Pimco Forecasts Europe Recession Next Year

By Simon Kennedy, Rich Miller and Gabi Thesing - Sep 26, 2011 2:45 PM GMT+0700
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A pedestrian walks past a store due to close down in Walsall, U.K. Photographer: Chris Ratcliffe/Bloomberg

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Sept. 26 (Bloomberg) -- Louise Cooper, an analyst at BGC Partners, discusses efforts by euro-zone leaders to stem the sovereign debt crisis. She talks with Owen Thomas on Bloomberg Television's "On the Move." (Source: Bloomberg)

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Sept. 26 (Bloomberg) -- Bob Parker, senior adviser at Credit Suisse Asset Management, talks about investment strategy as European policymakers struggle to contain the region’s debt crisis. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

Pacific Investment Management Co., which runs the world’s biggest bond fund, is forecasting that advanced economies will stall over the next year as Europe slides into a recession, underscoring mounting investor concern about the global economic outlook.

There will be little-to-no economic growth in industrial nations in the coming 12 months as Europe’s economy shrinks by 1 percent to 2 percent and the U.S. stagnates, said Mohamed El- Erian, chief executive officer of Newport Beach, California- based Pimco. That will leave worldwide expansion at about 2.5 percent, less than the 4 percent forecast by the International Monetary Fund this year and next.

Such gloomy sentiment dominated weekend talks of policy makers, investors and bankers in Washington, where the IMF and World Bank held their annual meetings. The Dow Jones Industrial Average suffered its biggest loss since 2008 last week as the Federal Reserve said risks to the U.S. economy had increased and Europe’s debt crisis went unresolved.

“For the next 12 months, the global economy will slow materially with advanced economies struggling to grow much above zero,” El-Erian said in a Sept. 24 interview in Washington. “Emerging economies will maintain faster growth, albeit not as high as the last 12 months.”

Worst Experience

Former U.S. Treasury Secretary Lawrence Summers said he has been to 20 years of IMF gatherings, and “there’s not been a prior meeting at which matters have had more gravity and at which I’ve been more concerned about the future of the global economy.”

The euro dropped, stocks retreated and Treasuries advanced. The European currency fell 0.5 percent to $1.3432 as of 8:37 a.m. in London, the MSCI Asia Pacific index of equities was down 2.6 percent and yields on benchmark 10-year U.S. notes declined 2 basis points to 1.82 percent. In Europe, the Stoxx 600 index rose 0.6 percent.

Finance ministers and central bankers urged European officials to intensify efforts to contain their 18-month debt crisis as Greece teetered on the edge of default. U.S. Treasury Secretary Timothy F. Geithner called on governments to unite with the European Central Bank to beef-up the capacity of their 440 billion-euro ($594 billion) bailout fund, warning that failure to act threatened “cascading default, bank runs and catastrophic risk.”

Trillion Euros

Bank of Canada Governor Mark Carney estimated 1 trillion euros may have to be deployed. U.K. Chancellor of the Exchequer George Osborne said a solution is needed by the time that Group of 20 leaders meet in Cannes, France, on Nov. 3-4.

“Patience is running out in the international community,” Osborne said. “The euro zone has six weeks to resolve this political crisis.”

Whether “the markets will accept the luxury of six weeks grace remains to be seen,” said Jim O’Neill, chairman of Goldman Sachs Asset Management in London. “In the interim, policy makers will have to feed markets with hope as to what might arrive in November and then not disappoint.”

Reports this week may reinforce the sense of weakness, with economists predicting that U.S. consumer spending slowed in August and business confidence in Germany, Europe’s largest economy, fell to a 15-month low this month.

Memphis, Tennessee-based FedEx Corp., operator of the world’s biggest cargo airline, cut its full-year profit forecast last week amid declining demand in the U.S. and Asia. CEO Fred Smith nevertheless said he expects sluggish economic growth rather than a recession.

Soros’s Call

Billionaire investor George Soros said “something needs to be done” to safeguard Europe’s banks because Greece may be unable to avoid default. The IMF said last week that the turmoil has generated as much as 300 billion euros in credit risk for the region’s banks and advocated capital injections.

German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states that would risk breaking up the currency area. “We have to be in a position to react,” Merkel said late yesterday on ARD television. “We have to be able to put up a barrier.”

European policy makers hinted they may soon heed Geithner’s advice and use leverage to increase the firepower of their rescue fund, while saying parliaments must first ratify a July plan to broaden its remit to include bond-buying and aiding banks. German Finance Minister Wolfgang Schaeuble and European Financial Stability Fund CEO Klaus Regling played down speculation the ECB would be needed to increase the fund’s heft.

World Waits

“Wait a few more days,” said Regling, when asked for details.

Finance officials will also discuss this week speeding implementation of a permanent rescue plan by a year to next July, according to a working paper obtained by Bloomberg News. ECB Governing Council members Ewald Nowotny and Luc Coene signaled in interviews in Washington that the central bank may say next week it will begin offering banks unlimited liquidity for as long as a year.

Greek Finance Minister Evangelos Venizelos said his country “wants to make it and will make it” and that it will always be a member of the euro area. Prime Minister George Papandreou said yesterday that the EU must take “strategic decisions” and that the end of the global economic crisis “appears even more distant.”

IMF Insufficient

While the IMF vowed to “strongly support” Europe, Managing Director Christine Lagarde warned its $384 billion war chest may not be enough to meet all aid requests if the world economy worsens. The current lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders,” she said.

The world economy will find some support from emerging markets, which will grow 4.5 percent to 5 percent over the next 12 months, and Japan’s 1.5 percent expansion, El-Erian said.

El-Erian popularized the “new normal” term to describe how growth patterns in the world economy changed after the worst recession since the Great Depression. The firm under-performed most of its bond mutual fund peers this year after a February decision to eliminate U.S. Treasuries from its Total Return Fund backfired as the securities rallied.

JPMorgan Chase & Co. Chief Economist Bruce Kasman said in Washington that Greece is already insolvent and headed toward a depression that will roil the euro area. His team revised their forecasts last week to show the region entering a recession in the next quarter and the ECB cutting its key interest rate on Oct. 6 to 1 percent from 1.5 percent.

“I fear very much that the situation will deteriorate further before it improves,” said Axel Weber, the former president of the Bundesbank, in Washington yesterday. “We will see much more drastic action” by policy makers if the situation in financial markets gets worse.

To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net. Gabi Thesing in Washington at gthesing@bloomberg.net Rich Miller in Washington at rmiller28@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Merkel Says Greece Needs ‘Barrier’ to Stave Off Default

By Tony Czuczka - Sep 26, 2011 5:01 AM GMT+0700

German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states that would risk breaking up the currency area.

Expanding the powers of the region’s rescue fund, the European Financial Stability Facility, as agreed by European leaders in July is necessary to avoid Greece’s problems from spilling over to other countries, Merkel said late yesterday on ARD television. The fund’s permanent successor, due to take effect in mid-2013, is needed “so we can in fact let a state go insolvent” if it can’t pay its bills, she said.

“We have to be in a position to react,” Merkel said. “We have to be able to put up a barrier.” Even so, “I don’t rule out at all that at some point we will have the question whether one can do an insolvency of states just like with banks.” She made no mention of setting up the permanent fund before 2013.

Merkel, as the head of Europe’s biggest economy, is at the center of calls by the U.S. and other governments to do more to stop the European sovereign debt crisis as it pounds global financial markets. The situation is “serious” and “there are no easy solutions,” Merkel said in the hour-long interview. She also indicated that she’s being treated for high blood pressure.

‘A Bit Earlier’

Policy makers can make the EFSF more “efficient” by leveraging it without involving the European Central Bank, Finance Minister Wolfgang Schaeuble said over the weekend. He also raised the prospect of bringing in the permanent backstop before 2013. Senior finance officials are preparing to examine the cost advantages of accelerating the start of the fund by a year to 2012, according to a document prepared for meetings this week obtained by Bloomberg News.

“Maybe we can manage it a bit earlier” than 2013, Schaeuble told reporters in Washington on Sept. 24 after the annual meeting of the International Monetary Fund. The current facility is a “preliminary solution and we want a permanent solution as quickly as possible.” Its successor, known as the European Stability Mechanism, will have a “quite different lasting, stabilizing, confidence-creating function” and Germany “would not oppose” bringing it forward, he said.

With global stocks entering their first bear market in two years last week, European policy makers were met with pressure at the weekend from foreign counterparts at the IMF meeting to do more to stop the contagion seeping from Greece.

‘Can’t Force It’

Merkel rejected Greece leaving the euro area, saying that “we can’t force it, but I don’t believe in that in any case” because it would send a signal to financial markets that attacks on euro-area sovereigns can succeed.

“Maybe Greece leaves, the next country leaves and then the next country after that,” she said. “They would speculate against all the countries.” A small group of euro countries would be left at the end, deprived of the euro’s advantage as the currency appreciates, she said.

Merkel suggested that Greece may be able to get the next tranche of bailout aid, after a team of officials from the IMF, the ECB and the European Commission assess the Greek government’s progress in meeting deficit-reduction and other targets. Merkel is due to host Greek Prime Minister George Papandreou for talks in Berlin on Sept. 27, two days before German lawmakers vote on the enhanced rescue fund.

It’s the “troika’s” job to make the ruling on progress made by Greece, she said. “Were they to come back one day and say Greece can’t make it, then we would have to rethink,” Merkel said. “But they aren’t doing that so far.”

EFSF Vote

Merkel said she’ll win legislative approval of the expanded EFSF powers on Sept. 29 on the strength of her governing majority without depending on opposition support. “I want a majority of my own and I’m confident I will get it,” she said. “I’m also going to lobby for it one more time this week.”

For all the turmoil, Germans can have confidence in the euro. “We need the euro,” she said. “The euro is good for us. That is why we need to improve on what has gone wrong in the past.” Changing European treaties to make it easier to enforce budget discipline is one solution, she said. “We have to work toward treaty change.”

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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Apple Trims Orders for IPad Parts: JPMorgan

By Bloomberg News - Sep 26, 2011 6:27 PM GMT+0700
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An Apple Inc. employee, right, demonstrates an iPad 2 to customers during the opening of the company's new store in Le Chesnay, near Paris, France. Photographer: Fabrice Dimier/Bloomberg

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An employee demonstrates the application Garageband on an Apple Inc. iPad 2 at the company store in London. Photographer: Chris Ratcliffe/Bloomberg

Apple Inc. is cutting orders to vendors in the supply chain for its iPad tablet computer, a move that may result in slower sales for companies including Hon Hai Precision Industry Co., JPMorgan Chase & Co. said in a report.

Several supply-chain vendors indicated in the past two weeks that Apple lowered fourth-quarter iPad orders 25 percent, the first such cut that analysts at JPMorgan’s electronic manufacturing services team in Hong Kong said they have ever seen. The report didn’t list the affected companies, and Gokul Hariharan, one of the report’s authors, said he couldn’t comment when reached by Bloomberg News today.

For a vendor such as Hon Hai, the cut could mean a drop to 13 million units in the fourth quarter from 17 million units in the third quarter, JPMorgan analysts wrote in the Sept. 25 report. The report said JPMorgan U.S. analyst Mark Moskowitz, who covers Apple, does not expect to lower his projection of 10.9 million to 12 million units of iPad shipments in the third and fourth quarters after the supply chain adjustments.

Reduced orders from Apple to iPad suppliers could reflect both weakening demand in Europe due to economic conditions there as well as a strategy by Apple, the world’s biggest company by market value, to operate with reduced inventory, Wanli Wang, a Taipei-based industry analyst at RBS Asia Ltd., said today.

“It’s back to reality,” Wang said. “Now it seems even for Apple, due to the market situation, we need to be conservative.”

No Confirmation

So far there is no confirmation from Apple that it has reduced orders to suppliers, Wang said. Carolyn Wu, a Beijing- based spokeswoman for Apple, didn’t respond to calls for comment on the report today.

Edmund Ding, spokesman for Hon Hai, didn’t respond to an e- mail or answer calls to his Taiwan and China mobile phones.

Shares of the Cupertino, California-based iPad maker fell 1.5 percent to the equivalent of $400 at 1:25 p.m. in German trading. The stock rose 0.6 percent to $404.30 on the Nasdaq Stock Market on Sept. 23.

Apple’s iPad may account for 73 percent of tablet computer sales this year, according to research firm Gartner Inc. Products that run on Google Inc.’s Android operating system, including Samsung Electronics Co.’s Galaxy tablets, will probably have about 17 percent of the market, Gartner said in a Sept. 22 note.

Because of its current dominant market position, Apple doesn’t have to rush to introduce its iPad 3 tablet computer as potential rivals have failed to emerge to siphon sales from the current model, JPMorgan’s Moskowitz wrote in a Sept. 16 report.

Amazon.com Inc. may release a product late this year that could become the number-two tablet in the market behind the iPad, Moskowitz wrote in that report.

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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Betting on Bernanke Returns 28% for Treasuries

By Daniel Kruger and John Detrixhe - Sep 26, 2011 10:39 AM GMT+0700
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U.S. Federal Reserve chairman Ben S. Bernanke. Photographer: Tomohiro Ohsumi/Bloomberg

Betting on Ben S. Bernanke has been the most profitable trade for government bond investors in 16 years, defying lawmakers in the U.S. and abroad who said the Federal Reserve chairman’s policies would lead to runaway inflation and the dollar’s debasement.

Treasuries due in 10 or more years have returned 28 percent in 2011, exceeding the 24.4 percent gain in all of 2008 during worst financial crisis since the Great Depression, according to Bank of America Merrill Lynch indexes. Not since 1995, when the securities soared 30.7 percent, have investors done so well owning longer-dated U.S. government debt.

The rally continued last week, driving yields to record lows, as the Fed said it would exchange $400 billion of short- term Treasuries for those maturing in more than six years. The move, dubbed Operation Twist by traders, is designed to lower borrowing costs and keep the economy growing. Previous Fed efforts unlocked credit markets and helped ward off deflation.

Bonds are producing “monster” gains, said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, which oversees $22 billion, in a Sept. 19 telephone interview. “I’m dealing with a Federal Reserve with an unlimited balance sheet that is desperately looking for something to do to revive the economy.”

Unexpected Rally

With the U.S. budget deficit exceeding $1 trillion, this year’s rally caught investors by surprise. The lowest forecast among 71 economists and strategists surveyed by Bloomberg News from Jan. 3 to Jan. 11 was for 10-year yields to end this quarter at 2.35 percent, and the median estimate was 3.63 percent. They closed at 1.83 percent last week.

While a financial model created by Fed economists that includes expectations for interest rates, growth and inflation indicates 10-year notes are the most overvalued on record, investors say they can’t afford to not own government bonds.

That’s because stocks and other assets are falling as Europe’s debt crisis deepens, the global economy slows and the Fed commits to keep its target rate for overnight loans between banks at a zero to 0.25 percent through mid-2013.

“The flight-to-safety bid is still fierce,” said Wan- Chong Kung, a bond fund manager in Minneapolis at Nuveen Asset Management, which oversees more than $100 billion, in a Sept. 19 telephone interview. “The fundamentals of very modest growth, modest inflation and a Fed that wants to commit to low rates for a long time continue to be supportive.”

Yields Tumble

Treasury 10-year yields fell 21 basis points, or 0.21 percentage point, last week as the price of the price of the benchmark 2.125 percent security due August 2021 rose 1 30/32, or $19.38 per $1,000 face amount, to 102 20/32. The yield touched a record low of 1.6714 percent on Sept. 23. Thirty-year rates tumbled 41 basis points to 2.90 percent.

Ten-year notes yielded 1.82 percent and 30-year rates were 2.88 percent today as of 12:18 p.m. in Tokyo.

Almost all of the rally in long-term Treasuries this year has come since the end of June, with the securities returning 24.9 percent. That’s the biggest quarterly gain since at least 1978, when the Bank of America Merrill Lynch indexes began tracking the debt.

Treasuries of all maturities have returned 9.3 percent this year, including reinvested interest, beating 2010’s 5.9 percent as Bernanke led the Fed in a second round of bond purchases, buying $600 billion of debt from November 2010 through June in a process known as quantitative easing.

Beating Stocks

That’s more than the 5.2 percent return for the global bond market, 3.9 percent for company debt and 5.6 percent for U.S. mortgage securities, Bank of America Merrill Lynch indexes show. Gold has gained about 19 percent, while the MSCI AC World Index of stocks has lost 14.2 percent, including dividends.

The term premium, which Bernanke cited in a 2006 speech in New York as a useful guide in setting monetary policy, shows Treasuries may be poised to fall. The measure declined to negative 0.67 percent on Sept. 22, indicating the notes are expensive when compared with the average 0.84 percent this decade through mid-2007, just before credit markets froze.

“These low yields spook investors,” said Larry Milstein, a managing director of government and agency debt trading at R.W. Pressprich & Co., in a telephone interview Sept. 23. The New York-based firm is a fixed-income broker and dealer for institutional investors.

Republicans sent Bernanke a letter last week, asking him not to do “further harm” to the economy by adding more monetary stimulus. After cutting rates, the Fed started buying bonds to inject cash into the economy, purchasing $2.3 trillion of government and mortgage-related securities from November 2008 through June.

Republican Critics

“Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy,” according to the message signed by House Speaker John Boehner of Ohio, Senate Minority Leader Mitch McConnell of Kentucky, Senator Jon Kyl of Arizona and House Majority Leader Eric Cantor of Virginia.

The letter is similar to one Boehner and three other Republicans sent Bernanke about a year ago expressing “deep concerns” about the Fed’s plan to print money to buy bonds, saying the central bank risked weakening the dollar and fueling asset bubbles.

Foreign leaders also criticized the policy. Chinese Premier Wen Jiabao said the plan had caused a “major problem” leading to instability in the currency market, and German Finance Minister Wolfgang Schaeuble said the policy was “clueless.”

Avoiding Deflation

While the Fed failed to reduce the unemployment rate below 9 percent, the second round of quantitative easing, or QE2, warded off deflation, which can damage an economy by discouraging investment. Consumer prices excluding food and energy rose 2 percent in the 12 months ended Aug. 30, compared with 0.6 percent in October 2010, the smallest increase since at least 1958, government data show.

Rather than collapsing, the dollar has risen 2.6 percent to 78.501 against the currencies of six major U.S. trading partners including the euro and yen, since the Fed announced QE2 in November, based on IntercontinentalExchange Inc.’s Dollar Index.

“I’m not sure the Republicans’ grasp of the Fed and everything that goes with it is particularly strong,” said David Ader, head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut, in a Sept. 22 telephone interview. “The data confirms the Fed’s concerns. If there’s uncertainty and a lack of confidence, the focal point is not at the Federal Reserve, but much more in the hands of the people that wrote this letter.”

Unfreezing Credit

QE2 followed QE1, which was designed to inject money into the financial system to help unfreeze credit markets. Corporate bond sales worldwide soared to $3.9 trillion in 2009, from $2.9 trillion in 2008, according to data compiled by Bloomberg.

Demand for Treasuries has been fueled by data showing the economy almost stalled in the first half of 2011, and added no jobs in August, keeping unemployment at 9.1 percent. The Organization for Economic Cooperation and Development cut its forecast for growth in the U.S. on Sept. 8 to 1.1 percent this quarter and 0.4 percent in last three months of the year. Its prior estimates were 2.9 percent and 3 percent.

“This is beginning to look like more of a systematically low-interest-rate world,” said Robert Tipp, the chief investment strategist in Newark, New Jersey at Prudential Fixed Income, which oversees $300 billion in bonds, in a Sept. 20 telephone interview. “The outcome for Treasuries is likely to be favorable over the next year or so, unless you get much stronger than expected economic growth.”

‘Significant’ Risks

At the close of its two-day meeting Sept. 21, the Federal Open Market Committee cited “significant downside risks” in the U.S. economy and said it will buy bonds due in six to 30 years through June while selling an equal amount of debt maturing in three years or less. The purchases “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the Fed said in its statement.

Policy makers last week also announced a measure to support the mortgage market by reinvesting maturing housing debt into mortgage-backed securities instead of U.S. government debt.

Even with the rally, the difference between 10- and 30-year Treasury bond yields, at 1.07 percentage points, remains wider than its average of about 0.5 percentage point during the past two decades. That suggests the gains in longer-term debt have scope to continue, said Michael Materasso, senior portfolio manager and co-chairman of the fixed-income policy committee at Franklin Templeton Investments in New York, in a Sept. 22 telephone interview. The firm oversees $298 billion of bonds.

“There’s more than one fund manager that wishes they had a lot more allocated to Treasuries,” said Jeff Given, part of a group that manages $18 billion of bonds at MFC Global Investment LLC in Boston, in a Sept. 23 telephone interview. “They did much better than anybody would have predicted.’”

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Euro, Asian Stocks Fall on Debt Concern

By Shiyin Chen - Sep 26, 2011 11:02 AM GMT+0700
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The euro weakened against 12 of its 16 major peers. Photographer: Hannelore Foerster/Bloomberg

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Sept. 26 (Bloomberg) -- Khiem Do, head of multi-asset strategy at Baring Asset Management in Hong Kong, talks about financial market volatility and the outlook for the global economy. Do speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Sept. 26 (Bloomberg) -- Mark Konyn, the Hong Kong-based chief executive officer of RCM Asia Pacific Ltd., talks about Europe's sovereign debt crisis. Konyn, speaking with Rishaad Salamat on Bloomberg Television's "On the Move Asia," also discusses China's economy. (Source: Bloomberg)

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Sept. 26 (Bloomberg) -- Yudhistia Susanto, head of equities at PT Manulife Asset Management Indonesia in Jakarta, talks about investment strategy. Susanto speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Sept. 26 (Bloomberg) -- Markus Rosgen, a Hong Kong-based strategist at Citigroup Inc., talks about the outlook for Asian stocks and his investment strategy. Rosgen speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Sept. 26 (Bloomberg) -- Nicholas Smith, a Japan strategist at CLSA Asia-Pacific Markets Ltd., talks about the nation's financial markets and economy. Smith speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The euro weakened against most of its major peers, Asian stocks dropped to a 15-month low, while U.S. futures and oil pared gains amid concern European policy makers will struggle to contain the region’s debt crisis.

Europe’s shared currency fell 0.8 percent to 102.54 yen at 12:35 p.m. in Tokyo and slid 0.6 percent to $1.3422. The New Zealand dollar weakened for a sixth day and the won slumped 1.5 percent. The MSCI Asia Pacific Index lost 2.1 percent and the Nikkei 225 Stock Average sank 2.2 percent after Japan’s markets resumed after a holiday. Standard & Poor’s 500 Index futures rose 0.2 percent, paring gains of as much as 1.3 percent. Oil was little changed in New York and gold dropped a fourth day.

U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the International Monetary Fund that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece. Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. is forecasting that advanced economies will stall over the next year as Europe slides into a recession.

“Sentiment is still very poor out there and one has to accept the fact that economies are not going to do so well over the next six to 12 months,” Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $10 billion, said in a Bloomberg Television interview. “What you need is confidence. European governments have to do something to reestablish confidence and trust.”

Euro Weakens

The euro weakened against 10 of its 16 major peers after Geithner, during weekend talks of the IMF and the World Bank in Washington, called on governments to unite with the ECB to beef up the capacity of their 440 billion-euro ($591 billion) bailout fund. At last week’s close of $1.35, the currency is 12 percent stronger than its average of $1.2024 since January 1999.

Data today may show the Ifo institute’s business climate index for Germany, based on a survey of 7,000 executives, will drop to 106.5 this month from 108.7 in August, according to the median forecast of economists in a Bloomberg News survey. That would be the lowest since June 2010.

“It’s certain that the debt crisis is causing an economic slowdown in Europe and that’s the main reason for selling the euro,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-biggest bank by market value. “We can’t buy the euro because its economy is the weakest among the U.S., Europe and Japan.”

Greek Yields

Greek two-year note yields posted their biggest weekly gain since the country joined the euro region as credit-default swaps signaled a 94 percent probability the government will renege on its obligations within five years. Yields climbed to 69.69 percent, compared with 0.39 percent on similar-maturity German debt.

Germany’s Deputy Finance Minister Joerg Asmussen said yesterday that euro-region finance ministers won’t be in a position to decide on the disbursement of the next portion of aid to Greece when they meet on Oct. 3 because a report by the International Monetary Fund, European Central Bank and European Commission has been delayed.

The so-called kiwi slid 0.6 percent to 77.23 U.S. cents, set for its longest losing streak since September 2008. New Zealand’s imports exceeded exports by NZ$641 million ($496 million), from a revised NZ$111 million surplus in July, Statistics New Zealand said today in Wellington. The median estimate in a Bloomberg News survey of eight economists was for a NZ$321 million deficit.

South Korea’s won sank to near a one-week low after losing 4.7 percent last week. The currency gained 1.1 percent on Sept. 23 in the final minutes of trading as the finance ministry and central bank said they were ready to intervene.

Stocks Slump

About seven shares declined for every two that gained on MSCI’s Asia Pacific Index, which dropped 7.1 percent last week. The gauge has dropped 22 percent from its May 2 close that was the highest since 2008, matching some analysts’ definition of a bear market.

Japan’s Nikkei 225 (NKY) Stock Average slipped 2.1 percent. Australia’s S&P/ASX 200 Index decreased 0.4 percent, while South Korea’s Kospi Index dropped 1.4 percent. Hanjin Shipping Co. fell by the daily limit of 15 percent in Seoul after the shipping line said it will sell new shares.

Futures indicate the S&P 500 may extend the 0.6 percent gain on Sept. 23. The MSCI All-Country World Index was down 0.5 percent. The gauge of developed and emerging markets sank 7.6 percent last week and also 23 percent from the May 2 close that was the highest since 2008.

Pimco’s Prediction

Yields on 10-year Treasuries slipped two basis points to 1.81 percent and the rate on 30-year bonds dropped three basis points to 2.87 percent. The extra yield long bonds offer over two-year notes shrank to 2.67 percentage points from this year’s high of 4.04 percentage points in January. The spread was 2.55 percentage points on Sept. 23, the least since March 2009.

Pacific Investment Management, or Pimco, sees little-to-no economic growth in industrial nations in the coming 12 months as Europe’s economy shrinks by 1 percent to 2 percent and the U.S. stagnates, according to El-Erian. Pimco runs the world’s biggest bond fund.

The cost of insuring corporate and sovereign bonds against non-payment decreased, with the Markit iTraxx Australia index falling nine basis points to 207, Credit Agricole CIB prices show. That’s on track for the biggest drop since Aug. 15, according to data provider CMA. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan decreased six basis points to 225 basis points, Credit Agricole prices show. A decline of six basis points would be the largest since Sept. 7.

Oil for November delivery was little changed at $79.90 a barrel in New York. Futures dropped 9.2 percent last week to the lowest settlement since Aug. 9. Immediate-delivery gold slipped 1.6 percent to $1,630.55 an ounce, extending a three-day, 8.1 percent slump. Three-month copper declined 0.5 percent to $7,321.50 a metric ton in London, a seventh day of losses.

S&P’s GSCI Index of raw materials tumbled 8.3 percent last week, the most since May. Money managers cut the combined net- long position across 18 futures and options by 20 percent in the week ended Sept. 20, the most since February 2010, data from the U.S. Commodity Futures Trading Commission show.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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Apple Presses for Galaxy 10.1 Ban in Australia

By Joe Schneider - Sep 26, 2011 9:57 AM GMT+0700
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A model poses with Samsung Electronics Co.'s Galaxy 10.1 tablet in Tokyo. Photographer: Haruyoshi Yamaguchi/Bloomberg

Samsung Electronics Co.’s newest tablet computer infringes at least three Apple Inc. (AAPL) patents and must be barred from sale in Australia because it would unfairly steal from iPad sales, an Apple lawyer said.

It must have been “as plain as the Opera House to Samsung” that the design of the Galaxy Tab 10.1 infringed Apple patents, Steven Burley, Apple’s lawyer, said at the start of a scheduled two-day hearing in Sydney today. “They ought to clear the way in advance rather than attempt to crash through.”

Apple is seeking Federal Court Justice Annabelle Bennett to prohibit the sale of Samsung’s Galaxy 10.1 tablets in Australia. The dispute is part of a global fight between the two companies that began in April in the U.S. after Cupertino, California- based Apple sued Samsung claiming the Galaxy products “slavishly” imitated the designs and technologies used in iPads and iPhones. Samsung struck back with lawsuits in South Korea, Japan and Germany.

Apple’s iPad may account for 73 percent of tablet computer sales this year, according to the research firm Gartner Inc. Products that run on Google Inc.’s Android operating system, including Samsung’s Galaxy tablets, will probably have about 17 percent of the market, Gartner said in a Sept. 22 note.

Samsung, based in Suwon, South Korea, agreed in August to delay a planned release of the Galaxy 10.1 tablets in Australia until Bennett rules on Apple’s request for an injunction barring the sale of the products.

Countersuing Apple

Samsung had altered its Galaxy 10.1 tablet from a U.S. version that Apple claimed infringed 10 of its patents, for release in Australia. The Australian version, although with “reduced functionality,” still infringes at least three patents, according Burley. David Catterns, a lawyer for Samsung, had denied the Australian tablet has reduced functionality.

Samsung countersued Apple on Sept. 17, saying the iPhone and iPad infringe seven of its patents related to wireless communications standards.

The agreement to halt advertising and the sale of the Galaxy 10.1 tablet doesn’t affect any other Samsung tablet or smartphone available in Australia, or other countries, the company said following the Aug. 2 hearing.

A German judge barred the sale of the Galaxy 10.1 tablets in that country on Sept. 9, pending a trial of Apple’s patent claims. Apple also won an injunction in Germany prohibiting the sale of the Galaxy Tab 7.7, which has a smaller screen than the 10.1 or the iPad. That forced Samsung to pull the product from the IFA consumer-electronics show in Berlin earlier this month.

The case is: Apple Inc. v. Samsung Electronics Co. NSD1243/2011. Federal Court of Australia (Sydney).

To contact the reporters on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editors responsible for this story: Douglas Wong at dwong19@bloomberg.net; Young-Sam Cho at ycho2@bloomberg.net

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Mongolia Sparks Rio Concern With Push to Raise Stake in Record Copper Mine

By Soraya Permatasari and Elisabeth Behrmann - Sep 26, 2011 10:16 AM GMT+0700
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Zorigt Dashdorj, Mongolia's minister of mineral resources and energy. Photographer: Tomohiro Ohsumi/Bloomberg

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Sept. 6 (Bloomberg) -- Simon Potter, a director at Quam Asset Management, talks about investment opportunities in Mongolia. Potter speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Mongolia wants to increase its stake in one of the world’s largest undeveloped copper mines two years after the nation agreed with Rio Tinto Group and Ivanhoe Mines Ltd. to cap government control until 2039.

The government is seeking to boost the stake to 50 percent from 34 percent, Dashdorj Zorigt, Mongolia’s minerals minister, told reporters at Oyu Tolgoi yesterday. Such an increase is permitted only after 30 years, according to a summary of the $10 billion project agreement from London-based Rio, which said the new proposal may alarm foreign investors.

Mongolia’s attempt to renegotiate follows pressure from lawmakers and highlights risks for overseas investors as countries across Asia, Africa and Latin America seek greater control of raw materials. So-called resource nationalism is the biggest business risk for global mining companies, Ernst & Young LLP said last month.

“It brings another cloud to investing in Mongolia,” Andrew Harrington, resources analyst at Patersons Securities Ltd. in Sydney, said by phone. “When it comes down to it, the government has the upper hand.”

Rio fell 0.6 percent to A$62.28 at 12:45 p.m. Sydney time on the Australian stock exchange.

Ivanhoe hasn’t received a letter from the Mongolian government proposing to raise its stake in the project, the Vancouver-based company said today in an e-mailed statement.

Six Years

“An unstable environment, where changes to agreements are forced, leads to investors being very apprehensive,” Cameron McRae, Rio’s Mongolia country director, said on Sept. 24 in the capital, Ulan Bator. “The investment agreement is a contract. We’re going to honor it and we expect the government to honor it.”

The project, 66-percent owned by Ivanhoe Mines, is half way through completion and will be one of the world’s five-biggest copper mines, according to Rio, which controls Oyu Tolgoi’s management. Ivanhoe, 48.5-percent owned by Rio, spent more than six years negotiating with Mongolia before reaching an agreement in October 2009 to develop the site, which may open in 2013.

20 Lawmakers

A group of 20 Mongolian lawmakers wrote to Prime Minister Sukhbaatar Batbold on Sept. 7 demanding the Oyu Tolgoi accord be revised to give the country a 50 percent holding, China’s Xinhua News Agency said Sept. 20. Mongolia will seek to revise the terms for Oyu Tolgoi, Finance Minister Sangajav Bayartsogt told News.mn portal in an interview published on Sept. 20. Mongolia has appointed chief of the cabinet office Chimed Khurelbaatar to start talks with the miners, Xinhua News reported on Sept. 22.

“Alarm bells would ring, that if they change the rules here, are they going to change it again, are they going to take more than 50 percent,” Gavin Wendt, founder and director of Mine Life Pty in Sydney, said by phone. “Rio and Ivanhoe obviously won’t be happy.”

Mongolia may also seek to change the allotment of stakes in the Tavan Tolgoi coal deposit to investors including Peabody Energy Corp. (BTU), the largest U.S. coal producer. The potential ownership changes at the country’s two biggest mineral developments come ahead of parliamentary elections next year.

Oyu Tolgoi may have average annual output of 450,000 tons of copper and 330,000 ounces of gold, Rio said. World demand for copper will grow 40 percent to 27 million tons by 2020, according to a Sept. 8 Rio presentation.

‘Taken Away’

Rio is facing similar government moves in Mozambique and Guinea, where Rio owns the proposed $10 billion Simandou iron ore project in a joint venture with Aluminum Corp. of China. Lawmakers in Guinea on Sept. 9 adopted a mining code that will hand the nation 35 percent of local commodity companies.

“Big companies develop big projects, have capital costs in the billions,” said Wendt at Mine Life. “They don’t want to invest billions and find out they’re effectively having a big chunk of the project taken away.”

Rising demand led by China, the largest copper user, coupled with a global supply deficit pushed the price to a record $10,190 per ton on the London Metal Exchange in February. The three-month contract for the metal used to make pipes and traded at $7,350 a ton at 11:41 a.m. Sydney time.

“As a mining company, we are very aware of the impact our operations have on our host countries and particularly in Mongolia,” Rio Chairman Jan du Plessis said in at a ceremony to mark the 50 percent construction of the project in Oyu Tolgoi yesterday. The company “will continue to develop partnerships with the government of Mongolia, communities and businesses.”

President Tsakhia Elbegdorj, a former journalist who led the peaceful revolution that ended more than 65 years of communist rule in Mongolia in 1990, said in June he’s concerned about how to “manage” the surge of foreign investment and ensure the windfall spreads among the nation’s citizens.

Oyu Tolgoi, which means “turquoise hill,” will boost the country’s gross domestic product by 30 percent by 2020, when it reaches full production, Andrew Harding, chief executive officer of Rio Tinto’s copper unit, said at a Sept 24. briefing.

To contact the reporters on this story: Soraya Permatasari in Melbourne at soraya@bloomberg.net; Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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Rio Says Accord Changes May Alarm Mongolia Investors

By Soraya Permatasari - Sep 26, 2011 7:57 AM GMT+0700

Rio Tinto Group said that potential changes by Mongolia to an investment accord that at present gives partner Ivanhoe Mines Ltd. control of one of the world’s largest copper mines will alarm investors.

“The most important thing that foreign investors require when they’re making their investment decisions is the feeling of predictability and stability in the country in which they operate,” Cameron McRae, Rio Tinto’s Mongolia country director, said in the capital, Ulan Bator, yesterday. “An unstable environment, where changes to agreements are forced, leads to investors being very apprehensive and uncertain.”

McRae, who is also chief executive officer of Oyu Tolgoi LLC, made the comment after Mongolian Finance Minister Sangajav Bayartsogt said that the government may amend the investment terms for Oyu Tolgoi to boost state ownership. A revision may delay the proposed 2013 start of the project with any increase in the state’s share curbing profits from the $10 billion mine for developers Rio and Ivanhoe.

Rio estimates world demand for refined copper will grow 40 percent to 27 million metric tons by 2020, according to a Sept. 8 presentation. Oyu Tolgoi will be one of the world’s five- biggest copper mines and may have average annual production of 450,000 tons of copper and 330,000 ounces of gold, Rio said. That’s about $4 billion a year in sales at current prices.

‘Mammoth Sum’

The existing agreement has given Rio Tinto the confidence to invest “such a mammoth sum” in the project, said McRae. “What we are demonstrating is the investment agreement is a contract. We’re going to honor it and we expect the government to honor it.”

The project, 66 percent owned by Ivanhoe and 34 percent by the Mongolian government, is half way through completion, according to Rio, which owns 48.5 percent of Vancouver-based Ivanhoe and controls the Oyu Tolgoi management.

Mongolia’s government is also seeking to change the allotment of stakes in the Talvan Tolgoi coal deposit to investors including Peabody Energy Corp. (BTU), the largest U.S. coal producer. The proposals to revise ownership of the country’s two biggest mineral developments come ahead of parliamentary elections next year.

A group of 20 Mongolian lawmakers wrote to Prime Minister Sukhbaatar Batbold on Sept. 7 demanding the investment accord for Oyu Tolgoi be revised to give the country a 50 percent holding, China’s Xinhua News Agency reported Sept. 20. Mongolia has appointed chief of the cabinet office Chimed Khurelbaatar to start talks with the miners, the news agency said on Sept. 22.

More Talks

Rio would like to have more talks with the Mongolian government as it hasn’t received any formal notification about a proposed revision, said McRae, who was appointed by Rio. The company has managed the project since December.

Oyu Tolgoi, which means “turquoise hill,” will boost the country’s gross domestic product by 30 percent by 2020, when it reaches full production, said Andrew Harding, chief executive officer of Rio Tinto’s copper unit. The project may cost $10 billion in total, Harding said.

Oyu Tolgoi’s shareholders are seeking to raise as much as $4 billion to finance the development, which would make it the biggest project financing in the mining industry, said McRae. Rio has invested more than $3 billion in the past five years.

Ivanhoe spent more than six years negotiating an investment pact with Mongolia before reaching an agreement in October 2009 to allow it to mine the site. Rio’s two biggest development projects are Oyu Tolgoi and the Simandou iron ore project in Guinea, which Rio has said will cost more than $10 billion.

Power Supplies

Rio is also seeking to resolve the issue of power supplies for Oyu Tolgoi. Production may be delayed if the source of electricity isn’t agreed in the coming months, Harding said at the briefing. Talks between the governments of China and Mongolia over power continue, with China the preferred source of initial supplies, he said.

“We believe the power issue is a key risk to the project execution at least in terms on time-line,” Citigroup Inc. analysts Heath Jansen, Clarke Wilkins and Anindya Mohinta wrote in a Sept. 20 report.

Mongolia, a landlocked country between China and Russia, is one of the richest nations in terms of natural resources, and that’s just the known deposits as four-fifths of the nation hasn’t been surveyed. Aside from coal and copper, the country also holds oil, potash, iron ore and uranium, as well as rare earths used in electronics and turbines. Agriculture and mining each account for about 20 percent of gross domestic product.

China Trade

Mongolia has grown increasingly dependent on commerce with China’s 1.3 billion people since the 1991 breakup of the Soviet Union. China accounts for 80 percent of Mongolia’s imports and buys about 85 percent of its exports, according to Mongolia’s central bank data.

President Tsakhia Elbegdorj, a former journalist who led the peaceful revolution that ended more than 65 years of communist rule in Mongolia in 1990, said in June he’s concerned about how to “manage” the surge of foreign investment and ensure the windfall spreads among the nation’s citizens.

More than 33 percent of Mongolians live below the poverty line, and per capita income in the nation of 2.7 million is $2,111, the International Monetary Fund said in 2010.

To contact the reporter on this story: Soraya Permatasari in Mongolia at soraya@bloomberg.net

To contact the editors responsible for this story: Paul Tighe at ptighe@bloomberg.net; Rebecca Keenan at rkeenan5@bloomberg.net

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London Metal Exchange Facing Takeover Bids as Trade Volumes Reach Record

By Agnieszka Troszkiewicz - Sep 26, 2011 6:01 AM GMT+0700
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The LME, which said Sept. 23 it had received “several expressions of interest,” handles about 80 percent of global trade in metals futures. Photographer: Chris Ratcliffe/Bloomberg

The London Metal Exchange, founded 134 years ago above a hat shop in the financial district, may be the latest major mutual exchange to be bought after record trading volumes attracted the interest of multiple bidders.

The bourse is valued at about 160 million pounds ($247 million), based on the last published price of its closely held shares, according to Niamh Alexander, an analyst at KBW Inc. in New York. The exchange’s value may be “significantly more” than its 2010 net income of 9.5 million pounds would suggest because so few exchanges of its kind are for sale, said Ruben Lee, chief executive officer of Oxford Finance Group, a London- based company specializing in financial and commodity markets.

The LME, which said Sept. 23 it had received “several expressions of interest,” handles about 80 percent of global trade in metals futures. Prices more than tripled in the past decade as demand from emerging markets led by China overwhelmed supplies from mines. The LME, which is owned by its members, handled $11.6 trillion of contracts last year, compared with $2.5 trillion in 1999, reflecting both higher prices and increasing speculative interest in raw materials.

“The LME is the last major mutual exchange,” said Christopher Gilbert, a professor at the University of Trento in Italy who has followed the bourse since 1971. “A change in ownership will shift the balance of power within the exchange from the industrial users toward the financial community.”

The LME said Sept. 23 it would “begin a formal process which may or may not lead to an acceptable offer for the company being received.” The exchange hired U.S. investment bank Moelis & Co. to advise it. Miriam Heywood, a spokeswoman for the exchange, declined to elaborate on the statement.

Singapore Exchange

Bidders may include CME Group Inc. (CME), the world’s largest futures market, IntercontinentalExchange Inc. (ICE) and Singapore Exchange Ltd. (SGX), KBW’s Alexander wrote in a report. Allan Schoenberg, a spokesman for CME in London, Kelly Loeffler, a spokeswoman for ICE in Atlanta, and Carolyn Lim, a spokeswoman for Singapore Exchange, declined to comment.

CME, based in Chicago, bought the New York Mercantile Exchange for $7.6 billion in August 2008, while ICE, based in Atlanta, bought the New York Board of Trade in 2007 for $1.79 billion, according to data compiled by Bloomberg. Singapore Exchange’s A$8.3 billion ($8.1 billion) offer to buy ASX Ltd., the owner of Australia’s main bourse, was blocked by the Australian government in April.

‘A Jewel’

“There are in fact very few successful exchanges that are actually up for sale, so the LME is in that sense a jewel,” said Lee of Oxford Finance Group. “The most likely bidders are going to be the cash-rich exchanges which already have a footprint in commodities. The LME has to be attractive to the Asian exchanges, and it could be any one of them.”

Buying the LME would be a “relatively small” acquisition for either CME or ICE, KBW’s Alexander wrote in her report. A new owner could raise the exchange’s earnings by handling its clearing, bringing back fees for market data and increasing trading costs, she said. CME and ICE already have their own clearing systems.

The LME clears trades through LCH.Clearnet Group Ltd., in which it owns 3.27 million shares, and said in May it was considering setting up a new clearing system to boost profit. The exchange appointed Trevor Spanner, chief operating officer of European Central Counterparty Ltd., as managing director of post-trade services this month.

Glencore Share Sale

Interest in commodities surged in the past decade as shortages drove prices higher. Investors held about $431 billion in raw materials by July, an almost fivefold gain in six years, according to Barclays Capital. Glencore International Plc, the Baar, Switzerland-based commodities trader, sold shares in May, ending more than three decades of operating as a closely held partnership. The offering valued the company at $59.2 billion.

The LME has 92 members listed on its website, including units of Goldman Sachs Group Inc. (GS), Barclays Plc and Citigroup Inc. There are seven categories of membership, conferring different rights in the handling of contracts. There are 12 category 1 members who are allowed in the bourse’s ring, a 6- meter-wide (20-foot) trading pit in Leadenhall Street, about a 10-minute walk from the Bank of England.

It is London’s last so-called open outcry trading floor and has its origins in the Jerusalem Coffee House in the financial district where metals traders would meet in the early 19th century. Merchants would draw a circle in the sawdust around which people would make their bids.

Brokers also trade through the bourse’s Select electronic platform and by phone. Select accounted for 52 percent of volume and the ring 21 percent a year ago, LME data show.

Ordinary Shares

The exchange is owned by LME Holdings Ltd., which issues two share classes. There are 12.9 million ordinary shares, which confer ownership and traded at 4.925 pounds in July, according to data on the bourse’s website. There are also 1.34 million B shares, which exchanged hands at 70 pounds in July. Neither shares trade on an exchange.

Owners of B shares get no dividend and have no right to the profits or assets of the company, according to the articles of association. In the event of a distribution of assets, they are entitled to get the nominal value of the capital paid up on each share. They can’t attend company meetings unless changes to their rights are being considered. It is mandatory for four categories of membership to own the B shares.

“Metals trading continues to expand and new metals and products are growing the reach of the market,” said John Meyer, a mining and metals analyst at Fairfax IS in London. “The LME is proven to be one of the, if not the, most resilient markets in the world in times of crisis. In 2008, investors kept funds with LME brokers rather than banks.”

Asian Tin

The LME was founded in 1877 to feed industrial Britain’s need for metals. Its benchmark contracts are three-month futures because that’s how long it took in the days of steamships to get copper from Chile or tin from Southeast Asia.

The LME started trading steel futures in 2008 and expanded into molybdenum and cobalt in 2010, adding to eight contracts in non-ferrous metals and its LMEX index of six industrial metals. The bourse introduced so-called LMEminis in February, with each contract representing five tons rather than the 25 tons normally traded. They are available through the Singapore Exchange.

“The sale of the LME is an opportunity for the shareholders to sell out based on current volume,” said David Threlkeld, president of Resolved Inc., a commodities trading and hedging adviser in Scottsdale, Arizona. “Selling the LME at this point would be as smart as Glencore going public at the top.”

To contact the reporter on this story: Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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Crude Trades Near 6-Week Low on Speculation European Crisis to Cut Demand

By Ben Sharples - Sep 26, 2011 10:34 AM GMT+0700

Oil traded near the lowest in more than six weeks in New York as investors speculated Europe’s sovereign debt crisis will cut fuel demand amid ample supplies.

Futures fluctuated close to $80 a barrel after finance leaders at the annual International Monetary Fund meeting in Washington urged European policy makers to step up measures to counter the crisis. The region’s woes have helped slow demand for crude, Qatar’s oil minister said yesterday. Declines may be limited as New York oil approaches technical support levels, according to data compiled by Bloomberg.

“Everyone now fully understands the implications of Greece defaulting,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney. “The big key is whether or not the measures are going to help and I think that’s what we have to wait and see.”

Crude for November delivery was at $79.90 a barrel, down 5 cents, in electronic trading on the New York Mercantile Exchange at 1:31 p.m. Sydney time. Front-month prices last week slid 9.2 percent to $79.85, the lowest settlement since Aug. 9. Oil is 4.4 percent higher the past year.

Brent futures for November settlement slid 19 cents, or 0.2 percent, to $103.78 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $23.88 to U.S. futures, compared with a record $26.87 on Sept. 6, based on front-month settlement prices.

“Adequate” Supply

U.S. Treasury Secretary Timothy F. Geithner said at the IMF meeting that governments and the European Central Bank must defuse the “most serious risk now confronting the world economy.”

The European financial crisis and general fears about the global economy have weakened demand for crude, Qatari Oil Minister Mohammed Saleh al Sada said yesterday in Doha. Supplies are adequate and the nation is pleased that Libya is starting to produce and export oil, he said.

Harouge Oil Operations, a joint venture between Libya’s state-owned National Oil Corp. and PetroCanada, will begin pumping crude from the country’s Amal field in a “few weeks,” the company’s chairman said. Full output of 100,000 barrels a day is expected to be reached by year’s end, Abdulwahab Elnaami said yesterday at his office in the Libyan capital Tripoli.

Fighting in Libya since February has reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day last month, according to Bloomberg estimates, compared with the 1.6 million barrels a day the nation pumped in January.

Crude in New York has long-term technical support at $76.28 a barrel on the weekly chart, according to data compiled by Bloomberg. That’s the 38.2 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record high of $147.27 in July that year. Buy orders tend to be clustered close to chart- support levels.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Ford Motor May Build Electric Cars in China With Partner, CEO Mulally Says

By Bloomberg News - Sep 25, 2011 11:00 PM GMT+0700
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Alan Mulally, chief executive officer of Ford Motor Co. Photographer: Ariana Lindquist/Bloomberg

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Sept. 26 (Bloomberg) -- Ford Motor Co. Chief Executive Officer Alan Mulally talks about the automaker's business strategy for China. Mulally was in Chongqing, China, to attend the groundbreaking ceremony of an engine transmission plant at its venture with Changan Automobile Group. He spoke Sept. 24 with Bloomberg Television's Stephen Engle. (Source: Bloomberg)

Ford Motor Co. (F) may make electric cars with its partner in China as the auto industry moves toward producing more fuel-efficient vehicles, Chief Executive Officer Alan Mulally said.

“Our plan is to make the vehicles people want and value, in China and around the world,” Mulally, 66, said in a Bloomberg Television interview on Sept. 24 in Chongqing, China. “As we move to more electrification you’re going to see more hybrids, plug-in hybrids and all-electric.”

Mulally, who was in China to attend the groundbreaking ceremony of an engine transmission plant at its venture with Changan Automobile Group, didn’t provide a schedule for building electric cars. Rivals Daimler AG (DAI) and General Motors Co. (GM) have announced plans to add alternative-energy vehicles in China as the country, the world’s largest polluter, seeks to reduce emissions. The government aims to have 1 million electric- powered vehicles on the road by 2015, according to the Ministry of Science.

GM on Sept. 20 signed an agreement to develop electric cars in China with its partner SAIC Motor Corp. GM, which plans to introduce the plug-in hybrid Chevrolet Volt in China in the fourth quarter, will not give SAIC or the Chinese government intellectual property for the Volt as part of the agreement, GM Vice Chairman Steve Girsky said.

Ford will also consider introducing its luxury brand Lincoln in China to tap into the growing high-end sedan market, Mulally said. The carmaker currently sells models such as its Mondeo sedan and Focus small cars in the country.

“We have a great luxury brand in Lincoln, which we have recommitted ourselves to,” he said. “There’s going to be tremendous pull from China to have access to these great vehicles.”

Additional Models

Ford is spending $1.6 billion to build four factories in China, where it plans to triple its lineup by offering 15 models by mid-decade. The U.S. carmaker, dependent on the U.S. and Europe for most sales and profits, had 2.7 percent of the passenger-vehicle market in China through June, according to J.D. Power & Associates, while GM controls 10 percent.

China’s demand for luxury cars will grow about 35 percent this year, analysts at J.D. Power forecast. This compares with a 5 percent increase for overall auto sales as predicted by the China Association of Automobile Manufacturers.

Expansion in Asia is part of Mulally’s wider plan to boost annual global sales by 50 percent to 8 million vehicles by 2015. Ford’s China sales have risen 11 percent this year to 341,746 units, the company said on Sept. 6.

Overall vehicle sales in China reached 18.06 million units last year, boosted by government tax breaks and rural subsidies.

Delivery Slowdown

Ford is encountering pricing pressure in China as the auto market there slows, Joe Hinrichs, group vice president and Asia chief, said on Aug. 10. Overall deliveries in China are forecast to slow this year from the 32 percent gain in 2010, after the government removed sales-tax breaks in January and the central bank raised interest rates five times since October.

“China has a very good plan to have sustainable growth, to manage the inflation as well as the economic activity and automobile purchases move along with that,” Mulally said. “So, even though it’s lower than the previous year, it’s a lot more sustainable for the long term.”

--Stephen Engle, Liza Lin. Editors: Chua Kong Ho, Richard Frost

To contact the reporters on this story: Liza Lin in Shanghai at llin15@bloomberg.net;

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

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U.S. Equity Futures Advance as Leaders Seeks Ways to Halt European Crisis

By Rita Nazareth - Sep 26, 2011 10:24 AM GMT+0700

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Sept. 26 (Bloomberg) -- Eswar Prasad, a professor at Cornell University and a former head of the International Monetary Fund’s financial studies division, talks about the outlook for the global economy. Euro-area countries will do whatever is necessary to end the crisis and ensure the financial stability of the entire euro area and its members, the IMF said in a statement after its meetings in Washington on Sept. 24. Prasad speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

U.S. stock futures pared an early advance, following the biggest weekly drop since October 2008 for the Dow Jones Industrial Average, on speculation European policy makers will announce steps to contain the debt crisis as foreign counterparts lobby for action.

Standard & Poor’s 500 Index futures expiring in December advanced 0.6 percent to 1,137 at 12:17 p.m. Tokyo time after falling as much as 0.7 percent and climbing as much as 1.3 percent. Dow futures gained 62 points, or 0.6 percent, to 10,759. December contracts on London’s FTSE 100 Index rose 0.5 percent.

U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the International Monetary Fund in Washington that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” Billionaire investor George Soros said “something needs to be done” to safeguard Europe’s banks because Greece may be unable to avoid default.

“It’s not a surprise that we didn’t see anything concrete out of Europe this weekend,” Jack Ablin, who helps oversee $55 billion as chief investment officer for Chicago-based Harris Private Bank, said in a telephone interview. “The market is already pricing in a Greek default. If we don’t see any chips falling, investors will be pleased. This market is starting to get cheap.”

U.S. stocks fell last week as the Federal Reserve said risks to the economy have increased and concern grew that policy makers will fail to spur growth. Equities rebounded on Sept. 23, following a four-day rout that drove the S&P 500 down 7.1 percent, amid speculation European governments will act to prevent a financial crisis.

Alcoa, FedEx

For the week, Alcoa Inc. and DuPont Co. tumbled more than 14 percent to lead losses in the Dow. Materials companies in the S&P 500 slipped 12 percent for the biggest drop among 10 industries as every group declined at least 1.6 percent. Bank of America Corp. slumped 13 percent, while FedEx Corp. tumbled 12 percent after cutting its profit forecast.

The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 11 percent last week as all 30 of its stocks retreated. The Dow Jones Transportation Average, also considered a proxy for the economy, slumped 9.6 percent. Both gauges fell the most since March 2009.

“When you look at Europe, the solutions are not going to be implemented any time soon,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “That means the market volatility is going to continue.”

‘Firewall’

Geithner said over the weekend that governments must unite with the European Central Bank to “create a firewall against further contagion” and defuse the “most serious risk now confronting the world economy.” European policy makers are under pressure to further boost the ammunition of their regional rescue fund even as parliaments focus on ratifying a July plan to broaden its powers.

Last week’s rout erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The S&P 500 slumped 17 percent between April 29 and Sept. 23. The index’s gain since March 2009, when the last bear market ended, has been cut to 68 percent. The benchmark gauge for American common equity is trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, according to data compiled by Bloomberg.

‘Scapegoat’

Greek Finance Minister Evangelos Venizelos said his country will do “whatever it takes” to meet its budget goals and cautioned against making it a “scapegoat” for the global economy. Greece has yet to secure a second international bailout amid questions about whether it can satisfy the terms for aid. Economists at Citigroup Inc. say they expect the country to begin restructuring its debt as soon as December.

Stocks are having the worst quarter on record relative to U.S. Treasuries and gold, which may force investors to buy equities to rebalance their allocations, JPMorgan Chase & Co.’s Marko Kolanovic said. U.S. and emerging-market equities have returned 43 percentage points less, the most during a quarter since at least 2002, according to data compiled by Kolanovic, whose analysis is based on a model portfolio composed of stocks, bonds and gold.

“This underperformance may trigger significant quarterly rebalance flows into equities and out of Treasuries at the end of next week,” Kolanovic, the New York-based global head of equity derivatives strategy at JPMorgan, wrote in a note to clients last week.

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

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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