in Tokyo at jhur1@bloomberg.net

Read more...

U.S. Stock-Index Futures Rise as Analysts Boost Recommendations

By Lynn Thomasson and Maud van Gaal

Dec. 21 (Bloomberg) -- U.S. stock-index futures rose, indicating the Standard & Poor’s 500 Index may rebound from last week’s decline, as commodity prices gained and analysts recommended companies from Alcoa Inc. to Intel Corp.

Alcoa climbed 4.1 percent after Morgan Stanley lifted the largest U.S. aluminum producer to “overweight” on speculation prices of the metal will keep rallying. Intel Corp. added 1.8 percent as Barclays Plc analysts said shares of the world’s biggest computer-chip maker are cheap. Mosaic Co. and Potash Corp. of Saskatchewan Inc. climbed more than 2.8 percent following a recommendation from Goldman Sachs Group Inc. to buy the shares on the outlook for higher fertilizer prices.

Futures on the S&P 500 expiring in March added 0.5 percent to 1,103.3 at 8:42 a.m. in New York. Dow Jones Industrial Average Index futures gained 0.4 percent to 10,311. Nasdaq-100 Index futures increased 0.5 percent to 1,816.25. Stocks in Europe also rose, while Asian shares declined.

The S&P 500 has advanced 63 percent since reaching a 12- year low in March as the U.S. government lent, spent or guaranteed more than $11 trillion to end the recession. Reports scheduled for this week include existing home sales for November and third-quarter personal consumption and gross domestic product.

“We expect U.S. macro numbers scheduled for this week to confirm earlier reports that the economy is recovering,” said Dirk Pattyn, a Brussels-based fund manager at Bank Degroof, which manages the equivalent of $36 billion.

Weekly Loss

Stocks rose on Dec. 18, trimming a weekly loss for the S&P 500, after better-than-estimated profit at Oracle Corp. and Research In Motion Ltd. boosted technology companies.

Alcoa gained 4.1 percent to $15.17. Morgan Stanley said the shares may climb to $22 and predicted the rally in aluminum prices may continue in the first half of 2010.

Aluminum for delivery in three months climbed 0.9 percent on the London Metal Exchange today.

The dollar traded near a three-month high against the euro amid signs the economic recovery is accelerating and as concern some European nations may struggle to pay their debts bolstered demand for the U.S. currency. The Dollar Index fell for the first time in five days, losing 0.2 percent to 77.635.

Intel added 1.8 percent to $19.99. The stock was lifted to “overweight” from “equal weight” at Barclays, which cited “seemingly solid end market conditions, an upward bias to estimates and intriguing valuation” in a report to clients.

Potash Corp., the world’s biggest fertilizer producer, was added to the “conviction buy” list at Goldman Sachs, while Mosaic was upgraded to “buy.” Potash advanced 2.8 percent to $108. Mosaic, North America’s second-biggest fertilizer maker, soared 3.6 percent to $57.18.

‘Demand Recovery’

“Our view of a fundamental demand recovery in potash in 2010 remains unchanged,” Goldman Sachs analysts wrote in a report to clients dated Dec. 20. “We believe a near-worst-case scenario on 2010 potash pricing is now discounted in stocks.”

Barron’s said Mosaic may rise as much as 45 percent in the next two years as prices rebound and earnings increase.

Terex Corp., the third-largest maker of construction equipment, jumped 10 percent to $21.15 after agreeing to sell its mining business to Bucyrus International Inc. for $1.3 billion in cash. Bucyrus surged 8.5 percent to $55.14.

American companies are paying the biggest premiums on record in takeovers, a sign executives are growing more bullish about profits and stocks even after the biggest rally for the S&P 500 in 73 years. The average premium in mergers and acquisitions in which U.S. companies were the buyer and seller rose to 56 percent this year from 47 percent last year, data compiled by Bloomberg show.

To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Maud van Gaal in Amsterdam at mvangaal@bloomberg.net.

Read more...

Dollar Trades Near Three-Month High on U.S. Economy Optimism

By Bo Nielsen and Yasuhiko Seki

Dec. 21 (Bloomberg) -- The dollar traded near a three-month high against the euro amid signs the economic recovery is accelerating and as concern some European nations may struggle to pay their debts bolstered demand for the U.S. currency.

Gains for the dollar earlier took its advance since dropping to this year’s low on Nov. 25 to 5.6 percent as hedge funds and other large speculators put on the biggest wager since March for it to rise against the euro. The Swiss franc traded near its strongest level in nine months versus the euro amid speculation the central bank has relaxed its stance on the currency’s appreciation.

“The dollar rally has been fueled by year-end position squaring and improved economic data out of the U.S.,” said Kasper Kirkegaard, a currency analyst with Danske Bank A/S in Copenhagen who sees the dollar declining to $1.52 per euro in three months.

The dollar traded at $1.4355 per euro at 8:38 a.m. in New York, from $1.4349 on Dec. 18, when it appreciated to $1.4262, the strongest level since Sept. 4. The yen was at 129.96 per euro. The U.S. currency was at 90.5 yen from 90.49 yen. The Swiss franc was at 1.4929 per euro after trading at 1.4850, its strongest since March 12.

The dollar is rebounding as signs that U.S. economic growth is picking up pace spurred bets that the Federal Reserve will increase its target interest rate sooner than some analysts expect. Interest rate futures show a 44.5 percent chance the Fed will raise the rate by June, from 31.4 percent odds a month ago.

‘Reverse Its Losses’

“The dollar will continue to reverse its losses posted since March as the Fed moves to tighten policy next year,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, wrote in a note today. “The market is placing too much emphasis on when the fed funds rate will be lifted and is underestimating the potential dollar- positive impact from the withdrawal of excess liquidity alone.”

Foreign-exchange futures traders increased bets that the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 16,448 on Dec. 15, compared with net shorts of 511 a week earlier and a 51,045 net longs in the week ended Nov.12. It was the biggest bet against the euro since the week ended March 9.

Goldman’s Wager

Goldman Sachs Group Inc. today reiterated a bet that the dollar will decline even after the bank lost a “potential” 1.8 percent on the wager since initiating it last week.

“Timing was clearly not optimal, and we were too early in fading the recent improvements in U.S. data and the impact of Greek budget tensions,” Goldman analysts wrote in a note received today. Still, the U.S. “balance of payments situation remains very dollar negative. We would therefore continue to look for opportunities to position tactically for dollar weakness.”

The Dollar Index, which the IntercontinentalExchange Inc. uses to track the currency against those of six major U.S. trading partners, was little changed at 77.744 today after surging 1.6 percent last week, the sharpest rally since the five days ended June 5.

The National Association of Realtors will report Dec. 22 that existing home purchases rose 2.5 percent in November to an annual pace of 6.25 million, the highest since February 2007, according to a Bloomberg News survey of economists. The Commerce Department on Dec. 23 will say sales of new homes gained 1.9 percent to a 438,000 annual pace, the fastest since August 2008, a separate survey showed.

Euro Demand

Demand for the euro weakened as the European Central Bank said lenders may have to write down an additional 187 billion euros ($268 billion) as loans to property companies and eastern European nations threaten the financial recovery.

“Sentiment in the euro zone will suffer from the fiscal troubles of its weakest members,” Mansoor Mohi-uddin, the chief currency strategist at Zurich-based UBS AG, wrote today. “This hurts the euro as it makes it less likely the ECB will be in a position to raise interest rates if one of its member countries faces the threat of defaulting on its debts in future.”

Greece’s credit rating was cut by Standard & Poor’s on Dec. 16, and the company said it may take further action unless Prime Minister George Papandreou tackles the European Union’s largest budget deficit.

Relative Strength Index

The euro’s 14-day relative strength index, or RSI, versus the dollar has been below 30 for the past three days, a level some traders view as a sign that a security is oversold.

“Technical charts are now signaling that declines of the euro may slow or stall,” Masashi Hashimoto, a Tokyo-based senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.

The Swiss franc was little changed against the euro, trading below 1.50 for the second straight day, amid speculation that the central bank has become more tolerant of a strengthening currency.

The Swiss National Bank, which began intervening in foreign-exchange markets in March to prevent gains that hampered exports and increased the risks of deflation, changed its language on currency purchases this month, saying it will act to counter “any excessive” moves in the franc against the euro. In September, the bank said it would “continue to act decisively” to prevent “any” appreciation.

‘Watch for Action’

“While the Swiss franc now draws attention as a safe haven, we should also watch for possible action by the SNB,” said Daisaku Ueno, President of Gaitame.Com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The appreciation of the Swiss currency will hurt income from tourism and jeopardize growth prospects.”

Werner Abegg, a spokesman in Zurich for the SNB, declined to comment on the currency moves today.

The yen rose most against higher-yielding currencies such as the South African rand and Australian dollar amid speculation Japan’s exporters are bringing home earnings. Large Japanese manufacturers expected the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Dec. 14.

“Sell orders by Japanese exporters seem to be lined up anywhere above the current level,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTradeInc., a unit of Nippon Telegraph & Telephone Corp. “But given recent stable movements in the yen, exporters are no longer in a hurry to convert their overseas sales into the yen.”

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

Read more...

CEOs Paying 56% M&A Premium Shows Stocks May Be Cheap

By Rita Nazareth

Dec. 21 (Bloomberg) -- American companies are paying the biggest premiums on record in takeovers, a sign executives are growing more bullish about profits and stocks even after the biggest rally for the Standard & Poor’s 500 Index in 73 years.

When Dell Inc. agreed to buy Perot Systems Corp. for $3.9 billion in September, it offered 77 percent more than company’s stock price during the 20 days before the deal was announced. Xerox Corp. paid 38 percent more than market value when it purchased Affiliated Computer Services Inc. for $5.8 billion. The average premium in mergers and acquisitions in which U.S. companies were the buyer and seller rose to 56 percent this year from 47 percent last year, data compiled by Bloomberg show.

Chief executive officers are so sure the economy will keep recovering they’re agreeing to prices that are 37 percent higher than the average since 2001, when Bloomberg started compiling data. While stocks in the S&P 500 are trading at the most expensive valuations in seven years compared with profits in the last 12 months, buyers are looking out to 2011, when analysts say earnings will have risen 52 percent.

“M&A activity is a sign of confidence in the future of the country,” said Bill Gerber, chief financial officer at Omaha, Nebraska-based online brokerage TD Ameritrade Holding Corp. “Companies have to look two, three, four, five years ahead.”

Adding to Earnings

TD Ameritrade acquired Thinkorswim Group Inc., a New York options brokerage, in January for $606 million, paying a 48 percent premium. The company will add 3 percent to 7 percent to profits during the fiscal year ending in September, Gerber said.

The price-earnings ratio on U.S. equities climbed as the S&P 500 surged 63 percent from a 12-year low on March 9, pushing its annual return in 2009 to 22 percent, the biggest since 2003. The index slipped 0.4 percent last week after New York-based bank Citigroup Inc. sold shares at a discount and investors speculated Federal Reserve Chairman Ben S. Bernanke is preparing to raise interest rates in 2010. Futures on the gauge expiring in March added 0.3 percent today at 6:41 a.m. in New York.

Higher takeover premiums may help drive gains in the stock market. A Deutsche Bank AG index of potential U.S. targets has advanced almost seven times more than the S&P 500 since Dubai’s debt crisis roiled global markets last month.

Driving the Rally

The total value of deals involving U.S. buyers and sellers has plunged 57 percent from its all-time high three years ago to $306.9 billion in 2009, data compiled by Bloomberg show. Record M&A in 2006 helped drive the S&P 500 up 17 percent between mid- June and mid-December, part of a five-year rally in which the index doubled to a record 1,565.15 in October 2007. The measure finished last week at 1,102.47, rebounding from 676.53 in March.

Takeovers picked up this year after the price of corporate assets fell to the lowest level since at least 1994 in March and the financial crisis eased.

S&P 500 companies traded for 1.52 times book value, or assets minus liabilities, on March 9 and now cost 2.22 times, still cheaper than the day before New York-based Lehman Brothers Holdings Inc. collapsed in September 2008, according to data compiled by Bloomberg.

Executives say they’re finding bargains based on projected earnings. Analysts predict per-share income for companies in the S&P 500 will jump to $94.98 a share in 2011 from $62.52 this year, according to the average estimates in a Bloomberg survey.

Once Since 1990

While the S&P 500 trades for 22.2 times its companies’ profits over the last 12 months, the price-earnings ratio falls to 11.6 when measured against analysts’ 2011 forecast, according to data compiled by Bloomberg. The multiple using reported profit has fallen to that level once since 1990, in March 2009 on concern $1.7 trillion in bank losses and writedowns would spur a global depression, data compiled by Bloomberg show.

Dell acquired Perot to expand in the market for health-care information technology. The takeover gave Round Rock, Texas- based Dell a partner to boost sales of computer services as companies reduce PC purchases.

The second-largest personal-computer maker agreed to pay $30 a share in cash for Plano, Texas-based Perot, whose stock had already jumped 31 percent in 2009. It valued the company at 29 times the average analyst projection for 2010 profit.

Dell, whose shares have dropped 18 percent since the deal was announced, paid twice as much relative to sales as Hewlett- Packard Co., the biggest personal-computer maker, gave shareholders of Electronic Data Systems Corp. in its takeover last year, data compiled by Bloomberg show.

‘A Little More’

The $13 billion price Palo Alto, California-based Hewlett- Packard agreed to was about half EDS’s annual revenue, compared with the 1.4 times sales that Dell offered, according to data compiled by Bloomberg. Hewlett-Packard has gained 10 percent since the takeover was announced in May 2008, compared with a 6.4 percent retreat for computer companies in the S&P 500.

“Given historical acquisitions we’ve seen in terms of H-P, what they paid for EDS based on revenues, it just seems like you’re paying a little more,” JPMorgan Chase & Co. analyst Mark Moskowitz said on a conference call with Dell’s management after the buyout was announced.

The transaction will start adding to earnings in the fiscal year that begins in February 2011, the company projects.

“Our investors have to trust that we’ll manage those decisions effectively,” Dell Chief Financial Officer Brian Gladden said in a Dec. 16 interview. “There may be other cases where we have to pay what would be considered above-market premiums for special assets. I would put Perot in that bucket.”

Shift to Services

Xerox, in Norwalk, Connecticut, agreed to pay $63.11 a share in cash and stock for Affiliated Computer in September to shift to technology services as sales of printing equipment drop. Dallas-based Affiliated Computer trades at 12.8 times projected 2010 earnings.

Shares of Xerox, the largest maker of high-speed color printers, have fallen 7.2 percent since the purchase announcement. Xerox is paying 0.96 times ACS’s annual sales. When Armonk, New York-based International Business Machines Corp. bought PricewaterhouseCoopers LLP’s business-consulting unit for $3.5 billion in 2002, it paid 0.7 times revenue.

IBM has advanced 78 percent since the takeover was announced in July 2002, compared with a 61 percent gain for a gauge of technology companies in the S&P 500.

‘We Don’t Overpay’

“We don’t overpay for any properties,” Larry Zimmerman, chief financial officer at Xerox, said in an interview on Dec. 16. “The discussion you have with shareholders is that not only are you more competitive, not only do you have a stronger business model, the returns for the longer-term shareholder are going to be better than if you didn’t do it.”

Cheap valuations aren’t enough to spur mergers and acquisitions, according to Sanford C. Bernstein & Co.’s Brad Hintz, a New York-based securities-industry analyst who was CFO at Lehman Brothers a decade ago. Gross domestic product growth and confidence in the economy are also necessary, he said.

“What’s the easiest way for a CEO to lose his job?” he said. “He does a bad M&A deal. You see M&A activity picking up when the markets become more attractive with the likelihood that if I buy a company today, an improving economic environment will help that acquisition.”

Economists say U.S. GDP will rise 2.6 percent in 2010 after shrinking 2.5 percent this year, according to the median forecasts in a Bloomberg survey. Confidence in the world economy held near a record high this month as reports showed the U.S. recovery is gaining momentum and more banks repaid government bailout funds, according to a survey of Bloomberg users on six continents.

Buffett’s ‘All-In Wager’

Warren Buffett is so confident about U.S. growth prospects that the controlling shareholder of Omaha, Nebraska-based Berkshire Hathaway Inc. agreed in November to pay $26 billion for the 77.4 percent of Fort Worth, Texas-based Burlington Northern Santa Fe Corp. his company didn’t already own.

Buffett, the world’s most successful investor, paid 23 percent more than the railroad’s stock price during the preceding 20 days in an “all-in wager on the economic future of the United States.”

Takeovers increase the value of shareholders’ stakes 30 percent to 55 percent of the time, according to a 2003 review by Paul A. Pautler of the U.S. Federal Trade Commission’s Bureau of Economics. Although deals may cut costs for the combined company, they erase value when buyers pay too much, he said.

Mergers may rise 35 percent in 2010 and 23 percent in 2011, according to Sanford C. Bernstein. The forecast is based on an analysis using data since 1980 that incorporates growth in GDP, corporate earnings and commercial loan volume, which it said are about 72 percent correlated to takeovers.

“M&A is back,” said James Paulsen, who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “It shows improving confidence as companies are willing to pay up to get those deals done. It also reflects the strong liquidity position in corporate America right now, which is a positive for future growth in equity values.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

Read more...

EURUSD Breaks Lower, Eyes 1.4200 Levels

Daily Forex Fundamentals | Written by AC-Markets | Dec 17 09 11:00 GMT |

News and Events: EURUSD has now fallen over 4.5% in the 2 weeks since the surprise non-farm payrolls, and the exit of USD short positions in the market now looks less like a temporary correction and more like a trend reversal with every passing day. Despite still being in the sweet spot of low US rates against a backdrop of improving global data, the truth is that US data has just been a little bit too good lately. Fed policy makers remain understandably cautious about the outlook for 2010, which is why even subtle alterations to the wording of their statement have significant impacts on market psychology. The acknowledgement yesterday that the decline in the labour market is “abating”, gives markets the first hints that the US is getting back on track sooner than anticipated, and the USD will not settle for its role as carry trade funding currency for long. EURUSD's collapse through 1.4480 support overnight leaves very little technical support expected until 1.4180 levels, and given the ongoing negative news about Greece's credit rating and the fragile state of Austria banking system, the fundamental outlook offers little consolation for EURUSD bulls. Another currency suffering today is GBP, after this morning's reading of UK Retail Sales was starkly lower than consensus forecasts, printing -0.3% MoM, 3.1% YoY (expected: 0.5% MoM, 3.7% YoY). GBPUSD had been trading around 1.6230 levels ahead of the release, but 1.6200 support rapidly gave way to a slump down to 1.6111 lows, and a close below 1.6150 leaves us open now to a revisit of 1.6000. The US economic releases this afternoon are by no means first tier data, with only Leading Indicators and Philadelphia Fed expected; however given the pervading mood of the market to unwind USD shorts, we would expect upside surprises to have a disproportionately large effect on USD pairs. Today Key Issues: 12:00 CAD CPI, % m/m (y/y) Nov exp: 0.3 (0.8) prev: -0.1 (0.1) 15:00 USD Philadelphia Fed mfg index Dec exp: 16.0 prev: 16.7 15:00 USD Leading indicators, % m/m Nov exp: 0.7 prev: 0.3 The Risk Today: EurUsd After failing to climb back above 1.4600 (hitting 1.4590) we saw short term wave 4 come to an end before wave 5 has taken the pair to the major support level at 1.4360. This level is also the lower range of the new downtrend so if short sellers are looking to book some profits pre- weekend / Christmas, then this is a highly likely place for them to do it before undergoing a choppy sideways action higher. IF we drop out of the bottom of the channel then the longer term target of EURUSD 1.3500 will be in play, but for now we advise cutting some EURUSD shorts and waiting for the re-entry, ideally at 1.4684. The prior support at 1.4515 has now become resistance so expect it provide a hurdle in the meantime. GbpUsd GBPUSD finally looks to have broken out of its one month bearish channel, as Retail Sales data quickly prompted a collapse through 1.6200 levels to breach the lower end of the channel at 1.6166. A close below 1.6166 opens up a move towards 1.6000-1.6040 area, and for now, good supply at 1.6200 should cap any rallies. UsdJpy The pair has continued on its 3-week uptrend since bottoming at 84.81 in 27th Nov, topping at 90.26 in early Asian trading today. Long positions are still favored with bids coming in at 89.50, and resistance at 90.86 (coinciding with 9 month downtrend line) plus resistance at 91.80. UsdChf On Tuesday we said that we were probably still in wave 3 of 5 and that 1.0360 would attract longs in the short term. That scenario has played out perfectly, confirming the wave counts, and tells us that we are now likely in wave 5 of 5 and accompanied by some increasingly divergent momentum indicators. Wave 5's can be a great place to make some big bucks and fast – our October gold trade from 1006 to 1188 is a typical example – but in this case the divergences are a concern for me and I would now wait for a meaningful correction of this entire 5 wave move. 1.4845 1.6355 88.83 EURUSD GBPUSD USDJPY USDCHF 1.4905 1.6485 92.30 1.0700 1.4710 1.6375 91.30 1.0610 1.4600 1.6200 90.26 1.0500 1.4355 1.6110 89.95 1.0495 1.4345 1.6100 88.50 1.0350 1.4180 1.5990 87.10 1.0235 1.4000 1.5600 86.55 1.0140 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

Read more...