Black Friday Draws Younger Shoppers

By Matt Townsend and Cotten Timberlake - Nov 26, 2011 12:01 PM GMT+0700

Play Video

Nov. 25 (Bloomberg) -- Robert Burke, chief executive officer of Robert Burke Associates, talks about the outlook for luxury retail sales during the holiday shopping season. He speaks with Betty Liu on Bloomberg Television's "In the Loop." Jay Margolis, a Bloomberg Television contributing editor and former retail executive, also speaks. (Source: Bloomberg)

Play Video

Nov. 25 (Bloomberg) -- David Strasser, an analyst at Janney Montgomery Scott LLC, talks about the outlook for the holiday retail sales season. He speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

Enlarge image

People rush into the entrance of Macy's department store as they open at midnight (0500 GMT) on November 25, 2011 in New York to begin the "Black Friday" shopping weekend. Photographer: Stan Honda/AFP/Getty Images

Enlarge image

Shoppers gather items at a Black Friday sale at a Toy "R" Us Inc. store in New York, U.S., on Thursday, Nov. 24, 2011. Photographer: Peter Foley/Bloomberg

Retailers may have lured more shoppers on Black Friday as an earlier start to their bargain bonanzas drew younger consumers.

Toys “R” Us Inc. opened at 9 p.m. on Thanksgiving, an hour earlier than last year. Wal-Mart Stores Inc. (WMT) started offering its deals one hour later, followed by midnight openings at Macy’s Inc. (M), Best Buy Co. and Target Corp. (TGT) that drew young consumers to the biggest retail day of the year for the first time.

“It was definitely a younger customer, under 20 for the most part, and they were shopping in groups of friends, four and five at a time,” Macy’s Chief Executive Officer Terry Lundgren said yesterday of the crowd of 10,000 that waited at the chain’s flagship store in Manhattan. “It was almost a continuation of whatever social experience they were having hours before.”

Black Friday arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history.

Even with low confidence, sales may have gained from a year earlier as shoppers paid more for goods and unleashed some pent- up demand, said Craig Johnson, president of consulting firm Customer Growth Partners. Revenue from Black Friday may grow to $27 billion, an 8 percent increase from the same period a year ago, Johnson, whose firm is based in New Canaan, Connecticut, said in a telephone interview.

Good Early Sign

“The increase in consumers is a good sign early, but it doesn’t necessarily mean the overall holiday is going to fare much better than last year,” said Marshal Cohen, an analyst at Port Washington, New York-based NPD Group. People are spending about the same as last year while “nothing has shown us it’s going to be great, and nothing has shown us it’s going to be terrible,” he said.

Sales at brick-and-mortar stores may rise 2.8 percent to $465.6 billion this holiday season, slower than the 5.2 percent gain last year, according to the National Retail Federation. Online revenue may advance 15 percent to $37.6 billion, according to ComScore Inc. (SCOR) As many as 152 million people were expected to shop at stores and websites on Black Friday, up 10 percent from last year, according to the Washington-based NRF.

Chains such as Macy’s, Target and Kohl’s Corp. (KSS) may have taken revenue from competitors like J.C. Penney Co. (JCP) that didn’t open until 4 a.m., according Retail Metrics President Ken Perkins.

“It was a win for them,” said Perkins, who visited stores in Boston. “The additional costs of staying open a few more hours will be more than offset by the traffic they brought in and probably taking some market share.”

Macy’s Drives Traffic

Macy’s decision to start Black Friday earlier also prompted many malls to open at midnight. That helped boost foot traffic at Walt Disney Co. (DIS)’s namesake stores because Macy’s serves as the anchor tenant in the malls the house most of its locations, said Jim Fielding, president of Disney Stores Worldwide. Sales at Disney Stores rose high-single percentage points to meet expectations, Fielding said.

The extended hours drew Amanda Rottmueller, a 20-year-old nursing student, to Black Friday for the first time as she bought herself bras and pajamas that came with a free pair of slippers from Limited Brands Inc.’s (LTD) Victoria’s Secret at the Tri-County Mall in Cincinnati.

“The deal is just too good, and I can get something really nice I wouldn’t be able to afford otherwise,” she said.

Online Sales

The move to turn Black Friday into more than just one day also grew on the Web as online retailers, such as Amazon.com Inc. (AMZN), began advertising “Black Friday” deals well before yesterday. Online sales gained 39 percent on Thanksgiving and 18 percent by noon New York time, according to International Business Machines Corp.’s Coremetrics.

Kristen Gartland, a 20-year-old waitress, also tried Black Friday for the first time by starting at a Wal-Mart in Huber Heights, Ohio, at 10 p.m. and then Kohl’s at midnight. She said she planned to double her shopping budget to $350 from a year ago because she has made more money serving wings at a sports bar in nearby Miamisburg, Ohio.

Barb Steck, a 45-year-old Washington resident, also expected to double her holiday spending to “thousands” this year because the family construction business is doing well and she had pent-up demand. She got rid of some of that yesterday, spending $400 on shoes and pants at Michael Kors and Lululemon Athletica Inc.

“I haven’t done a lot of shopping recently,” Steck said. “I am starting to shop now for myself.”

Spending Drop

Many shoppers, including 39-year-old Tanya Taylor from San Diego, planned to cut back on holiday purchases. Her spending will drop by 50 percent because her freelance work in the beauty industry has declined, she said while shopping for her own clothes at a Macy’s at the Westfield Horton Plaza Mall in San Diego.

Gap Inc. (GPS), based in San Francisco, took the early openings one step further by boosting the number of stores open on Thanksgiving morning to about 1,000. Most of them were Old Navy locations, which offered women’s coats for as little as $14.75, or about 50 percent off, and scarves for $5, down from $7.94.

An Old Navy store in Greensboro, North Carolina, opened at 9 a.m. on Thanksgiving, attracting Paula Pile, a marriage counselor. She shopped for socks, pajamas pants and a $19 vest for her granddaughter, before heading to dinner with family.

By opening on Thanksgiving, Old Navy “is picking up my business,” said Pile, 57. “I am not one to get up in the middle of the night and go stand in line.”

Confidence, Spending

Black Friday may illustrate a gap between what consumers tell pollsters and how they actually behave -- a trend that has prevailed for much of this year, said Retail Metrics’ Perkins. Industrywide monthly same-store sales, a key indicator for retail growth because new and closed locations are excluded, have gained for more than two years and missed analysts’ projections once this year, according to Retail Metrics.

“A solid Black Friday suggests the rest of the season should be pretty good,” Perkins said. “Those who have jobs have been willing to spend.”

To contact the reporters on this story: Matt Townsend in Huber Heights, Ohio, at mtownsend9@bloomberg.net; Cotten Timberlake in Washington at ctimberlake@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

Read more...

GM Volt Under U.S. Probe for Batteries

By Angela Greiling Keane and David Welch - Nov 26, 2011 6:25 AM GMT+0700

General Motors Co. (GM)’s electric plug- in hybrid Chevrolet Volt is the subject of a U.S. safety probe after its lithium-ion batteries, supplied by LG Chem Ltd., caught fire in crash tests.

A Volt caught fire three weeks after a side-impact crash test May 12 while parked at a testing center in Wisconsin, leading regulators to conduct more tests. Volt battery packs were damaged in three more tests last week, causing two fires, the National Highway Traffic Safety Administration said yesterday in a statement on its website.

“The agency is concerned that damage to the Volt’s batteries as part of three tests that are explicitly designed to replicate real-world crash scenarios have resulted in fire,” NHTSA said in the statement.

The U.S. regulator said it doesn’t know of any crashes outside of testing that have led to battery-related fires in Volts or other cars powered by lithium-ion batteries. Chevy Volt owners whose vehicles have not been in a serious crash don’t need to be concerned, the agency said.

GM maintains that the car is safe. The automaker and NHTSA have been working for months to replicate the fire in the car’s lithium-ion battery that occurred three weeks after the May collision test, Greg Martin, a GM spokesman, said by telephone.

Inducing Battery Failure

The testing, which involved a stand-alone battery assembly, “is part of a broader program over the last six months to induce battery failure under extreme conditions,” Martin said.

LG Chem, South Korea’s biggest chemical maker, is the Volt’s battery vendor. Dick Pacini, a spokesman with the Millerschin Group, which works for LG Chem (051910), said he couldn’t immediately provide comment. On Nov. 22, LG Chem said in a statement that it was cooperating with NHTSA and GM.

NHTSA, which said it’s working with the U.S. Defense and Energy departments to analyze the fires, conducted its first new test on Nov. 16 without a fire. The second test on Nov. 17 saw an initial temporary increase in battery temperature after the crash, and the battery pack caught fire at the test facility on Nov. 24. In a third test on Nov. 18, the battery was rotated hours after the crash and “began to smoke and emit sparks shortly after,” NHTSA said.

At this stage of Volt marketing, the NHTSA investigation will probably not hurt sales, said Jim Hall, principal of 2953 Analytics Inc., a consulting firm in Birmingham, Michigan.

The car has been on sale for a year as the manufacturer ramps up production. Most Volt owners are early adopters with an interest in the technology, and won’t be deterred by the post- collision fires, Hall said in a telephone interview.

“If they were selling to the mass market, it would be a bigger problem,” he said.

GM started selling the car in seven states and began offering the Volt in all 50 states in October, Martin said.

GM, based in Detroit, sold 5,003 Volts this year through October, according to Autodata Corp., a research firm in Woodcliff Lake, New Jersey. GM will push production to a rate of 60,000 a year starting in January. Of the 60,000 GM plans to build next year, 45,000 are earmarked for the U.S., and the rest will be exported, the company has said.

To contact the reporters on this story: David Welch in Detroit at dwelch12@bloomberg.net; Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

Read more...

Treasury 10-Year Yield Below 2% as Europe Debt Crisis Fuels Refuge Demand

By Susanne Walker - Nov 26, 2011 12:00 PM GMT+0700

Treasuries rose, pushing the yield on the 10-year note down for a second week, as concern the European debt crisis may escalate drove investors to the safety of U.S. government debt.

Benchmark 10-year yields closed at less than 2 percent for the first time in eight weeks and fell below comparable German bunds. The yield difference widened to 0.31 percentage point, the most since April 2009, as borrowing costs in the European region soared. U.S. auction yields dropped to record lows as the Treasury sold $99 billion in notes. A report Dec. 2 is forecast to show the U.S. added 120,000 jobs in November.

“There’s not a lot of confidence in places outside the U.S. right now,” said Christopher Bury, co-head of fixed-income rates at Jefferies Group Inc., one of the 21 primary dealers that trade with the Federal Reserve. “The overall risks have been increasing and that’s contributed to Treasuries performance over the last week. Discussions out of Europe are not making much headway and the markets are not trading very well.”

Ten-year note yields dropped five basis points, or 0.05 percentage point, on the week to 1.96 percent in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 rose 13/32, or $4.06 per $1000 face amount, to 100 10/32.

Yield Records

The yield dropped to 1.87 percent on Nov. 23, approaching the record low 1.67 percent set Sept. 23.

Trading in Treasuries closed at 2 p.m. yesterday in New York, after being shut the previous day for Thanksgiving.

U.S. yields set record lows at auctions this week even as the U.S. deficit reduction Congress’s supercommittee failed Nov. 21 to reach a deal, setting the stage for $1.2 trillion in automatic spending cuts, and as the Fed and the Treasury sold $116 billion in notes.

A $35 billion two-year note auction on Nov. 21 produced the highest bid-to-cover ratio on record for a fixed-coupon Treasury note or bond, 4.07, while a $35 billion five-year debt sale the next day was priced at a record low yield for the securities of 0.937 percent. A $29 billion seven-year auction on Nov. 23 garnered a record low yield of 1.415 percent.

The Fed sold $8.531 billion of securities maturing in February 2012 through July 2012 on Nov. 21 as part of its plan to lower borrowing costs that’s become known as Operation Twist, according to the Fed Bank of New York’s website. The central bank also sold $8.63 billion in Treasuries maturing from March 2014 to November 2014, in a second operation that day.

Supply Handle

“Supply has never been a problem when the markets are in turmoil,” Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker said Nov. 21. “There doesn’t seem to be any concrete solutions in Europe.”

Germany failed to sell all the bonds it wanted to at an auction Nov. 23, sparking concern investors are becoming wary of even the most creditworthy euro-region nations. Total bids at the auction of the bunds due in January 2022 amounted to 3.889 billion euros ($5.2 billion) out of a maximum target for the sale of 6 billion euros, according to Bundesbank data. The yield on the 10-year German bund climbed yesterday to 2.26 percent, the highest since Oct. 28.

“The market is anticipating that if Germany is going to be wrapping or guaranteeing in some way other countries debts, then German yields should be higher,” Bury said.

Merkel Rules

German Chancellor Angela Merkel on Nov. 24 ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

The cost of insuring European sovereign bonds against default soared to a record and Spanish, Italian and Belgian two- year notes slumped. Two-year Italian yields climbed 58 basis points to a euro-era record high 7.90 percent.

Italy had to pay almost 7 percent to sell six-month bills at an auction yesterday, fanning investor concern that the world’s fourth-biggest borrower may struggle to finance its debt. The Italian Treasury paid 6.504 percent to auction 8 billion euros of the six-month debt, almost twice the 3.535 percent a month ago and the highest since August 1997.

“With European yields off so much, it will take a while for domestic traders to reassess relative value,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. “If we become the new ultra safe haven, we can’t short Treasuries.”

Stress Measure

Interest-rate swap spreads, a measure of stress in credit markets, climbed this week. The difference between the two-year swap rate and the comparable-maturity Treasury note yield increased a basis point yesterday to 54.81, near the highest since May 2010, according to data compiled by Bloomberg.

European governments may ease provisions in a planned permanent rescue fund requiring bondholders to share losses in sovereign bailouts, German Finance Minister Wolfgang Schaeuble suggested yesterday.

There may be changes to the European Stability Mechanism, due to come into force in 2013. European leaders persuaded bondholders last month to accept a 50 percent loss on their holdings of Greek debt as part of an interim rescue effort.

Europe’s debt crisis and the ensuing demand for safety has pushed Treasuries up 9.7 percent this year, set for the biggest annual gain since 2008, according to Bank of America Merrill Lynch data. German bunds returned 7 percent and Japanese bonds advanced 2 percent, the indexes show.

The Labor Department may report a 120,000 increase in November nonfarm payroll jobs, up from an 80,000 gain in October, according to the median estimate in a Bloomberg News survey of 32 economists.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net;

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

Read more...

S&P 500 Has Worst Thanksgiving Week Since ’32 Amid Europe Crisis

By Kaitlyn Kiernan and Nikolaj Gammeltoft - Nov 26, 2011 12:01 PM GMT+0700

U.S. stocks tumbled in the worst Thanksgiving-week loss for the Standard & Poor’s 500 Index since 1932 as concern grew that Europe’s debt crisis will spread and American policy makers failed to reach agreement on reducing the federal budget.

Bank of America Corp., Hewlett-Packard (HPQ) Co. and Caterpillar Inc. (CAT) dropped at least 7.6 percent to lead declines in the Dow Jones Industrial Average. (INDU) Energy stocks fell the most in the S&P 500 as oil declined for a second week and as Chevron Corp. (CVX) lost 5.7 percent after it was blocked from drilling in Brazil while the government probes a recent spill. Netflix Inc. (NFLX) slid 18 percent after raising $400 million to bolster cash.

The S&P 500 slid 4.7 percent to 1,158.67, closing at the lowest level since Oct. 7. The Dow fell 564.38 points, or 4.8 percent, to 11,231.78 this week.

“We’ve resumed focus on the European debt issues,” Terry L. Morris, senior equity manager at Wyomissing, Pennsylvania- based National Penn Investors Trust Co., said in a telephone interview. His firm manages about $2.2 billion. “The situation in Europe doesn’t seem to be improving, which makes the market defensive,” he said. “Spending cuts kicking in in the U.S. will be a negative too because it will be a drag on economic growth.”

The S&P 500 (SPX) has fallen for seven days, the longest streak in four months, and has tumbled 7.6 percent so far in November. U.S. equities erased an early advance on the final session of the week as S&P lowered Belgium’s credit rating and Reuters reported that Greece is demanding private investors accept larger losses on their debt.

Debt Concerns

The cost of insuring European sovereign bonds against default rose to a record this week as Germany failed to find buyers for 35 percent of the bonds offered at an auction. German Finance Minister Wolfgang Schaeuble said market turbulence sparked by the euro region’s sovereign-debt crisis will last for “a few months.”

Congress’s special debt-reduction committee failed to reach an agreement this week, setting the stage for $1.2 trillion in automatic spending cuts and fueling concern that economic- stimulus measures that are set to expire will not be renewed. Still, S&P reaffirmed it would keep the U.S.’s credit rating at AA+ after stripping the government of its top AAA grade on Aug. 5.

Stocks fell Nov. 22 as revised Commerce Department figures showed that gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate. U.S. stock exchanges were shut Nov. 24 for Thanksgiving and closed three hours early on Nov. 25.

‘Macro Factors’

“The market’s not trying to distinguish between stocks right now, it’s focused almost exclusively on macro factors,” John Linehan, director of U.S. equities and a portfolio manager at T. Rowe Price Associates Inc., said at a press briefing Nov. 22 in New York. “ There’s a tremendous amount of volatility in the marketplace. The market’s on the gas pedal and the tires are spinning, but we’re really actually not going anywhere.”

Companies most-tied to the economy fell, sending the Morgan Stanley Cyclical Index down 6.2 percent, the most since the week ending Sept. 23. Caterpillar, the world’s largest construction and mining-equipment maker, dropped 7.7 percent to $86.72.

All 10 groups in the S&P 500 fell this week, led by a 6.2 percent slump in energy producers and a 5.8 percent drop in financial shares.

Bank of America (BAC), Netflix

Bank of America declined 11 percent, the most in the Dow, to $5.17, while Citigroup Inc. (C) decreased 10 percent to $23.63. Both are among lenders that may have to temper plans to raise dividends and buy back stock next year as the Federal Reserve toughens capital tests for the biggest U.S. banks.

Netflix sank 18 percent, the most in the S&P 500, to $63.86. Technology Crossover Ventures will purchase $200 million in zero-coupon senior convertible notes due 2018 in the video- streaming and DVD subscription service, and T. Rowe Price Associates Inc. funds will buy $200 million in stock. The transactions suggest Netflix’s cash squeeze may last longer than it had anticipated, said Michael Pachter, an analyst with Wedbush Securities. The company needs to spend more to make its streaming content stand out against a growing list of competitors, he said.

Commodity producers declined as reports showed manufacturing contracted in Europe and may shrink by the most in more than two years in China. AK Steel Holding Corp. (AKS), the third- largest U.S. steelmaker by volume, plunged 16 percent to $7.04. Alpha Natural Resources Inc. (ANR), the coal producer that bought Massey Energy Co. for $7.1 billion in June, lost 15 percent to $18.81.

Chevron in Brazil

Chevron lost 5.7 percent to $92.29. The U.S. oil producer operating the $3.6 billion Frade oilfield off the coast of Brazil was blocked from drilling in the South American country while the government probes a recent spill.

Hewlett-Packard slipped 9.3 percent to $25.39 following profit forecasts that missed analysts’ estimates. Meg Whitman, who took over as chief executive officer two months ago, used her first earnings conference call to tell investors they need to lower their expectations. The first-quarter profit forecast and full-year earnings outlook both missed estimates -- a sign the company is still reeling from a technology-spending slump.

Groupon Inc. plunged 36 percent to $16.75, below its initial public offering price. The largest Internet daily-deal site was dragged down on concern that profit margins will be squeezed by surging marketing costs and competition from rivals such as LivingSocial.com, backed by Amazon.com Inc. Signs that Europe’s credit crisis may be worsening also fueled speculation that Groupon’s international operations will suffer.

Jefferies Group Inc. (JEF) jumped 4.8 percent to $10.65. Egan- Jones Ratings Co.’s analysis of Jefferies, including estimates of tumbling revenue, was “flat out wrong by a country mile,” Chris Kotowski, an Oppenheimer & Co. analyst, said in a report entitled “Another Hack Attack.” Sean Egan, president and founding principal of the ratings company, said the company stands by its analysis.

To contact the reporters on this story: Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

Read more...

Euro Tumbles in Longest Losing Stretch in 18 Months as Debt Crisis Spreads

By Allison Bennett - Nov 26, 2011 12:00 PM GMT+0700

The euro slid for a fourth week, its longest losing streak versus the dollar in 18 months, as Germany’s struggle with a bond auction signaled Europe’s debt crisis is touching the region’s most fiscally sound nations.

The 17-nation currency fell for a third week against the yen as Belgium’s credit rating was downgraded and before the nation auctions securities next week, including 10-year debt. Italy and France will also sell bonds next week. The dollar gained against all of its most-traded peers after Congress’s budget supercommittee failed to reach agreement on cutting the U.S. deficit, sending investors to the safety of Treasuries.

“The conditions in the foreign-exchange market caught up this week with the conditions in the credit market,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, said yesterday. “Before, there was a lot of selling of periphery paper for core paper. But if Germany goes, there’s no more core paper to buy -- the capital leaves the euro area.”

The euro dropped 2.1 percent to $1.3239 yesterday in New York, from $1.3525 on Nov. 18. It last fell for four weeks in May 2010. The shared currency sank 1.1 percent to 102.91 yen. The greenback gained for the first time in three weeks against the Japanese currency, appreciating 1.1 percent to 77.73 yen.

Benchmark U.S. 10-year note yields fell five basis points, or 0.05 percentage point, to 1.96 percent, their first close below 2 percent in eight weeks, as investors sought refuge.

Seven-Week Low

The euro touched a seven-week low against the dollar yesterday after Italy sold 8 billion euros ($10.6 billion) of 183-day bills at a rate of 6.504 percent, the highest since August 1997. The auction came two days after Germany, Europe’s biggest economy, missed its 6 billion-euro maximum sales target at a 10-year bond auction by 35 percent.

German Chancellor Angela Merkel again rejected calls for joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis. Merkel, who spoke Nov. 24 at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France, said euro bonds would lead to a convergence of interest rates in the region. German 10-year debt yielded 2.26 percent yesterday, while comparable Italian government bonds yielded 7.26 percent.

“This crisis isn’t specific to the periphery any more, and there is this constant reminder that officials don’t have any real solution on the table,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said yesterday. “There is mounting concern about officials and their ability to get a handle on the crisis.”

Basis Swaps

The cost for European banks to fund in the U.S. currency reached the most expensive level since October 2008. The three- month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, swelled to as much as 1.61 percentage points below the euro interbank offered rate.

Goldman Sachs Group Inc. recommended on Nov. 23 that investors end a money-losing bet that the euro would gain against the dollar after Greece and Italy got new governments.

The close of the recommendation translated to a potential loss of about 2.3 percent, Thomas Stolper, Goldman’s London- based chief foreign-exchange strategist, wrote in a client note.

Belgium had its credit rating lowered one step to AA by S&P, which said bank guarantees, political instability and slowing economic growth will make it difficult to reduce the nation’s debt load. The action by S&P is the first downgrade for Belgium in almost 13 years.

“Selling the euro on rallies is the ultimate fundamental trade you want to have before we get a real resolution,” Greg Salvaggio, senior vice president of capital markets at the currency-trading firm Tempus Consulting Inc. in Washington, said on Nov. 22.

Yen Performance

The yen was the third-best performer among the dollar’s 16 most-traded counterparts tracked by Bloomberg, after the Taiwanese dollar and Singapore’s dollar.

The Japanese currency had its biggest five-day loss against the dollar since Nov. 4, the week the Bank of Japan intervened and sold yen to curb gains that were hurting exporters. The dollar may strengthen more than 20 percent to as high as 94 yen should it climb above key resistance levels, where sell orders may be clustered, at 83.30 and 85.50, Neuchatel, Switzerland- based MIG Bank said, citing trading patterns.

The congressional supercommittee’s failure to reach an accord on budget-deficit reductions extended partisan gridlock into the 2012 election year and set the stage for $1.2 trillion in automatic spending cuts.

The U.S.’s credit ratings and outlook weren’t affected by the panel’s failure, Standard & Poor’s said. The company stripped the U.S. of its top AAA credit rating Aug. 5, cutting the rating to AA+ after political gridlock on deficit cuts.

Krona Biggest Loser

The dollar surged 2.3 percent this week against nine developed-nation counterparts tracked by Bloomberg Correlation- Weighted Currency Indexes. Japan’s currency rose 1.1 percent, the euro slipped 0.1 percent and Sweden’s krona was the biggest loser, falling 1.3 percent.

The Swedish currency sank after central-bank Deputy Governor Barbro Wickman-Parak said Nov. 22 at a seminar the nation’s policy makers may cut interest rates if Europe’s debt crisis persists. Two days later, the Riksbank announced Sweden’s biggest banks will need to target tougher capital standards than those set by international regulators.

The krona depreciated 3.2 percent to 7.0063 versus the dollar in its biggest weekly loss since Sept. 23. It declined 1.1 percent against the euro to 9.2747.

Currencies of commodity-producing nations tumbled after the HSBC Flash Manufacturing purchasing-manager index for China declined to 48 this month, predicting the biggest contraction since March 2009. The Australian dollar fell for a fourth week, losing 3 percent to 97.11 U.S. cents. China is Australia’s biggest trading partner.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

Read more...

EU Rescue Fund May Ease Bond Provision

By Tony Czuczka - Nov 26, 2011 12:55 AM GMT+0700

European governments may ease provisions in a planned permanent rescue fund requiring bondholders to share losses in sovereign bailouts, German Finance Minister Wolfgang Schaeuble suggested.

Schaeuble signaled that Germany may retreat from demands that private creditors contribute to rescues in exchange for European treaty amendments toughening rules on budget oversight.

European efforts to speed the setup of the 500 billion-euro ($662 billion) European Stability Mechanism from its planned mid-2013 debut have lost momentum as Germany and the Netherlands resisted pleas by France, Spain, Portugal and Ireland to drop its bondholder-loss provisions.

“Basically, we agreed on the principle for the ESM already in July,” Schaeuble told reporters in Berlin after talks with his Dutch and Finnish counterparts today. “If we now manage to move toward a stability union, we’ll see how one might possibly adjust the treaty.”

The debt crisis rattled Germany, Europe’s biggest economy, with the failure of a bund auction two days ago. Bond yields in Spain and Italy surged today, with Spain dropping a plan to auction a three-year benchmark next week and Italy being forced to pay more to borrow for two years than for 10. Belgium's credit rating was cut today to AA from AA+ by Standard and Poor's.

While there “may be discussions in Brussels” next week on sector involvement under the ESM, the aim of a finance ministers’ meeting will be to flesh out details of the agreement by EU leaders last month to write down Greek debt, recapitalize banks and strengthen the existing rescue fund, the European Financial Stability Facility, Schaeuble said.

ECB Pressure

As the crisis worsens, the European Central Bank is coming under pressure to step up its response. While France yesterday agreed to stop pressuring the ECB to print money, policy makers today signaled they are willing to offer cash-strapped banks more liquidity if needed.

“I can imagine very well that if an exceptional measure would be demanded from the European system of central banks it would be in this area,” Luxembourg board member Yves Mersch told Luxembourg radio in an interview today. “We would look for possibilities to contribute to avoid that in a situation of stronger growth decline we won’t also have a credit crunch.”

At the same time, Executive Board member Jose Manuel Gonzalez-Paramo said the ECB doesn’t see any need to do more at the moment.

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

Read more...

Belgium’s Credit Rating Lowered to AA by S&P on Bank Rescues, Politics

By John Martens - Nov 26, 2011 7:01 AM GMT+0700

Belgium’s credit rating was cut one step to AA by Standard & Poor’s, which said bank guarantees, lack of policy consensus and slowing growth will make it difficult to reduce the euro region’s fifth-highest debt load.

The rating was lowered from AA+, with a negative outlook, London-based S&P said yesterday in a statement. The action by S&P is the first downgrade for Belgium in almost 13 years and puts its credit ranking on a par with the S&P local-currency ratings of the Czech Republic, Kuwait and Chile.

Belgium’s borrowing costs have surged to the highest level in 11 years in the past two months after the nation’s government agreed to buy Dexia SA’s Belgian bank unit and guarantee part of the crisis-hit lender’s liabilities for 10 years. Investors continued a selloff in Belgian bonds after six-party coalition talks ran aground this week as Liberals and Socialists clashed over how to cut the budget deficit.

“One cannot ignore the current political crisis that Belgium is facing, but apart from this, this rating cut also illustrates how banking-sector issues can reverberate on the sovereign,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “The question is whether other European countries might follow, given rising tensions throughout the banking sector.”

Belgium follows Slovenia, Spain, Italy, Ireland, Portugal, Cyprus and Greece as euro-area countries having their credit rating cut this year. The country of 10.8 million people, whose capital, Brussels, is home to the European Commission and the North Atlantic Treaty Organization, last had its credit standing lowered in December 1998 by Fitch Ratings.

2012 Budget

The yield on Belgium’s 4.25 percent bond due in September 2021 rose 13 basis points to 5.86 percent at 6 p.m. in Brussels yesterday, after reaching 5.88 percent, the highest since February 2000. The extra yield investors demand to hold the Belgian government securities instead of German bunds of similar maturity widened to a record 360 basis points.

The country still doesn’t have a 2012 budget after 531 days of coalition talks focused mostly on tensions between Dutch- and French speakers.

Three days ago, Belgium’s King Albert II turned down Elio Di Rupo’s request to stand down from leading the negotiations and urged the six parties to complete budget discussions and form a government. Di Rupo, 60, the president of the French- speaking Socialists, sought to quit after the Liberals from both sides of Belgium’s linguistic divide refused to accept his latest proposals for a 2012 budget.

Spending Cuts

Those proposals included 6.6 billion euros ($8.7 billion) of additional taxes even as the European Commission told Belgium to focus on spending cuts to narrow its budget deficit, Alexander De Croo, leader of the Flemish Liberal party, told public broadcaster VRT after the talks broke down on Nov. 21.

“S&P’s announcement strengthens even more the need to finalize as soon as possible the 2012 budget,” Belgian caretaker Prime Minister Yves Leterme and Finance Minister Didier Reynders said in a joint e-mailed statement. “Even after this downgrade, the Belgian rating remains one of the strongest in Europe.”

Belgium’s budget deficit will narrow to about 3.6 percent of gross domestic product this year from 4.1 percent in 2010, S&P said. It also forecast government debt will increase to about 97 percent of GDP from 96.1 percent last year after the administration paid 4 billion euros to nationalize Dexia Bank Belgium NV.

Dexia’s Liabilities

Public debt could potentially exceed one year of economic output should government backstops given to banks “crystallize” on the sovereign’s balance sheet, S&P said. Belgium agreed to guarantee as much as 54.5 billion euros of Dexia’s liabilities as part of the joint rescue with France and Luxembourg, both of which are rated AAA by S&P.

The French-Belgian lender (DEXB), which is being broken up after running out of short-term funding, still had 23.9 billion euros of government-backed borrowings outstanding on Nov. 24, according to data published by the National Bank of Belgium. Some of that debt doesn’t mature before May 2014.

Belgium has also conditionally pledged to buy shares of KBC Groep NV (KBC), covering 90 percent of potential losses exceeding 3.2 billion euros on collateralized debt obligations and protection bought from MBIA Insurance Corp.

Brussels-based KBC, Belgium’s biggest bank and insurer by market value, reported a third-quarter net loss of 1.58 billion euros this month. Widening credit spreads led the bank to write down 618 million euros on its structured-credit investments in the quarter.

Bank-Support Measures

Moody’s Investors Service last month put Belgium’s Aa1 rating under review for a possible downgrade, saying the likelihood of additional bank-support measures, the “fragile” market sentiment for highly indebted euro-area nations and slowing growth constituted growing risks.

Fitch Ratings affirmed Belgium’s AA+ credit score as recently as Oct. 20. The ratings company maintained its negative outlook pending a government agreement, saying a “more aggressive” debt-reduction program will be needed.

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

Read more...

AT&T to Offer Bigger Asset Sales to Save Takeover

By Scott Moritz and Serena Saitto - Nov 26, 2011 6:53 AM GMT+0700

AT&T Inc. (T), with its T-Mobile USA takeover facing regulatory opposition, is preparing the biggest remedy proposal yet to the Justice Department to salvage the $39 billion deal, according to a person familiar with the plan.

The company is considering an offer to divest a significantly larger portion of assets than it had initially expected, said the person, who declined to be identified because the plan isn’t public. Though the exact size of the disposals hasn’t been determined, they could be as much as 40 percent of T-Mobile USA’s assets, the person said.

The asset sale is an attempt to address the concerns of the Justice Department, which sued to block the takeover on Aug. 31, saying the deal would “substantially lessen competition” in the wireless market. The acquisition was dealt another blow on Nov. 22, with the Federal Communications Commission signaling an attempt to block it.

“It’s going to be problematic for AT&T to find a successful divestiture solution,” said Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York. The pool of potential buyers isn’t very big and those that might be interested probably wouldn’t have a chance, Smithen said. “It’s unlikely that the DOJ would allow a big competitor like Verizon to purchase the assets,” Smithen said.

Customers Versus Spectrum

ATT’s proposal is likely to include the divestiture of a higher share of customers and lower percentage of spectrum, said the person familiar with the matter. The company needs more capacity to serve users as it adds customers and more of them adopt data-intensive smartphones.

AT&T, based in Dallas, fell 0.5 percent to $27.41 yesterday in New York and has lost 6.7 percent this year. T-Mobile owner Deutsche Telekom AG added 1.6 percent to 8.83 euros in Frankfurt and has declined 8.6 percent this year.

Brad Burns, an AT&T spokesman, and Andreas Fuchs, a Deutsche Telekom spokesman, declined to comment.

The asset-sale proposal, which could come as early as the next Justice Department hearing on Nov. 30, might be the only remaining option if the second-largest U.S. wireless operator wants to avoid a lengthy court battle in its bid to become the country’s top mobile carrier. The purchase may vault it past Verizon Wireless (VZ), depending on the size of the divestitures.

On Nov. 24, AT&T and Deutsche Telekom asked to pull their deal applications to the FCC so the companies could better focus on the Justice Department lawsuit. AT&T also said it would take a one-time charge of $4 billion to cover the breakup fee it will need to pay to Deutsche Telekom if the deal fails.

‘All or Nothing’

One approach is to propose a remedy that would lessen the market impact of losing the fourth-largest wireless service provider. AT&T has been in discussions with MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) to sell spectrum and customers as a way of propping up competition in the absence of T-Mobile.

The second approach is to fight the court case, which is scheduled to begin Feb. 13.

“If there were a last, best offer to be made, they would have made it a long time ago,” said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York, who has a “market perform” rating on AT&T shares. “It’s very hard to envision a solution that would satisfy the problems the DOJ found with the deal. Realistically, AT&T is going to take its chances in court in February. It’s all or nothing.”

According to a term in the agreement, AT&T would be able to pay less than the deal’s original $39 billion value if regulators demand asset sales that surpass 20 percent of that figure, or about $7.8 billion, three people with direct knowledge of the situation said Sept. 7.

AT&T could walk away from the deal and pay Deutsche Telekom a breakup fee if the concessions requested top 40 percent of that value, the people said. If the deal doesn’t happen there’s no way AT&T can avoid paying the breakup fee, the people said.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

Read more...

Daimler to Drop Maybach, Focus on S-Class

By Andreas Cremer - Nov 26, 2011 1:44 AM GMT+0700

Daimler AG will shut down the super- luxury Maybach brand to end almost a decade of losses from an auto that sells for more than $350,000 when a revamped version of the flagship Mercedes-Benz S-Class comes to market in 2013.

“It would not make sense to develop a successor model,” Chief Executive Officer Dieter Zetsche said in remarks confirmed by Daimler spokesman Marc Binder. “The coming S-Class is in such a way a superior vehicle that it can replace the Maybach.”

Daimler hasn’t made a profit on the Maybach after deciding to reintroduce the 1930s-era marque in 2002, Zetsche said. Mercedes will double variations of the 72,000-euro ($95,000) S- Class to six as it seeks to boost annual vehicle sales by at least 10,000 a year and step up its challenge to Bayerische Motoren Werke AG (BMW) as the world’s top luxury-car maker.

BMW and Volkswagen AG’s Audi have grown at more than five times the pace of Mercedes over the past decade by adding new offerings faster. The 125-year-old manufacturer, which has also dropped to third in profitability, lost the luxury-car sales lead to BMW in 2005 and slipped behind Audi this year.

On the Offensive

“Mercedes is now also mounting the attack in the high-end segment,” Zetsche said in comments to the Frankfurter Allgemeine Zeitung newspaper, to be published tomorrow. “We have always dominated this segment and that should continue to be the case. We don’t want to wait until the others pull ahead.”

Daimler held extensive internal discussions on “which route promises the greatest possible success in the luxury segment,” before concluding that sales prospects were better at Mercedes than at Maybach, the CEO said.

U.K. luxury sports-car maker Aston Martin, which said at the Frankfurt motor show in September that it expected to conclude talks on cooperation with Mercedes within weeks, declined to comment on the ramifications of Daimler’s comments. Zetsche had said at the expo that the talks concerned Maybach.

“We’ve been talking with Mercedes for some time,” Aston Martin spokesman Matthew Clarke said today by telephone.

Maybach hasn’t seriously challenged BMW’s Rolls-Royce and Volkswagen AG (VOW)’s Bentley since it its reintroduction, with sales topped out at 600 cars in 2003 and sliding to 200 last year. Rolls-Royce sold 2,700 vehicles in 2010 and Bentley 5,100.

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

Read more...

S&P 500 Index Caps Worst Thanksgiving-Week Drop Since ’32; Treasuries Fall

By Michael P. Regan and Rita Nazareth - Nov 26, 2011 5:09 AM GMT+0700

Play Video

Nov. 25 (Bloomberg) -- Jay Margolis, a Bloomberg Television contributing editor and a former retail executive, talks about Black Friday and holiday retail sales and hiring activity by retailers. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Play Video

Nov. 25 (Bloomberg) -- Ben Rogoff, a technology fund manager at Polar Capital Partners LLC, talks about the outlook for the technology industry and investment strategy. Rogoff, speaking with Sara Eisen on Bloomberg Television's "InsideTrack," also discusses the potential bidding for Yahoo! Inc. (Source: Bloomberg)

U.S. stocks slipped, capping the worst Thanksgiving-week loss since 1932, and commodities fell as a reduction in Belgium’s credit rating and reports that Greece is demanding bondholders accept larger losses fueled concern Europe’s debt crisis is worsening. Treasuries fell.

The S&P 500 declined for a seventh straight day, losing 0.3 percent to close at 1,158.67 at 1 p.m. in New York and extending its weekly retreat to 4.7 percent. The S&P GSCI Index of commodities slipped 0.3 percent. The euro lost 0.9 percent to $1.3229. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments lingered near a record, up 6 basis points at 386. The dollar rallied against most peers.

U.S. equities erased earlier gains as Reuters reported Greece is demanding that new bonds issued to investors as part of a debt swap have a net present value of 25 percent, lower than the “high 40s the banks have in mind.” Greece’s 10-year bond traded at about 24.3 percent of face value as of today’s close. Equities rose earlier amid reports European leaders were discussing sparing private investors from sharing the costs of bailing out troubled nations.

“The demands of Greece now totally change the game,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail. “The situation can no longer be called voluntary by any stretch of the imagination. The equity markets in the United States may test the lows again as there is increasing concern of a major recession in Europe.”

Energy producers and retailers had the biggest declines among 24 industries in the S&P 500, with Exxon Mobil Corp. down 0.9 percent and Amazon.com Inc. slumping 3.5 percent.

Retailers (S5RETL) Retreat

Twenty-two of 30 retailers in the S&P 500 retreated as Black Friday, the biggest retail day of the year, arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history.

Banks advanced following reports that some European officials oppose forcing private investors to share the cost of bailing out countries with the region’s permanent rescue fund. German Chancellor Angela Merkel and French President Nicolas Sarkozy “confirmed their support for Italy, saying that they are aware that the collapse of Italy would inevitably lead to the end of the euro,” Italian Prime Minister Mario Monti told a Cabinet meeting, according to an e-mailed statement.

Bondholder Provisions

European governments may ease provisions in a planned permanent rescue fund requiring bondholders to share losses in sovereign bailouts, German Finance Minister Wolfgang Schaeuble suggested. Schaeuble signaled that Germany may retreat from demands that private creditors contribute to rescues in exchange for European treaty amendments toughening rules on budget oversight.

The S&P 500 Financials Index (S5FINL) rose 0.4 percent today and has tumbled 13 percent in November to lead the S&P 500’s 7.6 percent slide.

U.S. financial shares “had been knocked down dramatically and there’s a better tone today,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “We have to hope they can get their act together in Europe and we go back to concentrating on what we’re doing here.”

Treasuries fell on speculation investors seeking refuge from volatility in the European sovereign-debt markets may have pushed U.S. government yields too low. The 10-year note’s yield rose eight basis points to 1.97 percent. The rate is up from a record low of 1.67 percent on Sept. 23.

Dollar Gains

The dollar increased against 15 of 16 major peers, surging 1.2 percent against the Swiss franc and at least 1 percent against the Norwegian krone and Swedish krona. The euro weakened against 12 of 16 major peers.

Silver and gasoline lost at least 1.9 percent to lead declines in 19 of 24 commodities tracked by the S&P GSCI. Crude oil 1.2 percent to $97.36 a barrel as of 1:44 p.m. in New York.

The Stoxx Europe 600 Index climbed 0.7 percent, reversing an earlier 1.1 percent retreat and trimming its weekly loss to 4.6 percent. The regional benchmark index is down almost 24 percent from its 2011 high in February. Greek lender Piraeus Bank SA and Dexia SA climbed more than 7.8 percent to lead today’s gains. Dexia, the bank being broken up after running out of short-term funding, should have borrowing guarantees agreed by the Belgian and French governments within days, a French official said.

Italian Rates

European stocks slid earlier as Italy had to pay almost 7 percent to sell six-month bills at an auction today, nearly twice the rate it paid a month ago and the highest since 1997, adding to evidence Europe’s debt crisis was spreading to the core nations.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB. European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries. Moody’s Investors Service cut Hungary’s debt to junk. Yesterday, S&P said Japan hasn’t made progress in tackling its debt load.

“We need to see more action out of Europe before any sort of rebound happens,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Greece, Ireland, Portugal are becoming after-thoughts as the crisis is now unfolding at the footsteps of Italy, France and Germany. These are the larger countries and these would have the largest knock-on effects.”

Extending Declines

Italian five- and 10-year bonds extended declines after borrowing costs increased at the bill sale even as the ECB bought the nation’s securities, according to three people with knowledge of the transactions, who declined to be identified because the deals are private. A spokesman for the ECB in Frankfurt declined to comment. The five-year yield was up 21 basis points at 7.74 percent and rates on 10-year debt were up 15 points at 7.26 percent.

Italy sold 8 billion euros ($10.6 billion) of 183-day bills to yield 6.504 percent, up from 3.535 percent at the previous auction on Oct. 26 and the highest since August 1997.

The Spanish two-year note yield exceeded 6 percent for the first time since the euro was created in 1999. Portugal’s 10- year bond yield rose 43 basis points to 12.64 percent, a day after the nation’s credit ranking was lowered to below investment grade by Fitch Ratings. After European markets closed today, S&P lowered the long-term sovereign credit ratings on Belgium to ‘AA’ from ’AA+’. The outlook is negative.

Best Since January

Japan’s benchmark bond yields completed the biggest weekly gain since January on concern the government will fail to rein in the world’s largest debt burden. Ten-year yields added 3.5 basis points to 1.03 percent at the 6:05 p.m. close at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The last time the rate rose above 1 percent was Nov. 1. Yields climbed 8.5 basis points this week, the most since the period ended Jan. 7.

The MSCI Emerging Markets Index slipped 1.3 percent to a seven-week low. Hungary’s BUX Index lost 3.1 percent, the most in three weeks, the cost of insuring Hungarian debt against default climbed to a record, bond yields surged and the forint tumbled after the Moody’s downgrade.

Hong Kong’s Hang Seng China Enterprises Index slid 1.8 percent.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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

Read more...

Stocks: Worst Thanksgiving Drop Since ’32

By Rita Nazareth - Nov 26, 2011 2:04 AM GMT+0700

Play Video

Nov. 25 (Bloomberg) -- Ben Rogoff, a technology fund manager at Polar Capital Partners LLC, talks about the outlook for the technology industry and investment strategy. Rogoff, speaking with Sara Eisen on Bloomberg Television's "InsideTrack," also discusses the potential bidding for Yahoo! Inc. (Source: Bloomberg)

Play Video

Nov. 25 (Bloomberg) -- Jay Margolis, a Bloomberg Television contributing editor and a former retail executive, talks about Black Friday and holiday retail sales and hiring activity by retailers. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

U.S. stocks fell, capping the worst Thanksgiving-week drop since 1932 in the Standard & Poor’s 500 Index, as S&P cut Belgium’s rating and a report said Greece is demanding private investors accept larger losses on their debt.

Financial (S5FINL) stocks in the S&P 500 rose 0.4 percent as a group, trimming an earlier gain of 2 percent. Chevron Corp. and Hewlett-Packard (HPQ) Co. slid at least 1.5 percent to pace losses in the Dow Jones Industrial Average. Sears Holdings Corp. lost 1.3 percent while Wal-Mart Stores Inc. (WMT) rose 0.4 percent on Black Friday, traditionally the biggest U.S. shopping day of the year.

The S&P 500 declined 0.3 percent to 1,158.67 at 1 p.m. New York time, falling for a seventh straight day, the longest streak since August. The Dow retreated 25.77 points, or 0.2 percent, to 11,231.78. The U.S. stock market was closed yesterday for a holiday and trading ended at 1 p.m. today. About 3 billion shares changed hands on U.S. exchanges, the lowest volume since Nov. 26, the day after Thanksgiving last year.

“The demands of Greece now totally change the game,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail. “The situation can no longer be called voluntary by any stretch of the imagination. The equity markets in the United States may test the lows again as there is increasing concern of a major recession in Europe.”

The S&P 500 fell 4.7 percent since Nov. 18, capping a second week (SPX) of losses, as the burden of government debt grew around the world. The cost of insuring European sovereign bonds against default rose to a record. The benchmark gauge was headed toward its worst November since 2000, dropping 7.6 percent for the month so far.

Stocks Reverse Gains

Stocks reversed gains today as Reuters reported that Greece is demanding that new bonds issued to investors as part of a debt swap have a net present value of 25 percent, lower than the “high 40s the banks have in mind.” Belgium’s credit rating was cut one step to AA by S&P, which said bank guarantees, political instability and slowing economic growth will make it difficult to reduce the nation’s debt load.

Banks had the biggest gain in the S&P 500 among 24 industries, rising 1 percent. Wells Fargo & Co. jumped 1.3 percent to $23.51. BB&T Corp. rose 0.6 percent to $21.17.

“It’s nice to see some better performance in financials,” Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., said in a telephone interview. His firm has about $108 billion in client assets. “Still, you need several days like this to make a compelling case for momentum in the financial sector.”

Jefferies Rallies

Jefferies Group Inc. (JEF) gained 1.3 percent to $10.65. The investment bank has hired at least seven UBS AG bankers in Hong Kong in the past two months after luring Ren Wang from the Swiss lender to become its Asia president, three people with knowledge of the matter said.

Some of the biggest American companies fell today. Chevron retreated 1.6 percent to $92.29. Hewlett-Packard declined 1.5 percent to $25.39.

A measure of retailers in the S&P 500 fell 0.8 percent, the second-biggest decline among 24 industries. Sears Holdings slid 1.3 percent to $58.40. Wal-Mart rose 0.4 percent to $56.89. Amazon.com Inc. (AMZN), the biggest Internet retailer, slumped 3.5 percent to $182.40.

Black Friday arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history.

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

Read more...

Record Gold Hoard Spurs Bullish Bets

By Nicholas Larkin - Nov 26, 2011 4:15 AM GMT+0700

Gold traders are more bullish after investors accumulated the biggest-ever hoard of the metal, with Europe’s deepening debt crisis driving them to protect their wealth with this year’s second-best performing commodity.

Eighteen of 26 surveyed by Bloomberg expect bullion to rise next week. Holdings in exchange-traded products backed by gold reached a record 2,350.8 metric tons on Nov. 23, now valued at $127.6 billion, according to data compiled by Bloomberg. Hedge funds and other speculators increased their net-long position, or bets on higher prices, for four weeks, the longest stretch since March, Commodity Futures Trading Commission data show.

Almost $12 trillion was wiped off the value of global equities since May on mounting concern about slower global growth, driving investors to what are perceived as the safest assets. Yields on Treasuries fell to a near-record low and gold is heading for an 11th consecutive annual gain. Bullion beat every other member of the Standard & Poor’s GSCI gauge of 24 commodities this year except for gasoil.

“There’s absolutely no doubt that people are still worried,” said Carole Ferguson, an analyst at Fairfax IS in London. “The market’s being constantly confronted with the flow of bad news. Gold’s still an asset that people will look at.”

Bullion rose 19 percent to $1,688.50 an ounce this year on the Comex exchange in New York, and reached a record $1,923.70 in September. The S&P GSCI gained 0.7 percent and the MSCI All- Country World Index of equities retreated 16 percent. Treasuries returned 9.7 percent, a Bank of America Corp. index shows.

Declines in Copper

The traders surveyed by Bloomberg are less bullish on other commodities, anticipating declines in copper, raw sugar and corn next week. Soybeans may advance, the surveys showed.

Investors added 79.5 tons of gold to their ETP holdings since the start of November, on track for the best month since July, data compiled by Bloomberg show. The combined tonnage is greater than the reserves of all but four of the world’s central banks and equal to more than 10 months of global mine supply.

Speculators raised their combined net-long position by 34 percent to 171,632 futures and options contracts since mid- October, the most bullish they’ve been in two months, CFTC data show. Wagers were a record 253,653 contracts in August, a month before prices climbed to an all-time high.

European services and manufacturing output contracted for a third month in November, and the region’s industrial orders declined the most in almost three years in September, reports on Nov. 23 showed. Growth in the euro region will drop to 1.1 percent next year, from 1.6 percent this year, the International Monetary Fund forecasts.

Credit Rating

Portugal’s credit rating was cut to below investment grade by Fitch Ratings yesterday because of the nation’s rising debt and weakening economy. Germany sold 35 percent fewer bonds than its maximum target at an auction on Nov. 23 and the yield on Greek two-year notes was at 121.2 percent today. U.S. debt of the same maturity yields less than 0.28.

Declines in equity markets and commodities may oblige some investors to sell their bullion to cover losses. Gold slipped 3.5 percent last week as raw materials and stocks slumped the most since September.

“The need to raise cash and cover margins will likely overhang the market,” said James Moore, an analyst at TheBullionDesk.com in London.

Stronger Dollar

Gold’s gains also may be curbed by a stronger dollar, said Jesper Dannesboe, an analyst at Societe Generale SA in London. The currency climbed to the highest in seven weeks against the euro today. The 30-week correlation coefficient between the greenback and bullion is now at -0.46, data compiled by Bloomberg show, with a figure of -1 meaning the two always move in opposite directions.

Gold investment jumped 33 percent to 468.1 tons in the third quarter from a year earlier as bar and coin demand in Europe more than doubled to the most since the fourth quarter of 2008, according to the London-based World Gold Council.

Purchases by central banks, which are adding to reserves for the first time in a generation, may reach 450 tons this year, according to Marcus Grubb, managing director of investment research at the council. Central banks and government institutions bought 142 tons last year, IMF data show.

The purchases may also be a warning. Prices rose to a then- record $850 in 1980 as central banks bought gold, only to drop for most of the next 20 years. Bullion tripled from 1999 through the beginning of 2008 as the banks sold more than 4,000 tons.

Annual Performance

Commodities are headed for the weakest annual performance since 2008. JPMorgan Chase & Co. cut its recommendation on raw materials to “underweight” on Nov. 22 and said it expects negative total returns for the S&P GSCI index in the next three to six months. Goldman Sachs Group Inc. is forecasting a 15 percent gain for commodities in the next 12 months.

Ten of 21 traders and analysts surveyed by Bloomberg expect copper to drop next week. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, declined 25 percent to $7,230 a ton this year.

Raw sugar retreated 29 percent this year to 22.9 cents a pound on ICE Futures U.S. in New York. Seven of 11 people surveyed expect prices to decline next week.

Eleven of 20 anticipate a drop in corn, the most bearish outlook in a year, while 10 of 20 said soybeans will advance. Corn slipped 6.2 percent to $5.90 a bushel in Chicago this year, and soybeans slid 21 percent to $11.065 a bushel.

“I don’t think people are going to buy commodities very aggressively at the moment,” Societe Generale’s Dannesboe said. “We’re negative in the very near term, but if we don’t get a global recession, then we’ll be approaching possible good buying levels over the next couple of months.”

Gold survey results: Bullish: 18 Bearish: 6 Hold: 2 Copper survey results:  Bullish: 7 Bearish: 10 Hold: 4 Corn survey results: Bullish: 8 Bearish: 11 Hold: 1 Soybean survey results: Bullish: 10 Bearish: 9 Hold: 1 Raw sugar survey results: Bullish: 3 Bearish: 7 Hold: 1 White sugar survey results: Bullish: 2 Bearish: 8 Hold: 1 White sugar premium results: Widen: 2 Narrow: 6 Neutral: 3 

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

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

Read more...

Olympus’s Woodford Pledges to Work With Board to Avoid Threat of Delisting

By Mariko Yasu, Naoko Fujimura and Chris Cooper - Nov 25, 2011 4:36 PM GMT+0700

Olympus Corp. (7733)’s former president Michael C. Woodford pledged to work with the Japanese camera maker’s board to try and avoid delisting after three executives implicated in a scheme to hide losses resigned.

The company’s priority is to produce accounts by the Dec. 14 deadline set by regulators to avoid being removed from public trading, Woodford told reporters in Tokyo today after his first board meeting since being axed. The stock jumped as much as 25 percent before closing 8.6 percent higher at 1,107 yen in Tokyo as investors bet the scandal would be contained and after Olympus last night promised to put a rescue plan to shareholders and revamp management.

The resignation of former Olympus Chairman Tsuyoshi Kikukawa and two senior aides gives the company an opportunity to add board members untainted by the scandal. Woodford’s exposure of $687 million in fees paid by Olympus to a now- defunct Cayman Islands-based fund rattled investors, prompting Prime Minister Yoshihiko Noda to say the payments could damage the country’s international reputation.

“Funds are buying back as their concerns are easing that the company may get delisted and has more hidden losses,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “Olympus’s image would also improve if Woodford returns.”

While Olympus shareholders including Southeastern Asset Management Inc. have called for the 51-year-old Briton to be reinstated, it wasn’t discussed at today’s board meeting, Woodford told reporters. He has said he would return to the company if shareholders request it, though he added at a later press conference that “he isn’t begging to come back.”

Shares Gain

Shares of the 92-year-old camera and endoscope maker plunged more than 80 percent in the first four weeks after Woodford was fired on concerns about the scale of the losses, the delisting threat and the criminal investigations.

Since Nov. 11, Olympus shares have more than doubled in value and added a fourth straight day of gains today.

The decision to quit by Kikukawa, former Executive Vice President Hisashi Mori and auditor Hideo Yamada avoided a showdown with Woodford, who had been engaged in a feud over their roles in the 2008 takeover of U.K. health care company Gyrus Group Plc. for $2.1 billion. The three colluded to hide losses from investors using inflated takeover costs, Olympus said Nov. 8.

Fraud　　　　　　　　　　

KPMG International LLP, whose audit arm flagged concerns over the valuation of preferred stock granted to the Cayman fund as part of fees on the Gyrus deal, today said fraud was evident at Olympus.

“We were displaced as a result of doing our job,” Michael Andrew, KPMG’s global chairman, said at a press conference in Hong Kong today. “It’s pretty evident to me there was very, very significant fraud and that a number of parties had been complicit in the fraud.”

Official conclusions about Olympus’s accounting practices will come out from investigations by Japanese authorities, he said. Olympus spokesman Yasutoshi Fujiwara said the company is awaiting the result of the independent panel appointed to investigate the company’s accounting when asked for comment on Andrew’s statement.

The board meeting was “constructive,” Woodford said, adding that there was a desire to “be civilized.”

“Japan does need people to challenge, scrutinize,” said Woodford, in white shirt and dark blue tie and watched by hundreds of journalists at the Foreign Correspondents Club of Japan. “In Japan, even the meetings were pre-decided.”

Imminent Crisis

Woodford’s comments today contrast with earlier statements that the responsibility for hiding losses rested with the whole board, which voted unanimously to dismiss him Oct. 14. Southeastern Asset and other investors have also pressed for more executives to step down, including Akihiro Nambu, the current head of investor relations.

“There are some voices demanding the management be replaced right now,” Shuichi Takayama, the newly installed president, said in a statement to the Tokyo Stock Exchange last night. “If we change management and can’t take appropriate measures swiftly, then we won’t be able to overcome this imminent crisis.”

Poison

“The company can draw out all the poison if the board changes,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “Olympus’s businesses, mainly endoscopes, are doing well, so if its finances improve, there’s room for the stock to rise.”

Woodford’s return to Japan is the first since he left the country on the same day as his dismissal, saying he felt unsafe following reports that the payments made by Olympus may be linked to organized-crime groups. He was escorted by armed police to meetings with investigators yesterday.

Woodford said he’s confident prosecutors will fully investigate Olympus.

“I’m very happy with how things went,” he told reporters after visiting police in Tokyo. The police will decide if the company was involved in organized crime, Woodford said, adding there has been no evidence of any links so far.

Woodford went public with queries he raised with Kikukawa and Mori over $687 million in advisory fees in the acquisition of medical company Gyrus, as well as writedowns of stakes in three other takeovers.

Blowing Whistle

Olympus said the money may have been rerouted to the company via offshore funds to help cancel out losses on securities investments dating to the 1990s.

An independent committee set up by Olympus to investigate its accounting said this week that it found no evidence of criminal involvement. Woodford said it wasn’t possible to reach that conclusion without a forensic inspection of accounts.

Olympus was put on watchlist for possible delisting by the Tokyo Stock Exchange earlier this month after the company admitted it hid losses. The endoscope maker missed the Nov. 14 deadline for reporting first-half earnings and has said it plans to release its full earnings by Dec. 14 after the report is reviewed by auditors.

“If Olympus does not hand in the earning report by Dec. 14. then the company is put on notice for delisting in one month, during which investors still can trade Olympus shares,” Yukari Hozumi, a Tokyo Stock Exchange Inc. spokeswoman, said in a phone interview.

“After that Olympus is delisted,” she said, adding that no extension to the deadline will be given.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Chris Cooper in Tokyo at ccooper1@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net

Read more...

Air France A340 Flew With Missing Screws After Shop Visit

By Andrea Rothman - Nov 25, 2011 5:30 PM GMT+0700

An Airbus (EAD) SAS A340 operated by Air France-KLM (AF) Group was halted in Boston in mid-November after about 30 screws were found to be missing from a protective panel, the airline said.

The long-range plane had undergone maintenance in China, at Taeco-Taikoo Aircraft Engineering and left the facility Nov. 10. It had stopped at Air France’s hub at Charles de Gaulle airport in Paris for three days, and the absence of the screws went unnoticed until several days later in Boston, the carrier said.

The panel concerned is located between the fuselage and wing and serves to reduce drag by smoothing out edges.

“At no moment was the safety of the flight in question,” said spokeswoman Marina Tymen in a telephone interview from Paris, where Air France is based.

Taeco is based at Gaoqi International airport in Xiamen, and controlled by Hong Kong Aircraft Engineering Co., or Haeco, with a 58.55 percent stake. Boeing Co. (BA), Cathay Pacific Airways Ltd., Japan Airlines Co. and Xiamen Aviation Industry Co. are also shareholders.

Customers that have their aircraft serviced at Taeco include British Airways, AMR Corp. (AMR)’s American Airlines, Korean Air and Deutsche Lufthansa (LHA) AG, according to Taeco’s website.

“We are in the process of gathering information from our colleagues, which may take some time,” Sharon Lun, a spokeswoman for Haeco, said in an e-mail.

The incident was previously reported by an internal union bulletin.

To contact the reporters on this story: Andrea Rothman in Toulouse, France at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

Read more...

Italy Borrowing Costs Almost Double as Euro Tumbles

By Andrew Davis and Jeffrey Donovan - Nov 25, 2011 7:32 PM GMT+0700

Italy had to pay almost 7 percent to sell six-month bills at an auction today, fanning investor concern that the world’s fourth-biggest borrower may struggle to finance its debt. The euro fell to a seven-week low.

The Italian Treasury paid 6.504 percent to auction 8 billion euros ($10.6 billion) of the six-month debt, almost twice the 3.535 percent a month ago and the highest since August 1997. Italy’s two-year bonds yielded a euro-era record 7.82 percent, almost 50 basis points more than 10-year notes.

The euro extended declines, shedding 0.9 percent to $1.3231, the lowest since Oct. 3. European stocks declined for a seventh day, the longest losing streak since August, with the Stoxx Europe 600 dropping 0.6 percent to 218.61. Italian banks tumbled with Banca Monte Paschi di Siena SpA (BMPS) losing 5.1 percent.

The sale came as Italy’s new prime minister, Mario Monti, met his Cabinet to advance additional budget measures that aim to cut a debt of 1.9 trillion euros and boost the economy in a country where growth has lagged the euro-region average for more than a decade. Spain is also facing surging costs. The Treasury in Madrid paid 5.11 percent on three-month notes this week, more than twice that previous sale and higher than Greece pays.

‘Damaging Concessions’

“For all the periphery issuers, each auction brings such damaging concessions,” Luca Jellinek, head of European interest- rate strategy at Credit Agricole Corporate & Investment Bank in London, wrote in an e-mail. “Monti and his new Cabinet better engage a faster gear but the periphery and Italy in particular face a very long, very hard road.”

Two years into the region’s debt crisis, European leaders are struggling to stop its spread and prevent contagion from affecting core countries such as France and Germany. The yield difference between French and German 10-year bonds reached an 11-year high on Nov. 17 and Germany failed to sell 35 percent of 10-year bonds on offer at a Nov. 23 auction

Monti joined German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday at a meeting in Strasbourg, France in calling for greater European fiscal coordination. Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

The ECB has been buying Italian and Spanish debt since Aug. 8 in a bid to stem surging borrowing costs. The yield on Italy’s benchmark 10-year bond was 7.3 percent after the auction, up 19 basis points. Spain’s 10-year yield rose 6 basis points 6.689 within 10 basis points of a euro-era record.

The soaring borrowing costs won’t have a lasting impact on Italy’s debt even as the Treasury prepares to sell 440 billion euros of bonds and bills next year, Maria Cannata, director of public debt at the Treasury, said on Nov. 16.

The amount “sounds prohibitive, but it’s not, even if things have gotten more complicated as investors are frightened by the volatility,” Cannata said at a conference in Milan. Italy’s first bond redemption comes on Feb. 1, when it must pay back 26 billion euros for debt sold 10 years ago.

To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Jeffrey Donovan in Prague at jdonovan26@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net.

Read more...