By Lilian Karunungan
July 1 (Bloomberg) -- Asian currencies were little changed on speculation inflation reports in Indonesia, Thailand and South Korea will spur central banks to raise interest rates to temper rising consumer prices.
Indonesia's rupiah ended two months of losses in June before a government report today that economists say will show inflation quickened the most since September 2006. Inflation in Korea quickened to above 5 percent last month for the first time since 1998, a government report showed today. The Bank of Korea said in its semi-annual outlook today that consumer-price gains will accelerate to the fastest in a decade this year.
``If inflation numbers today come out as expected, then that sort of cements expectations that the central banks will be raising rates when they next meet,'' said Euben Paracuelles, an economist at Royal Bank of Scotland Group Plc in Singapore. ``The currencies will stay stable.''
The Indonesian rupiah traded at 9,216 per dollar as of 11:37 p.m. in Jakarta, compared with 9,226 late yesterday, according to data compiled by Bloomberg. The won was at 1,045.55 against the dollar, from 1,046 yesterday, according to Seoul Money Brokerage Services Ltd.
Central banks in Indonesia, India, Taiwan and the Philippines all raised interest rates in the past month, while policy makers in South Korea and Japan have kept borrowing costs unchanged this year.
Bank Indonesia will help strengthen the rupiah by selling dollars to help lower the import costs of fuel and food, Deputy Governor Hartadi A. Sarwono said on June 26. The central bank will raise its benchmark rate on July 3 for the third consecutive month, to 8.75 percent from 8.5 percent, according to a Bloomberg News survey of economists.
Quicker Inflation
Indonesia's inflation may have quickened to 12.58 percent in June, from 10.38 percent the prior month, according to the median estimate of a Bloomberg News survey of economists. The report is due at 2 p.m. in Jakarta.
Crude oil traded above $140 a barrel in after-hours trading in New York, almost double the amount a year ago. Indonesia left OPEC in May as aging oil fields and falling output made it a net importer of the commodity. The country imports a third of its oil needs.
The won declined 11 percent this year, the second worst performer of the 10 most-active currencies in Asia outside Japan. The Bank of Korea's comments on inflation may add to speculation it will use currency gains to contain rising prices caused by record fuel costs. Korea has bought about $7 billion of won since the end of May to increase the value of the local currency and slow inflation, JoongAng Ilbo newspaper reported today.
`Caution is High'
``The market is stuck between fears of intervention and demand for the dollar from oil-related bidders,'' said Jay Won, a currency dealer at Korea Exchange Bank in Seoul. ``The caution is high as the dollar nears the 1,050 level.'' Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
Korean consumer prices gained 5.5 percent from a year earlier, up from 4.9 percent in May, the statistics office said today. Bank of Korea Governor Lee Seong Tae left the benchmark interest rate unchanged at a seven-year high of 5 percent in June. The policy-setting board next meets on July 10.
Consumer prices will climb 4.8 percent in 2008, higher than a December forecast of 3.3 percent, the bank said in its semi- annual outlook in Seoul. The economy will grow 4.6 percent this year, down from a previous prediction of 4.7 percent and 5 percent growth in 2007, it said.
Malaysia's Ringgit
Malaysia's ringgit traded near a two-week low on speculation near-record oil prices will stoke inflation and prompt consumers to cut back spending, slowing economic growth.
The nation has raised retail fuel prices seven times since May 2004 to reduce its subsidy payments, pushing inflation to a 22-month high in May.
``Inflation eats into disposable income and will likely moderate growth,'' said Wai Ho Leong, a regional economist at Barclays Capital in Singapore. ``The perceived risk has increased.''
The ringgit traded at 3.2665 per dollar versus 3.2675 late yesterday, according to data compiled by Bloomberg. The currency weakened 2.1 percent last quarter, the first decline since the three months ended Sept. 30, 2006.
Financial markets are closed today in Thailand for a public holiday. The government will release inflation data for June at 1:30 p.m. in Bangkok.
Elsewhere, the Philippine peso rose 0.1 percent to 44.873 per dollar, according to Tullett Prebon Plc. Taiwan's dollar was little changed at NT$30.350. Singapore's dollar fell 0.1 percent to S$1.3605 and Vietnam's dong was at 16,844.50 compared with 16,842 yesterday.
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.
Last Updated: July 1, 2008 00:53 EDT
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Tuesday, July 1, 2008
Dollar May Reach 104.43 Yen on Break of 105, Forecast's Ng Says
By Stanley White
July 1 (Bloomberg) -- The dollar may fall to 105 yen this week provided it remains below 107.11 yen, according to Pak Lai Ng, a technical analyst at Forecast Singapore Pte.
The U.S. currency is poised to decline as its daily moving average convergence/divergence chart is showing a sell signal, Ng said. The dollar may fall to its June 9 low of 104.43 yen next week on a break of first support, he said. First support at 105 yen is near yesterday's low. So-called resistance at 107.11 yen is the dollar's June 23 low, where sell orders may be clustered. Support is a price where traders may buy.
``As long as the dollar remains below 107.11 yen, then the bias is to the downside,'' Ng said. ``Momentum indicators including MACD aren't looking good.''
The dollar traded at 106.29 yen at 11:23 a.m. in Tokyo from 106.21 late yesterday. The U.S. currency rose 6.5 percent last quarter, the biggest advance since the last three months of 2001.
MACD charts indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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July 1 (Bloomberg) -- The dollar may fall to 105 yen this week provided it remains below 107.11 yen, according to Pak Lai Ng, a technical analyst at Forecast Singapore Pte.
The U.S. currency is poised to decline as its daily moving average convergence/divergence chart is showing a sell signal, Ng said. The dollar may fall to its June 9 low of 104.43 yen next week on a break of first support, he said. First support at 105 yen is near yesterday's low. So-called resistance at 107.11 yen is the dollar's June 23 low, where sell orders may be clustered. Support is a price where traders may buy.
``As long as the dollar remains below 107.11 yen, then the bias is to the downside,'' Ng said. ``Momentum indicators including MACD aren't looking good.''
The dollar traded at 106.29 yen at 11:23 a.m. in Tokyo from 106.21 late yesterday. The U.S. currency rose 6.5 percent last quarter, the biggest advance since the last three months of 2001.
MACD charts indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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Oil Trades Above $141 on Concern Iran May Face Military Attacks
By Christian Schmollinger
July 1 (Bloomberg) -- Crude oil rose in New York on concern that Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, may face military attacks over its nuclear program, disrupting Middle East supplies.
Oil climbed above $141 a barrel after U.S. officials urged tighter sanctions on Iran and a military spokesman vowed to keep supplies moving through the Strait of Hormuz. BP Plc, Europe's second-largest oil company, said it's ``very disappointed'' that many expatriate TNK-BP Holding staff will have to leave Russia following refusal of work visas.
``We're really in the world of geopolitics right now and don't know what can happen,'' Edward Meir, a commodity analyst with MF Global Ltd. in Stamford, Connecticut, said in an interview with Bloomberg Television. ``Demand is really receding quickly, especially here in the United States. That will make the overall supply demand balance more comfortable.''
Crude oil for August delivery rose as much as $1.44, or 1 percent, to $141.44 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $141.07 a barrel at 3:32 p.m. Singapore time.
Yesterday, it touched a record $143.67 before retreating to settle 21 cents lower at $140 a barrel. The price climbed 38 percent between April and June, the biggest quarterly increase in nine years.
``The concerns which have pushed the oil price higher aren't going to dissipate overnight,'' said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. ``We've also had a big increase in oil prices and evidence of some demand adjustment. In that environment I see the price fluctuating quite a bit.''
Middle East Oil
The U.S. won't allow Iran to shut the Strait of Hormuz, through which about 40 percent of Middle East oil is shipped, a spokesman for the Fifth Fleet said.
``They will not close it,'' Lieutenant Nate Christensen said in a telephone interview yesterday from Bahrain, where the fleet is based. ``The Strait of Hormuz is vital international waters.''
The fleet's comments are in response to remarks by the head of Iran's Revolutionary Guard two days ago that his country may close the strait if attacked by Israel.
The New York Times reported on June 20 that more than 100 Israeli F-16 and F-15 fighter planes took part in a military exercise over the eastern Mediterranean and Greece during the first week of this month. U.S. officials told the New York Times the maneuvers appeared to be training for a possible attack on Iran's nuclear sites.
``As that becomes a more real threat, that leads to a bigger risk premium being built in,'' said Toby Hassall, a research analyst at Commodity Warrants Australia in Sydney.
BP `Disappointed'
Brent crude oil for August settlement climbed as much as $1.50, or 1.1 percent, to $141.33 a barrel on London's ICE Futures Europe exchange and was trading at $141.06 at 3:33 p.m. Singapore time. The contract fell 48 cents, or 0.3 percent, to $139.83 a barrel yesterday, after reaching a record $143.91.
TNK-BP's Chief Executive Officer Robert Dudley, its chief financial officer and a number of executives working for BP's Russian joint venture may be forced to leave Russia by the end of the month after authorities in Moscow refused work permits, the Financial Times reported on its Web site.
``Many of the expatriate staff working in TNK-BP will have to leave Russia and may not be able to return,'' David Nicholas, a London-based BP spokesman said when contacted by telephone today. ``The loss of the staff will definitely damage TNK-BP, its performance and by extension the performance of the Russian oil sector.''
The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent on July 3, according to a survey of economists by Bloomberg News. The dollar has declined 7.3 percent this year against the euro, prompting some investors to buy commodities as a hedge against inflation.
``We're in for another bout of higher prices next week,'' said MF Global's Meir. ``The ECB will raise rates and the dollar will approach the recent lows and that will jump start a lot of these commodities higher.''
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
Last Updated: July 1, 2008 03:36 EDT
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July 1 (Bloomberg) -- Crude oil rose in New York on concern that Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, may face military attacks over its nuclear program, disrupting Middle East supplies.
Oil climbed above $141 a barrel after U.S. officials urged tighter sanctions on Iran and a military spokesman vowed to keep supplies moving through the Strait of Hormuz. BP Plc, Europe's second-largest oil company, said it's ``very disappointed'' that many expatriate TNK-BP Holding staff will have to leave Russia following refusal of work visas.
``We're really in the world of geopolitics right now and don't know what can happen,'' Edward Meir, a commodity analyst with MF Global Ltd. in Stamford, Connecticut, said in an interview with Bloomberg Television. ``Demand is really receding quickly, especially here in the United States. That will make the overall supply demand balance more comfortable.''
Crude oil for August delivery rose as much as $1.44, or 1 percent, to $141.44 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $141.07 a barrel at 3:32 p.m. Singapore time.
Yesterday, it touched a record $143.67 before retreating to settle 21 cents lower at $140 a barrel. The price climbed 38 percent between April and June, the biggest quarterly increase in nine years.
``The concerns which have pushed the oil price higher aren't going to dissipate overnight,'' said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. ``We've also had a big increase in oil prices and evidence of some demand adjustment. In that environment I see the price fluctuating quite a bit.''
Middle East Oil
The U.S. won't allow Iran to shut the Strait of Hormuz, through which about 40 percent of Middle East oil is shipped, a spokesman for the Fifth Fleet said.
``They will not close it,'' Lieutenant Nate Christensen said in a telephone interview yesterday from Bahrain, where the fleet is based. ``The Strait of Hormuz is vital international waters.''
The fleet's comments are in response to remarks by the head of Iran's Revolutionary Guard two days ago that his country may close the strait if attacked by Israel.
The New York Times reported on June 20 that more than 100 Israeli F-16 and F-15 fighter planes took part in a military exercise over the eastern Mediterranean and Greece during the first week of this month. U.S. officials told the New York Times the maneuvers appeared to be training for a possible attack on Iran's nuclear sites.
``As that becomes a more real threat, that leads to a bigger risk premium being built in,'' said Toby Hassall, a research analyst at Commodity Warrants Australia in Sydney.
BP `Disappointed'
Brent crude oil for August settlement climbed as much as $1.50, or 1.1 percent, to $141.33 a barrel on London's ICE Futures Europe exchange and was trading at $141.06 at 3:33 p.m. Singapore time. The contract fell 48 cents, or 0.3 percent, to $139.83 a barrel yesterday, after reaching a record $143.91.
TNK-BP's Chief Executive Officer Robert Dudley, its chief financial officer and a number of executives working for BP's Russian joint venture may be forced to leave Russia by the end of the month after authorities in Moscow refused work permits, the Financial Times reported on its Web site.
``Many of the expatriate staff working in TNK-BP will have to leave Russia and may not be able to return,'' David Nicholas, a London-based BP spokesman said when contacted by telephone today. ``The loss of the staff will definitely damage TNK-BP, its performance and by extension the performance of the Russian oil sector.''
The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent on July 3, according to a survey of economists by Bloomberg News. The dollar has declined 7.3 percent this year against the euro, prompting some investors to buy commodities as a hedge against inflation.
``We're in for another bout of higher prices next week,'' said MF Global's Meir. ``The ECB will raise rates and the dollar will approach the recent lows and that will jump start a lot of these commodities higher.''
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
Last Updated: July 1, 2008 03:36 EDT
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Copper Mine Capacity to Grow 5.2% a Year, Study Group Says
By Glenys Sim
July 1 (Bloomberg) -- Global copper mine production capacity will expand 5.2 percent a year through 2012, the International Copper Study Group said.
By 2012, mines around the world will produce 23 million metric tons of copper, an increase of 17.9 million tons from last year, the Lisbon-based group said in an e-mailed statement late yesterday. South America and Africa will account for more than 40 percent of the capacity gain, it said.
Of the total increase, copper concentrate capacity is expected to increase 3.5 percent a year to 16.9 million tons in 2012, said the group.
The price of the metal has quadrupled in the past five years as mining companies struggled to keep up with increasing demand from China and other emerging economies. Copper for delivery in three months on the London Metal Exchange reached a record $8,880 a ton on April 17 and was trading up 0.4 percent at $8,540 a metric ton at 10:59 a.m. local time in Shanghai.
The group estimates world refining capacity will reach 25.6 million tons in 2012, up from 21.5 million tons in 2007, with China and Congo contributing about half of the rise. Smelter capacity will rise by an average 2.4 percent a year to 18.7 million tons by 2012.
``Primarily due to several project expansions and start-ups in China, the smelter growth rate during the first 3 years averages 3.1 percent a year and is projected to match the concentrate growth rate over the same period,'' it said. ``The situation will be reversed beginning in 2010 when significant new concentrate capacity comes on stream.
Total idled smelter capacity is about 180,000 tons a year and refineries being maintained have a combined capacity of about 390,000 tons, according to ICSG data.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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July 1 (Bloomberg) -- Global copper mine production capacity will expand 5.2 percent a year through 2012, the International Copper Study Group said.
By 2012, mines around the world will produce 23 million metric tons of copper, an increase of 17.9 million tons from last year, the Lisbon-based group said in an e-mailed statement late yesterday. South America and Africa will account for more than 40 percent of the capacity gain, it said.
Of the total increase, copper concentrate capacity is expected to increase 3.5 percent a year to 16.9 million tons in 2012, said the group.
The price of the metal has quadrupled in the past five years as mining companies struggled to keep up with increasing demand from China and other emerging economies. Copper for delivery in three months on the London Metal Exchange reached a record $8,880 a ton on April 17 and was trading up 0.4 percent at $8,540 a metric ton at 10:59 a.m. local time in Shanghai.
The group estimates world refining capacity will reach 25.6 million tons in 2012, up from 21.5 million tons in 2007, with China and Congo contributing about half of the rise. Smelter capacity will rise by an average 2.4 percent a year to 18.7 million tons by 2012.
``Primarily due to several project expansions and start-ups in China, the smelter growth rate during the first 3 years averages 3.1 percent a year and is projected to match the concentrate growth rate over the same period,'' it said. ``The situation will be reversed beginning in 2010 when significant new concentrate capacity comes on stream.
Total idled smelter capacity is about 180,000 tons a year and refineries being maintained have a combined capacity of about 390,000 tons, according to ICSG data.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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Gold Falls for Second Day as Dollar Strengthens Against Euro
By Feiwen Rong
July 1 (Bloomberg) -- Gold fell for the second day in Asia as the U.S. dollar strengthened against the euro and crude oil pared gains, eroding the appeal of the precious metal as an alternative investment.
The U.S. currency advanced against the euro from a three- week low on speculation its longest decrease since mid-March was too much to sustain. The dollar is down 13 percent in the past year against the euro while bullion has gained 41 percent. Crude oil is 2.3 percent down from its record $143.67.
``The gold price was influenced by the trends in the U.S. dollar and oil prices,'' David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said in a report today. ``The gold price fluctuated within a relatively narrow range last night, peaking above $935 an ounce before slipping lower.''
Bullion for immediate delivery fell 0.2 percent to $923.90 an ounce at 9:49 a.m. in Singapore. Silver was little changed at $17.41 an ounce.
Crude oil futures traded in New York were up 0.3 percent at $140.36 a barrel at 9:47 a.m. Singapore time after falling to as low as $139.17 a barrel yesterday.
Hedge-fund managers and other large speculators increased their net-long position in New York gold futures in the week through June 24, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 153,538 contracts on the Comex, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 2,348 contracts, or 2 percent, from a week earlier.
Gold for August delivery fell 0.3 percent to $925.60 an ounce in after-hours electronic trading on Comex at 9:51 a.m. Singapore time.
Gold for June 2009 delivery was little changed at 3,185 yen a gram ($932 an ounce) on the Tokyo Commodity Exchange at 10:51 a.m. local time. Gold for December traded in Shanghai was down 0.4 percent at 204.42 yuan a gram ($927 an ounce).
To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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July 1 (Bloomberg) -- Gold fell for the second day in Asia as the U.S. dollar strengthened against the euro and crude oil pared gains, eroding the appeal of the precious metal as an alternative investment.
The U.S. currency advanced against the euro from a three- week low on speculation its longest decrease since mid-March was too much to sustain. The dollar is down 13 percent in the past year against the euro while bullion has gained 41 percent. Crude oil is 2.3 percent down from its record $143.67.
``The gold price was influenced by the trends in the U.S. dollar and oil prices,'' David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said in a report today. ``The gold price fluctuated within a relatively narrow range last night, peaking above $935 an ounce before slipping lower.''
Bullion for immediate delivery fell 0.2 percent to $923.90 an ounce at 9:49 a.m. in Singapore. Silver was little changed at $17.41 an ounce.
Crude oil futures traded in New York were up 0.3 percent at $140.36 a barrel at 9:47 a.m. Singapore time after falling to as low as $139.17 a barrel yesterday.
Hedge-fund managers and other large speculators increased their net-long position in New York gold futures in the week through June 24, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 153,538 contracts on the Comex, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 2,348 contracts, or 2 percent, from a week earlier.
Gold for August delivery fell 0.3 percent to $925.60 an ounce in after-hours electronic trading on Comex at 9:51 a.m. Singapore time.
Gold for June 2009 delivery was little changed at 3,185 yen a gram ($932 an ounce) on the Tokyo Commodity Exchange at 10:51 a.m. local time. Gold for December traded in Shanghai was down 0.4 percent at 204.42 yuan a gram ($927 an ounce).
To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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Asian Stocks Fall for a Third Day on Worsening Growth Outlook
By Chen Shiyin and Chua Kong Ho
July 1 (Bloomberg) -- Asian stocks fell, extending the MSCI Asia-Pacific Index's worst first half since 1992, after Chinese manufacturing growth slowed, South Korea's inflation accelerated and Japanese business confidence sank to the lowest in four years.
China Merchants Bank Co. led China's CSI 300 Index to a 15- month low. Sumitomo Mitsui Financial Group Inc. dropped in Tokyo after the Tankan survey showed large companies expect earnings to decline for the first time since the 2001 recession. Rio Tinto Group gained in Sydney following an increase in iron ore prices.``We're expecting significant downward earnings revisions,'' said Gabriel Gondard, Shanghai-based deputy chief investment officer at Fortune SGAM Fund Management, which oversees about $12 billion. ``Profits are going to be disappointing.''
MSCI's Asian Index lost 0.3 percent to 136.31 at 3:25 p.m. in Tokyo, extending a 13 percent drop in the six months to yesterday, as record oil prices and credit-market losses weighed on global economic growth. A gauge of financial shares retreated 1.3 percent, the biggest decrease among the measure's 10 groups.
Most national benchmarks declined. Japan's Nikkei 225 Stock Average fell 0.1 percent to 13,463.20, completing a nine-day, 6.8 percent loss. Mazda Motor Corp. slipped after domestic auto sales dropped in June as rising gasoline and food costs lowered demand for new cars. Hong Kong and Thailand are closed for holidays.
Qantas Airways Ltd. surged, posting the biggest gain on MSCI's Asian index, after the carrier said it's considering selling part of its frequent flyer unit in an initial public offering. Indiabulls Real Estate Ltd. led Indian property developers lower after banks raised their mortgage rates.
China's Manufacturing
Most U.S. stocks fell for a third day yesterday, capping the market's worst month in six years, on concern deepening mortgage losses will force more banks to cut dividends or sell shares at a discount. Wachovia Corp. tumbled to the lowest since 1992 after an analyst said the bank may cut its payout. Standard & Poor's 500 Index futures expiring in September rose 0.1 percent recently.
China's CSI 300 fell 2.2 percent, on course for its lowest close since March 2007, after the China Federation of Logistics and Purchasing said today that manufacturing expanded last month at the slowest pace in almost three years. China Merchants, a Shenzhen-based bank, slumped 7.3 percent to 21.72 yuan.
South Korea's consumer prices rose by the most in almost 10 years in June, underscoring speculation the central bank may raise interest rates this year. The consumer price index climbed 5.5 percent from a year earlier, accelerating from May's 4.9 percent gain, the statistics office said.
Easing Growth
The Bank of Korea said economic growth will ease to 4.6 percent this year from 5 percent in 2007.
Hynix Semiconductor Inc., the world's second-largest memory- chip maker, lost 1.8 percent to 24,550 won. Amorepacific Corp., a cosmetics maker, tumbled 6.3 percent to 607,000 won, the biggest drop in about seven months.
Sumitomo Mitsui, Japan's second-largest bank by market value, dropped 2.1 percent to 782,000 yen. Mizuho Financial Group Inc., the third-biggest, lost 2.2 percent to 485,000 yen.
Large companies said profits will drop 7 percent in the year ending March 31, compared with a 0.3 percent increase predicted three months ago, according to the Bank of Japan's Tankan survey. The index of manufacturer sentiment slid to 5 points in June from 11 in March, a third quarterly decline, the bank said today.
``The economy is in a downward trend,'' said Kiyoshi Ishigane, a Tokyo-based senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $61 billion.
Sales Decline
Mazda, a third owned by Ford Motor Co., dropped 2.7 percent to 536 yen. Nissan Motor Co., Japan's third-largest automaker, lost 1.1 percent to 867 yen. Sales of cars, trucks and buses fell 3.6 percent to 281,261 from a year earlier, the Japan Automobile Dealers Association said in a statement today.
Tokyo Tatemono Co. plunged 14 percent to 588 yen in Tokyo, the biggest slide on MSCI's Asian index, after the builder lowered its full-year net income forecast by 36 percent and cut its sales estimate by 6.4 percent. Mitsubishi UFJ Securities Co. and Deutsche Bank AG downgraded the stock.
In Australia, Rio Tinto rose 1.5 percent to A$137.50 after the world's third-largest mining company said Asian steel mills will pay between 80 percent and 97 percent more for its iron ore in the 12 months to March 31. BHP Billiton Ltd., Rio's largest rival, gained 1.6 percent to A$44.40.
``It's a reversion to the trend we've seen for a few months now: long resources, short financials,'' said Will Seddon, who helps oversee about $500 million at White Funds Management in Sydney. ``The strength in materials is a continuation of people just chasing the only glimmer of light at the moment.''
Qantas, IndiaBulls
Qantas, Australia's largest airline, surged 6.6 percent to A$3.24, the biggest gain since November 2006. The company hired UBS AG, Citigroup Inc. and Macquarie Group Ltd. to advise it on a possible sale of its loyalty program and will make a decision on the sale in August, Qantas said today.
Indiabulls, backed by billionaire Lakshmi Mittal, tumbled 7 percent to 253.45 rupees. DLF Ltd. fell 2.6 percent to 386 rupees while Unitech Ltd. slipped 3.1 percent to 166.1 rupees.
Housing Development Finance Corp., India's largest provider of home loans, said yesterday it will raise the rate it charges its best retail customers by 50 basis points from today. One basis point is 0.01 percentage point.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Chua Kong Ho in Shanghai at Kchua6@bloomberg.net.
Last Updated: July 1, 2008 02:56 EDT
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Japan's Nikkei Index Declines a Ninth Day, Led by Developers
By Masaki Kondo and Makiko Kitamura
July 1 (Bloomberg) -- Japan's Nikkei 225 Stock Average fell in its longest losing streak in almost four years on concern higher materials costs and lower demand will dent profit at real estate companies. Trading houses and utilities rose as slumping business confidence prompted investors to buy stocks that can withstand a slowing economy.
Tokyo Tatemono Co. sent a gauge of developers to a three- month low after the company cut its earnings forecast. Mitsubishi Corp., which earns half its profit from commodities, led a gain by trading companies after the Tankan index of manufacturer sentiment fell a third quarter, though less than economists estimated. Tokyo Electric Power Co., Asia's biggest utility, jumped to the highest in three months.
The Nikkei 225 Stock Average dipped 18.18, or 0.1 percent, to close at 13,463.20 in Tokyo, falling for a ninth-straight day, the longest losing streak since September 2004. The Topix index fell 0.03, or less than 0.1 percent, to close at 1,320.07.
``Even though business sentiment came in better than anticipated, a gain in defensive stocks shows investors don't buy it,'' said Kiyoshi Ishigane, a Tokyo-based senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $61 billion. ``The economy is in a downward trend.''
The Tankan index slid to 5 points in June from 11 in March, the Bank of Japan said today. Economists had estimated the gauge would fall to 3. Large companies expect profits to drop 7 percent in the year to March 31, compared with a 0.3 percent increase predicted three months ago.
Trading volume on the bourse was the thinnest since June 24.
To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Maki Kitamura in Tokyo at mkitamura1@bloomberg.net.
Last Updated: July 1, 2008 02:22 EDT
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China's Stock Benchmark Falls to 15-Month Low; Banks Decline
By Chua Kong Ho
July 1 (Bloomberg) -- China's stocks fell, sending the CSI 300 Index to a 15-month low, after manufacturing expanded at the slowest pace in almost three years and oil traded near a record.
China Merchants Bank Co. led lenders lower on speculation the economy is slowing. China Petroleum & Chemical Corp., the nation's largest refiner, retreated on concern higher crude costs will erode profit. Yunnan Chihong Zinc & Germanium Co., China's fifth-largest zinc producer, declined after first-half profit fell 60 percent.
``Profits are going to be disappointing in the second quarter and we're expecting significant downward earnings revisions,'' said Gabriel Gondard, deputy chief investment officer at Fortune SGAM Fund Management in Shanghai, which oversees about $12 billion.
The CSI 300 Index, which tracks yuan-denominated stocks in Shanghai and Shenzhen, lost 93.47, or 3.4 percent, to 2,698.35 at the close, its lowest close since March 20, 2007. More than eight stocks fell for each that advanced.
The benchmark in June had its worst monthly performance since its introduction in April 2005, extending its slump from its Oct. 16 to 54 percent amid concern government measures to curb inflation will hurt economic growth and corporate profits.
China Merchants, the nation's fifth-largest bank by market value, tumbled by the daily 10 percent limit to 21.08 yuan, the biggest drag on the CSI 300 Index. Shanghai Pudong Development Bank Co., part-owned by Citigroup Inc. slumped 8.5 percent to 20.13 yuan, the lowest since March 28, 2007.
Manufacturing Drops
Manufacturing in China, the world's fastest-growing major economy, expanded at a slower pace in June, according to a survey of purchasing managers by the China Federation of Logistics and Purchasing today.
China's economic growth may slow to 10.3 percent this year from 11.9 percent in 2007, the China Securities Journal reported, citing Fan Jianping, chief economist with the State Information Center, a government research institute.
China Petroleum, or Sinopec as the company is also known, declined 4 percent to 9.74 yuan. PetroChina Co., the country's second-biggest refiner, slid 3.2 percent to 14.47 yuan.
Air China Ltd. sank 4.6 percent to 8.10 yuan, on speculation higher ticket surcharges starting today won't be sufficient to cover rising fuel costs. The Beijing-based carrier lost its position as the world's biggest airline by market value to Singapore Airlines Ltd. after declining 70 percent this year.
Oil Soars
Crude oil rose to a record $143.67 a barrel in New York yesterday on concern Israel will attack Iran over its nuclear program and was recently at $141.02. Oil climbed 38 percent between April and June, the biggest quarterly increase in nine years.
Yunnan Chihong fell 6.3 percent to 14.46 yuan after the zinc producer said first-half profit declined 60 percent from a year earlier, due to falling prices and as it shut plants for maintenance.
The Shanghai Composite Index, which tracks stocks on the larger of the nation's two exchanges, dropped 3.1 percent to 2,651.61, while the Shenzhen Composite Index slid 2.1 percent.
The Shanghai index, which has declined 50 percent this year, has to fall to between 2,500 and 2,600 to be ``attractive,'' said Chen Li, Shanghai-based strategist at Shenyin & Wanguo Securities Co.
The following stocks also rose or fell in China. Stock symbols are in parentheses after company names.
China Merchants Property Development Co. (000024 CH), a Shenzhen-based real-estate developer, fell 6.6 percent to 13.96 yuan. The China Securities Regulatory Commission gave conditional approval for the company's plan to sell new shares, according to its statement to the Shenzhen Stock Exchange today.
Citic Securities Co. (600030 CH), the nation's second- largest brokerage, fell 7.3 percent to 22.17 yuan, the lowest since March 30, 2007. China Life Insurance Group, parent of the nation's largest insurer, cut its stake in Citic Securities to 4.97 percent from 5.32 percent, according to a statement.
Guangzhou Shipyard International Co. (600685 CH), a unit of China's biggest shipbuilder, declined 6.8 percent to 23.54 yuan, after saying it plans to sell stock to existing shareholders to finance the acquisition of Guangzhou Wenchong Shipbuilding Ltd., according to a statement.
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net
Last Updated: July 1, 2008 04:03 EDT
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July 1 (Bloomberg) -- China's stocks fell, sending the CSI 300 Index to a 15-month low, after manufacturing expanded at the slowest pace in almost three years and oil traded near a record.
China Merchants Bank Co. led lenders lower on speculation the economy is slowing. China Petroleum & Chemical Corp., the nation's largest refiner, retreated on concern higher crude costs will erode profit. Yunnan Chihong Zinc & Germanium Co., China's fifth-largest zinc producer, declined after first-half profit fell 60 percent.
``Profits are going to be disappointing in the second quarter and we're expecting significant downward earnings revisions,'' said Gabriel Gondard, deputy chief investment officer at Fortune SGAM Fund Management in Shanghai, which oversees about $12 billion.
The CSI 300 Index, which tracks yuan-denominated stocks in Shanghai and Shenzhen, lost 93.47, or 3.4 percent, to 2,698.35 at the close, its lowest close since March 20, 2007. More than eight stocks fell for each that advanced.
The benchmark in June had its worst monthly performance since its introduction in April 2005, extending its slump from its Oct. 16 to 54 percent amid concern government measures to curb inflation will hurt economic growth and corporate profits.
China Merchants, the nation's fifth-largest bank by market value, tumbled by the daily 10 percent limit to 21.08 yuan, the biggest drag on the CSI 300 Index. Shanghai Pudong Development Bank Co., part-owned by Citigroup Inc. slumped 8.5 percent to 20.13 yuan, the lowest since March 28, 2007.
Manufacturing Drops
Manufacturing in China, the world's fastest-growing major economy, expanded at a slower pace in June, according to a survey of purchasing managers by the China Federation of Logistics and Purchasing today.
China's economic growth may slow to 10.3 percent this year from 11.9 percent in 2007, the China Securities Journal reported, citing Fan Jianping, chief economist with the State Information Center, a government research institute.
China Petroleum, or Sinopec as the company is also known, declined 4 percent to 9.74 yuan. PetroChina Co., the country's second-biggest refiner, slid 3.2 percent to 14.47 yuan.
Air China Ltd. sank 4.6 percent to 8.10 yuan, on speculation higher ticket surcharges starting today won't be sufficient to cover rising fuel costs. The Beijing-based carrier lost its position as the world's biggest airline by market value to Singapore Airlines Ltd. after declining 70 percent this year.
Oil Soars
Crude oil rose to a record $143.67 a barrel in New York yesterday on concern Israel will attack Iran over its nuclear program and was recently at $141.02. Oil climbed 38 percent between April and June, the biggest quarterly increase in nine years.
Yunnan Chihong fell 6.3 percent to 14.46 yuan after the zinc producer said first-half profit declined 60 percent from a year earlier, due to falling prices and as it shut plants for maintenance.
The Shanghai Composite Index, which tracks stocks on the larger of the nation's two exchanges, dropped 3.1 percent to 2,651.61, while the Shenzhen Composite Index slid 2.1 percent.
The Shanghai index, which has declined 50 percent this year, has to fall to between 2,500 and 2,600 to be ``attractive,'' said Chen Li, Shanghai-based strategist at Shenyin & Wanguo Securities Co.
The following stocks also rose or fell in China. Stock symbols are in parentheses after company names.
China Merchants Property Development Co. (000024 CH), a Shenzhen-based real-estate developer, fell 6.6 percent to 13.96 yuan. The China Securities Regulatory Commission gave conditional approval for the company's plan to sell new shares, according to its statement to the Shenzhen Stock Exchange today.
Citic Securities Co. (600030 CH), the nation's second- largest brokerage, fell 7.3 percent to 22.17 yuan, the lowest since March 30, 2007. China Life Insurance Group, parent of the nation's largest insurer, cut its stake in Citic Securities to 4.97 percent from 5.32 percent, according to a statement.
Guangzhou Shipyard International Co. (600685 CH), a unit of China's biggest shipbuilder, declined 6.8 percent to 23.54 yuan, after saying it plans to sell stock to existing shareholders to finance the acquisition of Guangzhou Wenchong Shipbuilding Ltd., according to a statement.
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net
Last Updated: July 1, 2008 04:03 EDT
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Hong Kong Bourse Looks to Russia, Mongolia as China IPOs Falter
By Chia-Peck Wong
July 1 (Bloomberg) -- Hong Kong's stock exchange, facing the worst market for first-time share sales in five years, began accepting applications from companies in countries such as Russia and Mongolia to sell depositary receipts.
Hong Kong Exchanges & Clearing Ltd. is betting the lure of $2.7 trillion in Chinese savings will attract companies and investors to the products, succeeding where Tokyo and Singapore have so far failed. The world's depositary receipt market, dominated by New York, London and Frankfurt, doubled in size last year, according to JPMorgan Chase & Co.
Initial public offerings by Chinese companies that made Hong Kong the world's sixth-biggest stock market have dried up as investors, roiled by a U.S. financial crisis that threatens global growth, fled emerging markets. Expectations that depositary receipts will cut dependence on Chinese listings may be misplaced, said SG Asset Management's Winson Fong.
There is ``zero chance'' they will provide the exchange with meaningful business, said Fong, who helps manage $3 billion at SG in Hong Kong. Thin trading of Asian depositary receipts and a lack of research would discourage fund managers, he said.
IPOs by mainland companies in Hong Kong have dropped to HK$45.6 billion this year from HK$110 billion in the year-earlier period, the lowest since 2004.
Depositary receipts, or DRs, are securities that represent the stock of an overseas company. Because they are traded like domestic shares, they eliminate currency exchange, and legal and administrative obstacles, such as transfer of ownership.
Russia, Mongolia
Mining and resources companies from countries such as Russia and Mongolia would be the most likely candidates to sell DRs in Hong Kong, taking advantage of the city's more developed capital market, said Jason Cox, co-head of Asia equity capital markets at Merrill Lynch & Co.
Oleg Deripaska, Russia's richest man, plans to sell shares in copper and molybdenum producer SMR in Hong Kong this year, Geoffrey Cowley, the company's chief executive officer, said in February. Deripaska's United Co. Rusal, the world's biggest aluminum producer, may pick Hong Kong over London, the Financial Times reported earlier.
Elena Shuliveystrova, a Moscow-based spokeswoman at Rusal, didn't reply to e-mailed questions on the plans.
Skeptics over DRs should bear in mind the city's success with mainland Chinese shares, said Kenneth Tse, head of JPMorgan's Asian depositary receipts group.
Chinese Individuals
``Few would have expected the market to develop to today's scale,'' he said. China restricts foreign investment in its domestic markets, and mainland companies have used Hong Kong to tap overseas demand for shares.
Daily trade on the Hang Seng Mainland Composite Index, comprising 125 companies, averaged HK$40.6 billion this year, or about half of the Hong Kong total, according to data compiled by Bloomberg.
When China relaxes controls on outbound investment, mainland individuals will flock to Hong Kong DRs, said Lawrence Fok, the bourse's head of issuer marketing.
``It's a matter of time before mainland China will allow individual investors to buy stocks overseas,'' he said. ``Which is the major category of investors there? Retail.''
Individuals already account for more than a third of turnover in Hong Kong, said Fok.
Still, the regulation and oversight needed to protect non- professional investors may discourage some companies, said Jeffrey Maddox, a partner at law firm Jones Day.
`Nitty-Gritty Review'
DRs are subject to the same ``nitty-gritty review process'' as ordinary share sales, which may lead executives to conclude ``they're better off listing in their own market,'' he said. ``The Hong Kong stock exchange is pretty much the toughest place to list in the world.''
There's also no guarantee that the anticipated surge in Chinese funds will materialize, said SG's Fong.
Chinese banks are currently allowed to invest in Hong Kong, Japan, Singapore, the U.K. and the U.S. under the Qualified Domestic Institutional Investor program approved in 2006. Of the more than $15 billion approved for investment abroad, about half has gone to Hong Kong. The government is pushing for more of the funds to go to other markets.
The strengthening yuan may also deter Chinese investors from buying overseas, said Wang Lei, who helps manage $52 billion, including Hong Kong Exchanges shares, at Thornburg Investment Management in Santa Fe, New Mexico.
The yuan has advanced 6.5 percent this year against the dollar, the second-best performing Asian currency. Hong Kong's currency is pegged to the dollar.
No Market Share
Asian exchanges have struggled to attract a bigger share of trading in depositary receipts, which reached $1.2 trillion in the first quarter from a year earlier, JPMorgan data show.
Tokyo trading of receipts sold by Posco, South Korea's biggest steelmaker, averaged 1,314 shares a day in the past year, data compiled by Bloomberg show. That compares with 799,000 for the company's New York ADRs and 334,000 common shares in Seoul.
``It's a bit early for the introduction of Hong Kong-listed DRs, simply because the demand does not exist yet,'' said Howard Wang, who oversees $10 billion at JF Asset Management, including shares of Hong Kong Exchanges.
To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net
Last Updated: June 30, 2008 22:13 EDT
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Stocks Decline in Europe, Asia; U.S. Index Futures Advance
By Adria Cimino
July 1 (Bloomberg) -- Stocks fell in Europe and Asia as higher oil prices weighed on the earnings outlook for carmakers and reports on housing and manufacturing suggested the global economy will slow further. U.S. index futures advanced.
Volkswagen AG, Europe's biggest automaker, and Ryanair Holdings Plc, the region's largest discount airline, retreated. Societe Generale SA and ING Groep NV led financial shares lower in Europe, and Sumitomo Mitsui Financial Group Inc. fell in Tokyo.
The MSCI World Index lost 0.3 percent to 1,398.31 at 8:05 a.m. in London, while futures on the Standard & Poor's 500 Index rose 0.1 percent. Europe's Dow Jones Stoxx 600 Index declined 0.3 percent, extending its worst first-half performance since at least 1987. The MSCI Asia Pacific Index slipped 0.5 percent.
Most U.S. stocks fell yesterday on concern deepening mortgage losses will force more banks to cut dividends or sell shares at a discount. Billionaire investor Eli Broad said the world's largest economy is in the `worst period' of his adult life.
``Improvement in the U.S. economy is slow -- slower than we thought,'' Jean-Paul Pierret, a strategist at Dexia Securities France in Paris, said in a Bloomberg Television interview. ``Higher oil is a hardship for the consumer and it's difficult for companies to pass on costs. The situation isn't easy.''
Crude oil traded above $140 a barrel after rising to a record yesterday on concern that Iran, the second-largest OPEC producer, may face military attacks over its nuclear program and disrupt Middle East supplies.
Slowing Growth
Reports today showed U.K. house prices fell in June by the most since the end of the last recession in 1992, while Japanies business confidence sank to a four-year low, South Korea's inflation rose and Chinese manufacturing growth slowed.
``If you are already invested, you sit tight,'' Howard Wheeldon, senior strategist at BGC Partners LP in London, said in a Bloomberg Television interview. ``Inflation is going to be with us for a long time to come. It's going to be very, very difficult.''
Volkswagen lost 0.8 percent to 181.80 euros, and Ryanair fell 1.4 percent to 2.76 euros.
Crude oil for August delivery rose as much as 85 cents, or 0.6 percent, to $140.85 a barrel in after-hours trading on the New York Mercantile Exchange.
``With crude prices continuing to tick higher, it's precisely this kind of news that will weigh on sentiment,'' Maninka Miller, a trader at CMC Markets in London, wrote.
SocGen, ING
Societe Generale 1.9 percent to 54.26 euros. ING Groep NV, the largest Dutch financial services company, slipped 1.8 percent to 19.88 euros.
Lehman Brothers Holdings Inc. led U.S. financial shares lower yesterday on speculation the fourth-biggest U.S. securities firm may be sold for less than its market price, traders said. Andrew Gowers, a Lehman Brothers spokesman, said the company's policy is not to comment on rumors.
JPMorgan Chase & Co. said prices for some mortgage securities may sink further.
``This is the worst period of my adult lifetime,'' Broad said, speaking about the U.S. economy. ``I do not think things are going to get any better'' before the next president takes office in January.
The banking industry may need additional capital to protect against bad loans, Broad said.
UBS fell 2.2 percent to 20.96 francs. Switzerland's biggest bank said it's calling an extraordinary shareholders' meeting for October to elect new members to the board of directors as it overhauls corporate governance after record losses.
Sumitomo Mitsui
Sumitomo Mitsui, Japan's second-largest bank by market value, dropped 2.1 percent to 782,000 yen. Mizuho Financial Group Inc., the third-biggest, lost 2.2 percent to 485,000 yen.
Large companies said profits will drop 7 percent in the year ending March 31, compared with a 0.3 percent increase predicted three months ago, according to the Bank of Japan's Tankan survey.
Technip SA rose 1.7 percent to 59.78 euros. Europe's second-largest oilfield-services provider had its recommendation lifted to ``overweight'' from ``underweight'' at JPMorgan and to ``neutral'' from ``sell'' at UBS AG.
``Despite the high cost of capacity additions, this investment will add value,'' UBS analysts wrote in a note about European oil services companies.
-- With reporting by Francois Doux and Mark Barton in London. Editor: Stephen Kirkland, Daniel Hauck.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
Last Updated: July 1, 2008 03:19 EDT
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July 1 (Bloomberg) -- Stocks fell in Europe and Asia as higher oil prices weighed on the earnings outlook for carmakers and reports on housing and manufacturing suggested the global economy will slow further. U.S. index futures advanced.
Volkswagen AG, Europe's biggest automaker, and Ryanair Holdings Plc, the region's largest discount airline, retreated. Societe Generale SA and ING Groep NV led financial shares lower in Europe, and Sumitomo Mitsui Financial Group Inc. fell in Tokyo.
The MSCI World Index lost 0.3 percent to 1,398.31 at 8:05 a.m. in London, while futures on the Standard & Poor's 500 Index rose 0.1 percent. Europe's Dow Jones Stoxx 600 Index declined 0.3 percent, extending its worst first-half performance since at least 1987. The MSCI Asia Pacific Index slipped 0.5 percent.
Most U.S. stocks fell yesterday on concern deepening mortgage losses will force more banks to cut dividends or sell shares at a discount. Billionaire investor Eli Broad said the world's largest economy is in the `worst period' of his adult life.
``Improvement in the U.S. economy is slow -- slower than we thought,'' Jean-Paul Pierret, a strategist at Dexia Securities France in Paris, said in a Bloomberg Television interview. ``Higher oil is a hardship for the consumer and it's difficult for companies to pass on costs. The situation isn't easy.''
Crude oil traded above $140 a barrel after rising to a record yesterday on concern that Iran, the second-largest OPEC producer, may face military attacks over its nuclear program and disrupt Middle East supplies.
Slowing Growth
Reports today showed U.K. house prices fell in June by the most since the end of the last recession in 1992, while Japanies business confidence sank to a four-year low, South Korea's inflation rose and Chinese manufacturing growth slowed.
``If you are already invested, you sit tight,'' Howard Wheeldon, senior strategist at BGC Partners LP in London, said in a Bloomberg Television interview. ``Inflation is going to be with us for a long time to come. It's going to be very, very difficult.''
Volkswagen lost 0.8 percent to 181.80 euros, and Ryanair fell 1.4 percent to 2.76 euros.
Crude oil for August delivery rose as much as 85 cents, or 0.6 percent, to $140.85 a barrel in after-hours trading on the New York Mercantile Exchange.
``With crude prices continuing to tick higher, it's precisely this kind of news that will weigh on sentiment,'' Maninka Miller, a trader at CMC Markets in London, wrote.
SocGen, ING
Societe Generale 1.9 percent to 54.26 euros. ING Groep NV, the largest Dutch financial services company, slipped 1.8 percent to 19.88 euros.
Lehman Brothers Holdings Inc. led U.S. financial shares lower yesterday on speculation the fourth-biggest U.S. securities firm may be sold for less than its market price, traders said. Andrew Gowers, a Lehman Brothers spokesman, said the company's policy is not to comment on rumors.
JPMorgan Chase & Co. said prices for some mortgage securities may sink further.
``This is the worst period of my adult lifetime,'' Broad said, speaking about the U.S. economy. ``I do not think things are going to get any better'' before the next president takes office in January.
The banking industry may need additional capital to protect against bad loans, Broad said.
UBS fell 2.2 percent to 20.96 francs. Switzerland's biggest bank said it's calling an extraordinary shareholders' meeting for October to elect new members to the board of directors as it overhauls corporate governance after record losses.
Sumitomo Mitsui
Sumitomo Mitsui, Japan's second-largest bank by market value, dropped 2.1 percent to 782,000 yen. Mizuho Financial Group Inc., the third-biggest, lost 2.2 percent to 485,000 yen.
Large companies said profits will drop 7 percent in the year ending March 31, compared with a 0.3 percent increase predicted three months ago, according to the Bank of Japan's Tankan survey.
Technip SA rose 1.7 percent to 59.78 euros. Europe's second-largest oilfield-services provider had its recommendation lifted to ``overweight'' from ``underweight'' at JPMorgan and to ``neutral'' from ``sell'' at UBS AG.
``Despite the high cost of capacity additions, this investment will add value,'' UBS analysts wrote in a note about European oil services companies.
-- With reporting by Francois Doux and Mark Barton in London. Editor: Stephen Kirkland, Daniel Hauck.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
Last Updated: July 1, 2008 03:19 EDT
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U.K. Stocks Update: FTSE 100 Falls 24.40 to 5,601.50
By Daniel Hauck
July 1 (Bloomberg) -- The U.K.'s benchmark stock index, the FTSE 100, fell 0.43 percent at 8:05 a.m.
The index of 102 stocks traded on the London Stock Exchange fell 24.40 to 5,601.50. Among the stocks in the index, 14 rose, 85 fell and 3 were unchanged.
Declines in the FTSE 100 were led by Royal Dutch Shell Plc (Rdsa Ln), Royal Dutch Shell Plc (Rdsb Ln) and Bp Plc (Bp/ Ln). About 14.52 million shares traded in the FTSE 100.
Last Updated: July 1, 2008 03:05 EDT
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July 1 (Bloomberg) -- The U.K.'s benchmark stock index, the FTSE 100, fell 0.43 percent at 8:05 a.m.
The index of 102 stocks traded on the London Stock Exchange fell 24.40 to 5,601.50. Among the stocks in the index, 14 rose, 85 fell and 3 were unchanged.
Declines in the FTSE 100 were led by Royal Dutch Shell Plc (Rdsa Ln), Royal Dutch Shell Plc (Rdsb Ln) and Bp Plc (Bp/ Ln). About 14.52 million shares traded in the FTSE 100.
Last Updated: July 1, 2008 03:05 EDT
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Germany Stocks Update: DAX Index Falls 21.08 to 6,397.24
By Daniel Hauck
July 1 (Bloomberg) -- Germany's benchmark stock index, the DAX Index, fell 0.33 percent at 9:05 a.m.
The index of 30 companies traded on the Frankfurt Stock Exchange fell 21.08 to 6,397.24. Among the stocks in the index, 5 rose and 25 fell.
Declines in the DAX were led by Allianz Se, Deutsche Bank Ag and Bayer Ag. About 3.85 million shares traded in the DAX.
Last Updated: July 1, 2008 03:05 EDT
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July 1 (Bloomberg) -- Germany's benchmark stock index, the DAX Index, fell 0.33 percent at 9:05 a.m.
The index of 30 companies traded on the Frankfurt Stock Exchange fell 21.08 to 6,397.24. Among the stocks in the index, 5 rose and 25 fell.
Declines in the DAX were led by Allianz Se, Deutsche Bank Ag and Bayer Ag. About 3.85 million shares traded in the DAX.
Last Updated: July 1, 2008 03:05 EDT
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Tel Aviv Stock Exchange Shut as Union Declares Work Stoppage
By David Rosenberg
July 1 (Bloomberg) -- The Tel Aviv Stock Exchange will shut today after employees declared a one-day strike to protest against the lack of progress on contract negotiations, a union official said.
Employees refused to operate computers today because of a failure by management to conduct ``serious negotiations'' over the past six weeks, Amir Sheftel, who represents the Histadrut labor federation in the Tel Aviv area, said in a phone interview.
A spokeswoman for the TASE was unable to confirm immediately that trading was suspended.
To contact the reporter on this story: David Rosenberg in Jerusalem at drosenberg1@bloomberg.net
Last Updated: July 1, 2008 02:20 EDT
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July 1 (Bloomberg) -- The Tel Aviv Stock Exchange will shut today after employees declared a one-day strike to protest against the lack of progress on contract negotiations, a union official said.
Employees refused to operate computers today because of a failure by management to conduct ``serious negotiations'' over the past six weeks, Amir Sheftel, who represents the Histadrut labor federation in the Tel Aviv area, said in a phone interview.
A spokeswoman for the TASE was unable to confirm immediately that trading was suspended.
To contact the reporter on this story: David Rosenberg in Jerusalem at drosenberg1@bloomberg.net
Last Updated: July 1, 2008 02:20 EDT
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Banco do Brasil, Paz del Rio, Tenaris: Latin Equity Preview
By Paulo Winterstein and James Attwood
July 1 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares added 1.8 percent to 4,751.47 yesterday. In Brazil, preferred shares are the most commonly traded class of stock. Colombia's market was closed yesterday for a holiday.
Argentina
Tenaris SA (TS AF): The world's largest supplier of seamless steel pipes said it may face energy and supply disruptions at a unit in Venezuela, after the government nationalized a steel plant in the same complex. Venezuela may also decide to seize Tenaris's Tavsa steel-pipe unit and its Matesi iron-briquette facility, located near Ternium SA's Siderurgica del Orinoco plant, Tenaris said yesterday in its annual statement. Tenaris rose 2.4 percent to a record 119.60 pesos.
Brazil
Banco do Brasil SA (BBAS3 BS): Brazil's central bank increased the stake that foreign investors can hold in Latin America's biggest bank to 25 percent from 12.5 percent. The change will allow Banco do Brasil to adhere to the rules of the so-called Novo Mercado, which requires that 25 percent of shares be traded publicly, the central bank said in an e-mailed statement yesterday. Banco do Brasil fell 2.2 percent to 26.15 reais.
Banco Industrial & Comercial SA (BICB4 BS): The Sao Paulo- based lender, which has lost 28 percent since its October initial public offering, plans to buy back as much as 10 percent of outstanding preferred shares. The board of directors approved a plan to buy back as many as 9.42 million shares by June 27, 2009, BicBanco, as the Sao Paulo bank is known, said yesterday in a regulatory filing. The buyback would cost 77.7 million reais ($48.7 million) based on yesterday's closing price of 8.25 a preferred share. BicBanco fell 4.1 percent.
Colombia
Acerias Paz del Rio SA (PAZRIO CB): U.S. steel-sheet prices rose to a record $1,052 a ton in June, Purchasing magazine wrote yesterday in a report. Paz del Rio, Colombia's biggest steelmaker, fell 7.7 percent to 60 pesos when it last traded June 26.
Ecopetrol SA (ECOPETL CB): Colombia's state oil producer was reiterated as a ``buy'' at Medellin-based brokerage Bolsa y Renta. The stock, which rose 2.4 percent to 2,615 pesos when it last traded June 27, probably will rise to 3,000 pesos by the end of the year, analysts including Mauricio Restrepo Del Toro wrote in a June 27 note. Ecopetrol may pay a dividend of about 225 pesos a share next year, they wrote.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
Last Updated: July 1, 2008 00:01 EDT
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July 1 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares added 1.8 percent to 4,751.47 yesterday. In Brazil, preferred shares are the most commonly traded class of stock. Colombia's market was closed yesterday for a holiday.
Argentina
Tenaris SA (TS AF): The world's largest supplier of seamless steel pipes said it may face energy and supply disruptions at a unit in Venezuela, after the government nationalized a steel plant in the same complex. Venezuela may also decide to seize Tenaris's Tavsa steel-pipe unit and its Matesi iron-briquette facility, located near Ternium SA's Siderurgica del Orinoco plant, Tenaris said yesterday in its annual statement. Tenaris rose 2.4 percent to a record 119.60 pesos.
Brazil
Banco do Brasil SA (BBAS3 BS): Brazil's central bank increased the stake that foreign investors can hold in Latin America's biggest bank to 25 percent from 12.5 percent. The change will allow Banco do Brasil to adhere to the rules of the so-called Novo Mercado, which requires that 25 percent of shares be traded publicly, the central bank said in an e-mailed statement yesterday. Banco do Brasil fell 2.2 percent to 26.15 reais.
Banco Industrial & Comercial SA (BICB4 BS): The Sao Paulo- based lender, which has lost 28 percent since its October initial public offering, plans to buy back as much as 10 percent of outstanding preferred shares. The board of directors approved a plan to buy back as many as 9.42 million shares by June 27, 2009, BicBanco, as the Sao Paulo bank is known, said yesterday in a regulatory filing. The buyback would cost 77.7 million reais ($48.7 million) based on yesterday's closing price of 8.25 a preferred share. BicBanco fell 4.1 percent.
Colombia
Acerias Paz del Rio SA (PAZRIO CB): U.S. steel-sheet prices rose to a record $1,052 a ton in June, Purchasing magazine wrote yesterday in a report. Paz del Rio, Colombia's biggest steelmaker, fell 7.7 percent to 60 pesos when it last traded June 26.
Ecopetrol SA (ECOPETL CB): Colombia's state oil producer was reiterated as a ``buy'' at Medellin-based brokerage Bolsa y Renta. The stock, which rose 2.4 percent to 2,615 pesos when it last traded June 27, probably will rise to 3,000 pesos by the end of the year, analysts including Mauricio Restrepo Del Toro wrote in a June 27 note. Ecopetrol may pay a dividend of about 225 pesos a share next year, they wrote.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
Last Updated: July 1, 2008 00:01 EDT
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IPOs Fall to Five-Year Low as Economy Slows, Loan Losses Climb
By Elizabeth Hester and Edgar Ortega
July 1 (Bloomberg) -- Initial public offerings came to market in the first half of the year at the slowest pace since 2003, and few investors expect a rebound as economic growth tapers off and loan losses mount.
Through June, 333 companies went public, down from 702 a year earlier, according to data compiled by Bloomberg. The $73.2 billion raised was 41 percent less than during the first half of last year and the least since 2005. For the first time since 1978, U.S. venture capital funds failed to take a company public last quarter.
``People have become less interested in risk, and when it comes to the IPO market you're typically talking about smaller companies that people know less about,'' said Alex Vallecillo, a fund manager at Cleveland-based Allegiant Asset Management Co., which has $28 billion in assets. ``The issues hurting the market are not going to change overnight, so to expect a dramatic rebound in sentiment is pretty optimistic.''
The world's biggest financial companies have booked almost $400 billion in writedowns and losses amid the worst U.S. housing slump since the Great Depression. Consumer confidence across Europe and Japan has tumbled to its lowest since 2003, and reached a 16-year nadir in the U.S.
IPO Postponement
At least 166 companies have withdrawn or postponed their initial offerings this year, more than double the number in the first half of 2007, according to Bloomberg data. About a third of those were U.S. companies, including Forum Oilfield Technologies Inc., a maker of oil drilling equipment based in Houston, and Liberty Lane Acquisition Corp., the first so-called blank check firm underwritten by Goldman Sachs Group Inc., the biggest U.S. securities firm.
The Standard & Poor's 500 Index has lost 13 percent this year, while the broader MSCI World Index has declined 12 percent for its worst start to a year since 1982. The losses are steeper for new issues in Europe, where a Bloomberg benchmark tracking IPOs has declined 21 percent this year. The U.S. IPO index has lost 9.9 percent.
Offerings from companies backed by venture capital funds have dried up. An average of about 18 firms funded by U.S. venture investors went public in each quarter of 2006 and 2007, according to Arlington, Virginia-based National Venture Capital Association, which has tracked IPO data since 1970. Five such companies completed IPOs in the first three months of this year; none pulled it off last quarter.
`Precedent' Deals
``For investors to really come back, stay back and create that pull for a great IPO market, precedent deals need to be working,'' Mary Ann Deignan, head of equity capital markets for the Americas at Zurich-based UBS AG, said in an interview. ``You need some stability in the secondary markets and issuers need to come to market with compelling valuations.''
Few companies this year have blazed that sort of trail. Visa Inc., the largest payment-card network, raised $19.7 billion, making it the world's second-biggest IPO behind the $22 billion debut by Industrial & Commercial Bank of China Ltd. in 2006. Visa stock has gained 85 percent since its initial sale in March.
``Great opportunities will find a way to get done in generally down markets,'' said Chip MacDonald, a partner in the capital markets group at Jones Day in Atlanta. ``I don't think you're going to see a whole lot of IPOs of companies without earnings at this point.''
Oil Surge
The surge in oil prices to a record $143.67 a barrel has allowed energy companies to raise $9.46 billion in the first half, a 7.2 percent increase from last year. Two years ago, when crude oil futures fetched about $74 a barrel, the total was $13 billion in the first six months of the year.
Higher energy prices may also reduce energy companies' need to raise capital. In the first half, 55 percent fewer oil and gas, pipeline and alternative energy companies went public compared with last year.
``A company looking to do an IPO would certainly want to capture the value implied by those prices,'' said Craig Jarchow, a managing director at New York-based private-equity firm Pine Brook Road Partners LLC. ``Buyers, particularly experienced buyers, are in some cases a little bit leery. The buyers aren't quite where the sellers are in terms of their price view.''
To contact the reporters on this story: Elizabeth Hester in New York at ehester@bloomberg.net; Edgar Ortega in New York at ebarrales@bloomberg.net.
Last Updated: July 1, 2008 00:01 EDT
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European shares start month, quarter in the red
LONDON (MarketWatch) -- European shares started the new month and quarter on a downbeat note Tuesday, with automakers and airlines under pressure as light sweet crude oil prices stayed over $140-a-barrel in electronic trading. However, shares in Deutsche Telekom
(DT 16.37, +0.22, +1.4%) rose 2.7% after an upgrade to overweight from neutral by J.P. Morgan. Overall, the U.K. FTSE 100 index fell 0.4% to 5,601.50, the German DAX 30 index dropped 0.3% to 6,399.37 and the French CAC-40 index fell 0.5% to 4,413.68. End of Story
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Bank Rights Offerings Reveal Need to Throw Good Money After Bad
By Elena Logutenkova and Elisa Martinuzzi
June 30 (Bloomberg) -- Merrill Lynch & Co. and UBS AG, fresh from raising a combined $47.3 billion after losses on subprime investments, are using their capital to help rivals find cash.
Merrill and UBS joined Goldman Sachs Group Inc. in arranging the 12.3 billion-pound ($24.4 billion) rights offering by Royal Bank of Scotland Group Plc, the biggest European share sale to existing investors. A 31 percent drop in RBS's stock price pushed the underwriters to within 20 pence of having to buy the shares.
``In the current environment, investing in financials is pretty much like throwing good money after bad,'' said Franz Wenzel, the Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees about $830 billion. ``We have been looking at some banks, but it's still way too early to start buying.''
The inducement of as much as $107 million in fees from arranging rights offers helps explain why investment banks are risking their capital to help shore up the losses of rivals. Underwriters have booked more than $1 billion this year from the share sales, partly offsetting the 50 percent drop in income from managing initial public offerings. European financial firms have announced plans to raise $78.5 billion through rights offerings since January, exceeding the total raised by companies during all of 2007, according to data compiled by Bloomberg.
``We've lost many of our traditional sources of revenue,'' said John Crompton, the London-based head of European equity capital markets for Europe, Middle East and Africa at Merrill. ``Rights issues have been one of the most active contributors'' for underwriters this year, he said.
Rising Risk
The appeal of rights offerings may wane as financial stock prices drop -- the MSCI World Financials Index has declined 24 percent this year, the worst performance of the 10 industry groups in the index.
Morgan Stanley and Dresdner Kleinwort Group Ltd., the securities unit of Munich-based Allianz SE, may have to buy shares of Edinburgh-based HBOS Plc next month. The U.K.'s largest mortgage lender, which is in the midst of a 4.1 billion-pound share sale underwritten by the two banks, traded below the 275 pence offer price in London every day last week.
Bradford & Bingley Plc, Britain's biggest lender to landlords, cut the price of its 258 million-pound rights offer by 33 percent after the stock fell, exposing underwriters Citigroup Inc. and UBS to the risk of ending up with stock that other investors refuse to buy. Its share price fell 21 percent on June 27 to 63.25 pence, compared with the 55 pence offer price in the stock sale, scheduled to run from July 8 till Aug. 1.
`One-Legged Banks'
Royal Bank of Scotland fell to 219.5 pence in London trading on June 2, a week before the rights offer was concluded, from 381.09 pence at the start of the year. The underwriters had guaranteed to buy any shares not purchased at 200 pence.
``It's a slightly bizarre situation,'' said Andrew Lynch, who helps oversee about $3.5 billion in European equities at London-based Schroders Investment Management Ltd. ``The one- legged bank is supporting another one-legged bank.''
The fund raisings come as writedowns linked to subprime mortgage losses -- $399 billion since the start of last year -- triggered some of the worst collapses in banking history. JPMorgan Chase & Co. bought Bear Stearns Cos. for one-third of its market value after the New York-based securities firm faced bankruptcy in March. In the U.K., the government nationalized mortgage lender Northern Rock Plc in February after it had to be bailed out by the Bank of England.
New York-based Citigroup and UBS of Zurich have taken the largest writedowns and losses, data compiled by Bloomberg show. Citigroup raised more than $44 billion from investors, including the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp., while Merrill got $17.9 billion.
UBS Rights Offer
UBS, which raised 16 billion Swiss francs ($15.7 billion) in a rights offering this month after $19 billion of first-quarter writedowns, was able to guarantee part of RBS's sale because its own issue was fully underwritten by investment banks led by New York-based Morgan Stanley and JPMorgan. UBS shares fell to as low as 7 percent above the rights-offer price during the subscription period.
James Renwick, a UBS vice chairman of investment banking in London, said capital problems at the Swiss bank haven't constrained its underwriting activities because risks are mitigated by setting offer prices at large discounts to the market, seeking bigger fees and finding sub-underwriters.
``The situation in the global banking market continues to be critical,'' Renwick said. ``As we move through this cycle, I think we're going to see people being slightly more cautious in their underwriting.''
So far, that hasn't always happened. While fees should have been rising to compensate for the greater risk, competition among underwriters in what has been the slowest start for IPOs in four years is bringing fees down.
Lower Fees
RBS paid underwriters fees of 1.75 percent, UBS paid about 1.65 percent and Paris-based Societe Generale SA about 1.5 percent for its 5.5 billion-euro deal. Banca Monte dei Paschi di Siena SpA, Italy's No. 3 bank, paid securities firms 1.2 percent for its 5 billion-euro rights offer in May. That compares with fees of 4.3 percent for Allianz's 4.4 billion-euro rights offer in April 2003.
``We asked 15 banks to submit proposals based on a very competitive set fee, and they were all interested,'' said Marco Morelli, deputy general manager of Siena, Italy-based Monte Paschi. The bank sold stock to help fund the takeover of Banca Antonveneta.
Paul Marsh, a professor of finance at London Business School and author of a study on fees charged in rights offers, likens underwriting to a put option. A company that hires underwriters buys a put option to place the stock with the investment banks if investors don't buy it. The value of the put depends on the stock's volatility and the duration, he said.
`Money for Old Rope'
``It comes as no surprise that banks want to underwrite rights offers,'' said Marsh, who analyzed about 1,000 rights offerings over four decades. ``Underwriting rights issues has been like money for old rope.''
With the volatility of European financial stocks at their highest level in five years, the underwriting of banks' share sales is riskier than in the past.
``Never before has such an amount been raised by one industry in such a short period of time,'' said Viswas Raghavan, the London-based head of international capital markets at JPMorgan, the largest U.S. bank by market value. That has caused greater stock swings, as investors become pickier about the companies they're willing to back, he said.
Underwriters may have also misjudged the risks involved in guaranteeing the deals, said Theo Vermaelen, a professor of finance at Insead business school near Paris.
``It's one of a few businesses that hasn't collapsed,'' Vermaelen said. ``Investment banks may have been overly optimistic in thinking that the stocks were undervalued.''
Sub-Underwriting
There are more rights offerings in Europe because regulations in most European countries oblige companies to offer existing shareholders new stock first so they can maintain a proportional stake in the company. Investors in the U.S. typically don't have such rights, bankers said.
Securities firms can reduce their underwriting risks by finding investors willing to buy part of the offering in a so- called sub-underwriting. In return, sub-underwriters get a cut of the overall fees.
Fees for sub-underwriting also are falling, and the gap between what firms get for underwriting and what investors receive for sub-underwriting is getting wider as banks seek to keep more for themselves, according to Marsh.
Typically, firms received fees of about 1.25 percent to sub- underwrite, Marsh said. Commissions offered to sub-underwrite RBS's stock offering were as low as 0.8 percent.
Risk and Reward
``Traditionally, banks wouldn't take the exposure unless they had a fairly good idea that they could obtain sub- underwriting,'' said Derek Chambers, a London-based analyst at Standard & Poor's Equity Research. ``In some of the recent rights offers, the banks arranging underwriting thought the discount was so wide they could afford to retain the risk and the reward.''
Investment banks may have no choice but to underwrite rights offers to help support customers in their own industry.
``Stepping away from these transactions when your clients are under pressure means that you get longer-term impact on the quality of your franchise,'' said Dirk Hoffmann-Becking, a London-based banking analyst at Sanford C. Bernstein & Co. ``You can't be a fair-weather underwriter, but when it rains you're not providing an umbrella.''
The number of rights offers from financial companies will probably continue to increase as European banks have only just started to shore up their balance sheets, according to analysts at Citigroup.
Sovereign Funds
``In an environment where banks have to deleverage quite sharply, they'll have to either shrink their balance sheet or come back to raise more money,'' said Lynch, the Schroders fund manager. ``I'd be very surprised if we didn't see any more banks coming to the market with more rights issues.''
Credit Agricole SA, which had the luxury of not having to ask investment banks to underwrite its 5.9 billion-euro offering, went to its regional banks instead.
``Our banks have more capital than the biggest investment banks,'' Credit Agricole Chief Executive Officer Georges Pauget said in an interview in Milan on June 20.
London-based Barclays Plc got sovereign wealth funds in Singapore, China and Qatar to guarantee its stock sale to help Britain's No. 4 bank raise 4.5 billion pounds last week.
Concern that rights offers may fail and damage financial companies' efforts to shore up their balance sheets prompted Britain's market regulator to demand disclosure of short selling during rights offers. That occurs when investors bet on declines of share prices by selling borrowed stock in the hope of repurchasing it later at a lower price.
Short Selling
The Financial Services Authority cited short sellers earlier this month for causing ``severe volatility in the shares of companies conducting rights issues.'' The new rules, introduced June 20, require disclosure of short positions of more than 0.25 percent of stock for companies selling new shares in rights offerings.
Even if the ability of hedge funds to short shares has been curtailed, the risks of underwriting aren't about to diminish.
``It used to be a pretty low-risk business,'' said Hoffmann- Becking of Sanford Bernstein. ``Now we see it actually can be risky. And though they got away this time around, we don't know what's going to happen next.''
To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.netElena Logutenkova in Zurich at elogutenkova@bloomberg.net
Read more...
June 30 (Bloomberg) -- Merrill Lynch & Co. and UBS AG, fresh from raising a combined $47.3 billion after losses on subprime investments, are using their capital to help rivals find cash.
Merrill and UBS joined Goldman Sachs Group Inc. in arranging the 12.3 billion-pound ($24.4 billion) rights offering by Royal Bank of Scotland Group Plc, the biggest European share sale to existing investors. A 31 percent drop in RBS's stock price pushed the underwriters to within 20 pence of having to buy the shares.
``In the current environment, investing in financials is pretty much like throwing good money after bad,'' said Franz Wenzel, the Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees about $830 billion. ``We have been looking at some banks, but it's still way too early to start buying.''
The inducement of as much as $107 million in fees from arranging rights offers helps explain why investment banks are risking their capital to help shore up the losses of rivals. Underwriters have booked more than $1 billion this year from the share sales, partly offsetting the 50 percent drop in income from managing initial public offerings. European financial firms have announced plans to raise $78.5 billion through rights offerings since January, exceeding the total raised by companies during all of 2007, according to data compiled by Bloomberg.
``We've lost many of our traditional sources of revenue,'' said John Crompton, the London-based head of European equity capital markets for Europe, Middle East and Africa at Merrill. ``Rights issues have been one of the most active contributors'' for underwriters this year, he said.
Rising Risk
The appeal of rights offerings may wane as financial stock prices drop -- the MSCI World Financials Index has declined 24 percent this year, the worst performance of the 10 industry groups in the index.
Morgan Stanley and Dresdner Kleinwort Group Ltd., the securities unit of Munich-based Allianz SE, may have to buy shares of Edinburgh-based HBOS Plc next month. The U.K.'s largest mortgage lender, which is in the midst of a 4.1 billion-pound share sale underwritten by the two banks, traded below the 275 pence offer price in London every day last week.
Bradford & Bingley Plc, Britain's biggest lender to landlords, cut the price of its 258 million-pound rights offer by 33 percent after the stock fell, exposing underwriters Citigroup Inc. and UBS to the risk of ending up with stock that other investors refuse to buy. Its share price fell 21 percent on June 27 to 63.25 pence, compared with the 55 pence offer price in the stock sale, scheduled to run from July 8 till Aug. 1.
`One-Legged Banks'
Royal Bank of Scotland fell to 219.5 pence in London trading on June 2, a week before the rights offer was concluded, from 381.09 pence at the start of the year. The underwriters had guaranteed to buy any shares not purchased at 200 pence.
``It's a slightly bizarre situation,'' said Andrew Lynch, who helps oversee about $3.5 billion in European equities at London-based Schroders Investment Management Ltd. ``The one- legged bank is supporting another one-legged bank.''
The fund raisings come as writedowns linked to subprime mortgage losses -- $399 billion since the start of last year -- triggered some of the worst collapses in banking history. JPMorgan Chase & Co. bought Bear Stearns Cos. for one-third of its market value after the New York-based securities firm faced bankruptcy in March. In the U.K., the government nationalized mortgage lender Northern Rock Plc in February after it had to be bailed out by the Bank of England.
New York-based Citigroup and UBS of Zurich have taken the largest writedowns and losses, data compiled by Bloomberg show. Citigroup raised more than $44 billion from investors, including the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp., while Merrill got $17.9 billion.
UBS Rights Offer
UBS, which raised 16 billion Swiss francs ($15.7 billion) in a rights offering this month after $19 billion of first-quarter writedowns, was able to guarantee part of RBS's sale because its own issue was fully underwritten by investment banks led by New York-based Morgan Stanley and JPMorgan. UBS shares fell to as low as 7 percent above the rights-offer price during the subscription period.
James Renwick, a UBS vice chairman of investment banking in London, said capital problems at the Swiss bank haven't constrained its underwriting activities because risks are mitigated by setting offer prices at large discounts to the market, seeking bigger fees and finding sub-underwriters.
``The situation in the global banking market continues to be critical,'' Renwick said. ``As we move through this cycle, I think we're going to see people being slightly more cautious in their underwriting.''
So far, that hasn't always happened. While fees should have been rising to compensate for the greater risk, competition among underwriters in what has been the slowest start for IPOs in four years is bringing fees down.
Lower Fees
RBS paid underwriters fees of 1.75 percent, UBS paid about 1.65 percent and Paris-based Societe Generale SA about 1.5 percent for its 5.5 billion-euro deal. Banca Monte dei Paschi di Siena SpA, Italy's No. 3 bank, paid securities firms 1.2 percent for its 5 billion-euro rights offer in May. That compares with fees of 4.3 percent for Allianz's 4.4 billion-euro rights offer in April 2003.
``We asked 15 banks to submit proposals based on a very competitive set fee, and they were all interested,'' said Marco Morelli, deputy general manager of Siena, Italy-based Monte Paschi. The bank sold stock to help fund the takeover of Banca Antonveneta.
Paul Marsh, a professor of finance at London Business School and author of a study on fees charged in rights offers, likens underwriting to a put option. A company that hires underwriters buys a put option to place the stock with the investment banks if investors don't buy it. The value of the put depends on the stock's volatility and the duration, he said.
`Money for Old Rope'
``It comes as no surprise that banks want to underwrite rights offers,'' said Marsh, who analyzed about 1,000 rights offerings over four decades. ``Underwriting rights issues has been like money for old rope.''
With the volatility of European financial stocks at their highest level in five years, the underwriting of banks' share sales is riskier than in the past.
``Never before has such an amount been raised by one industry in such a short period of time,'' said Viswas Raghavan, the London-based head of international capital markets at JPMorgan, the largest U.S. bank by market value. That has caused greater stock swings, as investors become pickier about the companies they're willing to back, he said.
Underwriters may have also misjudged the risks involved in guaranteeing the deals, said Theo Vermaelen, a professor of finance at Insead business school near Paris.
``It's one of a few businesses that hasn't collapsed,'' Vermaelen said. ``Investment banks may have been overly optimistic in thinking that the stocks were undervalued.''
Sub-Underwriting
There are more rights offerings in Europe because regulations in most European countries oblige companies to offer existing shareholders new stock first so they can maintain a proportional stake in the company. Investors in the U.S. typically don't have such rights, bankers said.
Securities firms can reduce their underwriting risks by finding investors willing to buy part of the offering in a so- called sub-underwriting. In return, sub-underwriters get a cut of the overall fees.
Fees for sub-underwriting also are falling, and the gap between what firms get for underwriting and what investors receive for sub-underwriting is getting wider as banks seek to keep more for themselves, according to Marsh.
Typically, firms received fees of about 1.25 percent to sub- underwrite, Marsh said. Commissions offered to sub-underwrite RBS's stock offering were as low as 0.8 percent.
Risk and Reward
``Traditionally, banks wouldn't take the exposure unless they had a fairly good idea that they could obtain sub- underwriting,'' said Derek Chambers, a London-based analyst at Standard & Poor's Equity Research. ``In some of the recent rights offers, the banks arranging underwriting thought the discount was so wide they could afford to retain the risk and the reward.''
Investment banks may have no choice but to underwrite rights offers to help support customers in their own industry.
``Stepping away from these transactions when your clients are under pressure means that you get longer-term impact on the quality of your franchise,'' said Dirk Hoffmann-Becking, a London-based banking analyst at Sanford C. Bernstein & Co. ``You can't be a fair-weather underwriter, but when it rains you're not providing an umbrella.''
The number of rights offers from financial companies will probably continue to increase as European banks have only just started to shore up their balance sheets, according to analysts at Citigroup.
Sovereign Funds
``In an environment where banks have to deleverage quite sharply, they'll have to either shrink their balance sheet or come back to raise more money,'' said Lynch, the Schroders fund manager. ``I'd be very surprised if we didn't see any more banks coming to the market with more rights issues.''
Credit Agricole SA, which had the luxury of not having to ask investment banks to underwrite its 5.9 billion-euro offering, went to its regional banks instead.
``Our banks have more capital than the biggest investment banks,'' Credit Agricole Chief Executive Officer Georges Pauget said in an interview in Milan on June 20.
London-based Barclays Plc got sovereign wealth funds in Singapore, China and Qatar to guarantee its stock sale to help Britain's No. 4 bank raise 4.5 billion pounds last week.
Concern that rights offers may fail and damage financial companies' efforts to shore up their balance sheets prompted Britain's market regulator to demand disclosure of short selling during rights offers. That occurs when investors bet on declines of share prices by selling borrowed stock in the hope of repurchasing it later at a lower price.
Short Selling
The Financial Services Authority cited short sellers earlier this month for causing ``severe volatility in the shares of companies conducting rights issues.'' The new rules, introduced June 20, require disclosure of short positions of more than 0.25 percent of stock for companies selling new shares in rights offerings.
Even if the ability of hedge funds to short shares has been curtailed, the risks of underwriting aren't about to diminish.
``It used to be a pretty low-risk business,'' said Hoffmann- Becking of Sanford Bernstein. ``Now we see it actually can be risky. And though they got away this time around, we don't know what's going to happen next.''
To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.netElena Logutenkova in Zurich at elogutenkova@bloomberg.net
Read more...
Commodities Signal Bubble Bursting as First-Half Ends
By Millie Munshi and Claudia Carpenter
June 30 (Bloomberg) -- Commodities finished their best first half in 35 years. The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply.
The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent through June 30, the most since 1973 and more than any second-half gain in at least five decades, data compiled by Bloomberg show.
High costs are slowing the pace of demand for gasoline in the U.S., and gold purchases in India, the biggest buyer, plunged 50 percent from a year earlier. Producers are expanding supplies of wheat in the U.S. and steel in China.
``We're near some kind of reckoning'' in commodities, said Michael Aronstein, president of Marketfield Asset Management in New York, who returned 15 percent a year in the 1990s managing commodity investments. ``I've probably been positive for seven years and this is the first time I think there could be really a dramatic secular reversal, that it's not just a pullback.''
High energy costs will deter consumers and reduce second- half prices, after oil doubled in the past year to a record $143.67 a barrel today, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd.
Jet-Fuel Costs
In the U.S., the world's largest energy user, the number of travelers over the Fourth of July holiday will drop for the first time this decade, after gasoline rose above $4 a gallon, motoring group AAA said June 26. Surging jet-fuel costs led to the failure of at least a dozen airlines in the past six months, grounding planes.
Demand is slowing for copper after the metal jumped 28 percent this year and reached $4.2605 a pound May 5, the highest ever, partly because of temporary supply disruptions in Chile, Peru and Mexico. China said June 10 its copper imports fell 19 percent last month to the lowest since August. Buyers in China, the world's biggest metals importer, are ``price sensitive,'' according to Freeport-McMoRan Copper & Gold Inc., the world's second-largest producer.
Gold demand from jewelers, the biggest users, has stalled since September, London-based UBS AG analyst John Reade said May 29. After reaching a record $1,033.90 an ounce March 17, gold will average $850 this year and $750 next year, he said. The World Gold Council said May 20 that first-quarter demand fell to a five-year low.
Rising Output
Price gains that curb demand are encouraging producers.
Katanga Mining Ltd. restarted the largest underground copper mine in the Democratic Republic of Congo. The Lisbon- based International Copper Study Group on April 28 forecast a supply surplus this year and next.
The world's wheat farmers will boost production by 8.2 percent to 658 million metric tons in the next 12 months, the International Grains Council said June 26. Wheat jumped to its highest price ever in February.
Output is gaining as economic growth slows.
The odds of the U.S. entering a recession in the next 12 months are 50 percent, according to the median forecast of 61 economists in a Bloomberg survey. Slowing global growth signals commodity demand will ``soften,'' the International Monetary Fund said in March. During the last U.S. recession in 2001, the CRB index plunged 16 percent.
`Buying Orgy'
Commodities advanced this year during a ``buying orgy'' by investors seeking better returns than stocks and bonds, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, said in March.
The UBS Bloomberg CMCI Index of 26 commodities rose 31 percent this year, touching a record today. Equity markets trailed behind, as the Standard & Poor's 500 Index dropped 13 percent. U.S. Treasuries returned 2.1 percent.
Indexes linked to commodities took in an unprecedented $235 billion as of mid-April, according to Lehman Brothers Holdings Inc.
The expansion is now slowing. Second-quarter net inflows into European exchange-traded products linked to commodities fell about 58 percent to $800 million from the previous quarter, Barclays Capital said.
The prospect of increased regulation also may make investing in raw materials less attractive, said Dennis Gartman, whose $250 million fund in commodities, stocks and bonds climbed about 30 percent since April 2007. The House of Representatives approved on June 26 a measure requiring the Commodity Futures Trading Commission to use its emergency authority to curb excessive speculation in energy.
Dollar Rally
Investors also may shift away from commodities as an alternative to dollar-denominated assets. The U.S. currency will end a two-year slide and advance in the second half, according to forecasts compiled by Bloomberg.
Lower prices would ease social tensions. The World Bank warned that 33 countries from Mexico to Yemen faced unrest because of higher commodity costs. The Egyptian government now spends about 5.5 percent of the national budget on bread subsidies and people were killed during food riots.
Some commodities may keep rallying.
Floods across Iowa, the largest corn-growing state, and in Illinois and Missouri threaten to cut corn and soybean plantings.
Seeding More Acres
U.S. farmers seeded more acres with corn than they indicated in March as prices rose to a record and they reduced soybean acres as the worst flooding in 15 years interfered with late-seeding plans, the U.S. Department of Agriculture said today. A more extensive assessment of any flood damage will be included in the Aug. 12 crop production report.
Jim Rogers, who in April 2006 correctly predicted oil would reach $100 and gold $1,000, said investors should steer clear of the dollar and favor commodities.
``Agricultural prices have much higher to go over the next decade,'' Rogers said in a speech in Shanghai today. ``We have a shortage of everything, including seeds.''
To contact the reporters on this story: Millie Munshi in New York at mmunshi@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net.
Last Updated: June 30, 2008 18:32 EDT
Read more...
June 30 (Bloomberg) -- Commodities finished their best first half in 35 years. The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply.
The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent through June 30, the most since 1973 and more than any second-half gain in at least five decades, data compiled by Bloomberg show.
High costs are slowing the pace of demand for gasoline in the U.S., and gold purchases in India, the biggest buyer, plunged 50 percent from a year earlier. Producers are expanding supplies of wheat in the U.S. and steel in China.
``We're near some kind of reckoning'' in commodities, said Michael Aronstein, president of Marketfield Asset Management in New York, who returned 15 percent a year in the 1990s managing commodity investments. ``I've probably been positive for seven years and this is the first time I think there could be really a dramatic secular reversal, that it's not just a pullback.''
High energy costs will deter consumers and reduce second- half prices, after oil doubled in the past year to a record $143.67 a barrel today, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd.
Jet-Fuel Costs
In the U.S., the world's largest energy user, the number of travelers over the Fourth of July holiday will drop for the first time this decade, after gasoline rose above $4 a gallon, motoring group AAA said June 26. Surging jet-fuel costs led to the failure of at least a dozen airlines in the past six months, grounding planes.
Demand is slowing for copper after the metal jumped 28 percent this year and reached $4.2605 a pound May 5, the highest ever, partly because of temporary supply disruptions in Chile, Peru and Mexico. China said June 10 its copper imports fell 19 percent last month to the lowest since August. Buyers in China, the world's biggest metals importer, are ``price sensitive,'' according to Freeport-McMoRan Copper & Gold Inc., the world's second-largest producer.
Gold demand from jewelers, the biggest users, has stalled since September, London-based UBS AG analyst John Reade said May 29. After reaching a record $1,033.90 an ounce March 17, gold will average $850 this year and $750 next year, he said. The World Gold Council said May 20 that first-quarter demand fell to a five-year low.
Rising Output
Price gains that curb demand are encouraging producers.
Katanga Mining Ltd. restarted the largest underground copper mine in the Democratic Republic of Congo. The Lisbon- based International Copper Study Group on April 28 forecast a supply surplus this year and next.
The world's wheat farmers will boost production by 8.2 percent to 658 million metric tons in the next 12 months, the International Grains Council said June 26. Wheat jumped to its highest price ever in February.
Output is gaining as economic growth slows.
The odds of the U.S. entering a recession in the next 12 months are 50 percent, according to the median forecast of 61 economists in a Bloomberg survey. Slowing global growth signals commodity demand will ``soften,'' the International Monetary Fund said in March. During the last U.S. recession in 2001, the CRB index plunged 16 percent.
`Buying Orgy'
Commodities advanced this year during a ``buying orgy'' by investors seeking better returns than stocks and bonds, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, said in March.
The UBS Bloomberg CMCI Index of 26 commodities rose 31 percent this year, touching a record today. Equity markets trailed behind, as the Standard & Poor's 500 Index dropped 13 percent. U.S. Treasuries returned 2.1 percent.
Indexes linked to commodities took in an unprecedented $235 billion as of mid-April, according to Lehman Brothers Holdings Inc.
The expansion is now slowing. Second-quarter net inflows into European exchange-traded products linked to commodities fell about 58 percent to $800 million from the previous quarter, Barclays Capital said.
The prospect of increased regulation also may make investing in raw materials less attractive, said Dennis Gartman, whose $250 million fund in commodities, stocks and bonds climbed about 30 percent since April 2007. The House of Representatives approved on June 26 a measure requiring the Commodity Futures Trading Commission to use its emergency authority to curb excessive speculation in energy.
Dollar Rally
Investors also may shift away from commodities as an alternative to dollar-denominated assets. The U.S. currency will end a two-year slide and advance in the second half, according to forecasts compiled by Bloomberg.
Lower prices would ease social tensions. The World Bank warned that 33 countries from Mexico to Yemen faced unrest because of higher commodity costs. The Egyptian government now spends about 5.5 percent of the national budget on bread subsidies and people were killed during food riots.
Some commodities may keep rallying.
Floods across Iowa, the largest corn-growing state, and in Illinois and Missouri threaten to cut corn and soybean plantings.
Seeding More Acres
U.S. farmers seeded more acres with corn than they indicated in March as prices rose to a record and they reduced soybean acres as the worst flooding in 15 years interfered with late-seeding plans, the U.S. Department of Agriculture said today. A more extensive assessment of any flood damage will be included in the Aug. 12 crop production report.
Jim Rogers, who in April 2006 correctly predicted oil would reach $100 and gold $1,000, said investors should steer clear of the dollar and favor commodities.
``Agricultural prices have much higher to go over the next decade,'' Rogers said in a speech in Shanghai today. ``We have a shortage of everything, including seeds.''
To contact the reporters on this story: Millie Munshi in New York at mmunshi@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net.
Last Updated: June 30, 2008 18:32 EDT
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Hollywood Studios, Actors Split on DVD Pay as Contract Expires
By Michael White
June 30 (Bloomberg) -- Hollywood's largest actors union remains split with studios over how performers are compensated for DVDs and products they promote in shows as their contract expires at midnight tonight.
Talks probably will extend beyond today if there are signs of progress, said Steve Diamond, a law professor specializing in labor issues at Santa Clara University in California. The Screen Actors Guild hasn't asked members to authorize a strike and said yesterday that any talk of a walkout would be a ``distraction.''
Failure by the guild and studios to reach a new agreement may mean greater economic damage to an industry still recovering from a three-month writers strike. A work stoppage would likely delay production on films scheduled to start in coming months, including Walt Disney Co.'s ``Prince of Persia: The Sands of Time'' and NBC Universal's ``Nottingham.''
``You don't like to think about another strike in the entertainment industry,'' said Jack Kyser, chief economist for the private Los Angeles County Economic Development Corp. ``It's what you could call a nerve-wracking time.''
The Alliance of Motion Picture and Television Producers, the studios' bargaining entity, will run ads today in the trade publications ``Variety'' and ``Hollywood Reporter'' urging actors to reach an agreement. The guild said in its statement yesterday it is committed to negotiating a fair contract for actors.
Separate Talks
Guild leaders may not make a deal before July 8, when the smaller American Federation of Television and Radio Artists reveals the outcome of a ratification vote on its separately negotiated agreement. Guild leaders are urging a ``No'' vote, a result that might strengthen their own position in negotiations.
The guild is seeking a bigger share of DVD revenue. The Aftra agreement, negotiated in May, provides minimum wage increases and payment for the use of actors' work on the Internet, but no increase for DVD sales.
The guild also wants actors to have the option of refusing to use branded products in films and television shows. Product placement has increased in both media as filmmakers have looked for ways to offset higher production costs.
The guild and Aftra are negotiating separately for the first time in 27 years following allegations from the smaller union that the guild was trying to poach members. The guild, which denied the charge, began talks on April 15. The negotiations broke down on May 6 and didn't resume until May 28, after Aftra reached its agreement.
Overlapping Members
Because Aftra's membership includes about 40,000 SAG members, approval of the smaller union's contract would be a sign that many actors are willing to settle for less to avoid a strike.
The guild, which represents actors in movies and most prime-time television dramas and comedies, has about 120,000 members. Aftra, with about 70,000, has jurisdiction over daytime soap operas, talk shows and a few prime-time shows.
The guild has signed agreements to allow production on more than 300 independent films if there's a strike, said Jonathan Handel, an entertainment attorney with TroyGould in Los Angeles.
A work stoppage would idle films linked to major studios through financing or distribution agreements, a category that covers most major releases. ``Prince of Persia'' is scheduled to begin filming in July and ``Nottingham'' in August, according to the Internet Movie Database, a Web site for film information.
A production shutdown would also add to the estimated $2.1 billion in economic losses caused by the three-month strike by television and movie writers. The writers returned to their jobs in February after agreeing to a contract that included higher pay and compensation for the use of their work on the Internet.
The effects of the writers strike will be felt throughout 2008, the Milken Institute said in a report released June 5.
Guild leaders haven't sought a strike authorization vote and probably won't, Diamond said. Many members who lost work during the writers strike are wary of another walkout, he said.
``I don't think there's high confidence they could get the 75 percent required, and there's low confidence they could get the 90 percent they need to be credible,'' he said.
To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net.
Read more...
June 30 (Bloomberg) -- Hollywood's largest actors union remains split with studios over how performers are compensated for DVDs and products they promote in shows as their contract expires at midnight tonight.
Talks probably will extend beyond today if there are signs of progress, said Steve Diamond, a law professor specializing in labor issues at Santa Clara University in California. The Screen Actors Guild hasn't asked members to authorize a strike and said yesterday that any talk of a walkout would be a ``distraction.''
Failure by the guild and studios to reach a new agreement may mean greater economic damage to an industry still recovering from a three-month writers strike. A work stoppage would likely delay production on films scheduled to start in coming months, including Walt Disney Co.'s ``Prince of Persia: The Sands of Time'' and NBC Universal's ``Nottingham.''
``You don't like to think about another strike in the entertainment industry,'' said Jack Kyser, chief economist for the private Los Angeles County Economic Development Corp. ``It's what you could call a nerve-wracking time.''
The Alliance of Motion Picture and Television Producers, the studios' bargaining entity, will run ads today in the trade publications ``Variety'' and ``Hollywood Reporter'' urging actors to reach an agreement. The guild said in its statement yesterday it is committed to negotiating a fair contract for actors.
Separate Talks
Guild leaders may not make a deal before July 8, when the smaller American Federation of Television and Radio Artists reveals the outcome of a ratification vote on its separately negotiated agreement. Guild leaders are urging a ``No'' vote, a result that might strengthen their own position in negotiations.
The guild is seeking a bigger share of DVD revenue. The Aftra agreement, negotiated in May, provides minimum wage increases and payment for the use of actors' work on the Internet, but no increase for DVD sales.
The guild also wants actors to have the option of refusing to use branded products in films and television shows. Product placement has increased in both media as filmmakers have looked for ways to offset higher production costs.
The guild and Aftra are negotiating separately for the first time in 27 years following allegations from the smaller union that the guild was trying to poach members. The guild, which denied the charge, began talks on April 15. The negotiations broke down on May 6 and didn't resume until May 28, after Aftra reached its agreement.
Overlapping Members
Because Aftra's membership includes about 40,000 SAG members, approval of the smaller union's contract would be a sign that many actors are willing to settle for less to avoid a strike.
The guild, which represents actors in movies and most prime-time television dramas and comedies, has about 120,000 members. Aftra, with about 70,000, has jurisdiction over daytime soap operas, talk shows and a few prime-time shows.
The guild has signed agreements to allow production on more than 300 independent films if there's a strike, said Jonathan Handel, an entertainment attorney with TroyGould in Los Angeles.
A work stoppage would idle films linked to major studios through financing or distribution agreements, a category that covers most major releases. ``Prince of Persia'' is scheduled to begin filming in July and ``Nottingham'' in August, according to the Internet Movie Database, a Web site for film information.
A production shutdown would also add to the estimated $2.1 billion in economic losses caused by the three-month strike by television and movie writers. The writers returned to their jobs in February after agreeing to a contract that included higher pay and compensation for the use of their work on the Internet.
The effects of the writers strike will be felt throughout 2008, the Milken Institute said in a report released June 5.
Guild leaders haven't sought a strike authorization vote and probably won't, Diamond said. Many members who lost work during the writers strike are wary of another walkout, he said.
``I don't think there's high confidence they could get the 75 percent required, and there's low confidence they could get the 90 percent they need to be credible,'' he said.
To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net.
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Yahoo Defends Google Partnership Amid Icahn Fight
By Crayton Harrison
June 30 (Bloomberg) -- Yahoo! Inc., battling billionaire investor Carl Icahn for control of its board, told shareholders that a partnership with Google Inc. was a better choice than a deal with Microsoft Corp.
Microsoft's proposal to buy Sunnyvale, California-based Yahoo's online search assets would have left the company unable to take advantage of growth in the Internet advertising market, Yahoo said today in an investor presentation.
Yahoo Chief Executive Officer Jerry Yang is seeking to reverse a decline in the stock since the company, owner of the No. 2 Internet search engine, ended talks with Microsoft. Icahn has criticized Yang for failing to close a deal with the world's biggest software maker, which withdrew an offer to buy all of Yahoo on May 3.
Shareholders will choose between Yahoo's nine directors and a slate put up by Icahn at an Aug. 1 meeting, and both sides are laying out their cases.
Microsoft was ``unresponsive and inconsistent'' in discussions on a takeover or another transaction, Yahoo said in the slides of its presentation, distributed in a regulatory filing. A separate offer to buy the Web search business would have hamstrung Yahoo's ability to compete, while the agreement with Google lets Yahoo keep working on search and still benefit from having Google sell advertising for some queries, Yahoo said.
Stock Reaction
``The market is more on Carl Icahn's side'' even though Yahoo makes compelling arguments, said Sachin Shah, an analyst at ICAP Securities in New York. He recommends buying Yahoo shares. ``The market is saying that Carl Icahn or new potential management or a board will get the ball rolling in a positive and strategic direction.''
Critics including U.S. Representative Joe Barton say the agreement with Google may hurt competition and consumer privacy. Yahoo may cede more market share to Google, said advertising buyers such as GroupM Interaction Worldwide's Rob Norman.
Yahoo fell 67 cents to $20.66 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have dropped 21 percent since June 11, the day before the company announced its agreement with Mountain View, California-based Google.
Microsoft, based in Redmond, Washington, fell 12 cents to $27.51.
To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net.
Last Updated: June 30, 2008 16:09 EDT
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June 30 (Bloomberg) -- Yahoo! Inc., battling billionaire investor Carl Icahn for control of its board, told shareholders that a partnership with Google Inc. was a better choice than a deal with Microsoft Corp.
Microsoft's proposal to buy Sunnyvale, California-based Yahoo's online search assets would have left the company unable to take advantage of growth in the Internet advertising market, Yahoo said today in an investor presentation.
Yahoo Chief Executive Officer Jerry Yang is seeking to reverse a decline in the stock since the company, owner of the No. 2 Internet search engine, ended talks with Microsoft. Icahn has criticized Yang for failing to close a deal with the world's biggest software maker, which withdrew an offer to buy all of Yahoo on May 3.
Shareholders will choose between Yahoo's nine directors and a slate put up by Icahn at an Aug. 1 meeting, and both sides are laying out their cases.
Microsoft was ``unresponsive and inconsistent'' in discussions on a takeover or another transaction, Yahoo said in the slides of its presentation, distributed in a regulatory filing. A separate offer to buy the Web search business would have hamstrung Yahoo's ability to compete, while the agreement with Google lets Yahoo keep working on search and still benefit from having Google sell advertising for some queries, Yahoo said.
Stock Reaction
``The market is more on Carl Icahn's side'' even though Yahoo makes compelling arguments, said Sachin Shah, an analyst at ICAP Securities in New York. He recommends buying Yahoo shares. ``The market is saying that Carl Icahn or new potential management or a board will get the ball rolling in a positive and strategic direction.''
Critics including U.S. Representative Joe Barton say the agreement with Google may hurt competition and consumer privacy. Yahoo may cede more market share to Google, said advertising buyers such as GroupM Interaction Worldwide's Rob Norman.
Yahoo fell 67 cents to $20.66 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have dropped 21 percent since June 11, the day before the company announced its agreement with Mountain View, California-based Google.
Microsoft, based in Redmond, Washington, fell 12 cents to $27.51.
To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net.
Last Updated: June 30, 2008 16:09 EDT
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EBay to Fight French Court's $63 Million LVMH Ruling
By Beth Jinks and Ladka Bauerova
June 30 (Bloomberg) -- EBay Inc. will appeal a French court ruling that restricts the sale of LVMH Moet Hennessy Louis Vuitton SA products, describing the decision as an ``anti-competitive overreach.''
The court ordered today that EBay pay almost 40 million euros ($63 million) for Internet sales of counterfeit goods. LVMH claimed in the Paris lawsuit that the world's biggest Internet auctioneer has a heightened responsibility to prevent fraud and didn't do enough to stop the sale of phony goods on its French site. The ruling also prohibits the sale of LVMH perfumes on EBay.
``It really could set the precedent for others,'' EBay spokeswoman Nichola Sharpe said today in a telephone interview. ``If we don't put our foot down now and strongly fight it on behalf of consumers' choice, we'd be letting them down. It's an anticompetitive business practice that will restrict consumer choice.''
LVMH, the world's largest luxury-goods maker, said it found in 2006 that 90 percent of the Louis Vuitton and Dior-labeled perfumes, watches and handbags offered on EBay were fakes. Online sales of counterfeit clothes, bags and jewelry cost makers of original products about $30 billion a year, Tiffany & Co. and other retailers claim in a separate U.S. lawsuit.
The precedent may lead to other companies blocking product sales across all Internet marketplaces, and add restrictions on re-selling gifts or genuine second-hand goods online, EBay said. The Internet retailer hasn't decided how it will comply pending the appeal, Sharpe said.
Shares Fall
EBay, based in San Jose, California, fell 28 cents to $27.33 at 4 p.m. New York time in Nasdaq Stock Market trading. LVMH gained 53 cents to 66.58 euros in Paris.
EBay had $7.67 billion in revenue in 2007.
The Internet auctioneer must pay 19.28 million euros to leather-goods maker Louis Vuitton, 16.4 million euros to Christian Dior fashion house and 3.19 million euros to the makers of Christian Dior, Kenzo, Givenchy and Guerlain perfumes, the court ruled. EBay must also post the ruling on all its Web sites in English and French for three weeks and pay to promote it in three publications of LVMH's choice.
``It's a groundbreaking decision that will help protect creativity,'' said Pierre Gode, a member of LVMH's supervisory board and adviser to chairman Bernard Arnault. ``It's an important precedent.''
French Battleground
The size of today's award may prompt other lawsuits in France, said Heather McDonald, a New York-based partner at law firm Baker Hostetler LLP, who specializes in intellectual property enforcement litigation. EBay should treat it as a ``call to action'' to implement better global controls on counterfeit sales, she said.
``This will be the bellwether to brand holders all around the world to file suit against EBay in France,'' McDonald said today in a telephone interview. She isn't involved in the case. ``The French courts have made it clear that they're not going to tolerate this kind of activity.''
EBay claims LVMH is using the ruling to ``confuse separate issues'' and targeted EBay to ``exact ever greater control over e-commerce'' and its markets.
EBay has cracked down on counterfeit sales, particularly since 2006, Sharpe said. The company is working with patent and copyright owners, boosting its own monitoring, removing suspect listings and blocking certain sellers from the site.
Last year EBay removed 2.2 million suspected counterfeit listings, most within hours of being reported or detected, Sharpe said. The company suspended about 50,000 sellers and blocked another 40,000, who were suspended earlier, from coming back.
647 Million Listings
EBay has more than 82.3 million ``active users'' worldwide, Sharpe said. About 647 million listings were added in the first quarter, according to EBay's Web site.
The court ruled that EBay isn't qualified to sell LVMH perfumes, which should be distributed only through selected retailers with trained staff.
``This decision lays down the rules for sale of specific merchandise such as perfumes whose sale is reserved for special places with appropriate presentation,'' Gode said. ``Online retailers will now be subject to the same rules as traditional retailers.''
Another court ruled this month in a case filed by Hermes International SA that EBay is a partner to its vendors and must take more steps to fight fakes.
The cases in France, EBay's fourth-largest market, are seeking to raise the legal requirements on the company. The judge in the Hermes case said EBay should require certificates of authenticity and serial numbers for sales.
Germany's highest court last year ruled EBay needed to better police online sales in a case bought by Rolex Group, said McDonald.
To contact the reporters on this story: Ladka Bauerova in Paris at lbauerova@bloomberg.net; Beth Jinks in New York at bjinks1@bloomberg.net
Last Updated: June 30, 2008 16:51 EDT
Read more...
June 30 (Bloomberg) -- EBay Inc. will appeal a French court ruling that restricts the sale of LVMH Moet Hennessy Louis Vuitton SA products, describing the decision as an ``anti-competitive overreach.''
The court ordered today that EBay pay almost 40 million euros ($63 million) for Internet sales of counterfeit goods. LVMH claimed in the Paris lawsuit that the world's biggest Internet auctioneer has a heightened responsibility to prevent fraud and didn't do enough to stop the sale of phony goods on its French site. The ruling also prohibits the sale of LVMH perfumes on EBay.
``It really could set the precedent for others,'' EBay spokeswoman Nichola Sharpe said today in a telephone interview. ``If we don't put our foot down now and strongly fight it on behalf of consumers' choice, we'd be letting them down. It's an anticompetitive business practice that will restrict consumer choice.''
LVMH, the world's largest luxury-goods maker, said it found in 2006 that 90 percent of the Louis Vuitton and Dior-labeled perfumes, watches and handbags offered on EBay were fakes. Online sales of counterfeit clothes, bags and jewelry cost makers of original products about $30 billion a year, Tiffany & Co. and other retailers claim in a separate U.S. lawsuit.
The precedent may lead to other companies blocking product sales across all Internet marketplaces, and add restrictions on re-selling gifts or genuine second-hand goods online, EBay said. The Internet retailer hasn't decided how it will comply pending the appeal, Sharpe said.
Shares Fall
EBay, based in San Jose, California, fell 28 cents to $27.33 at 4 p.m. New York time in Nasdaq Stock Market trading. LVMH gained 53 cents to 66.58 euros in Paris.
EBay had $7.67 billion in revenue in 2007.
The Internet auctioneer must pay 19.28 million euros to leather-goods maker Louis Vuitton, 16.4 million euros to Christian Dior fashion house and 3.19 million euros to the makers of Christian Dior, Kenzo, Givenchy and Guerlain perfumes, the court ruled. EBay must also post the ruling on all its Web sites in English and French for three weeks and pay to promote it in three publications of LVMH's choice.
``It's a groundbreaking decision that will help protect creativity,'' said Pierre Gode, a member of LVMH's supervisory board and adviser to chairman Bernard Arnault. ``It's an important precedent.''
French Battleground
The size of today's award may prompt other lawsuits in France, said Heather McDonald, a New York-based partner at law firm Baker Hostetler LLP, who specializes in intellectual property enforcement litigation. EBay should treat it as a ``call to action'' to implement better global controls on counterfeit sales, she said.
``This will be the bellwether to brand holders all around the world to file suit against EBay in France,'' McDonald said today in a telephone interview. She isn't involved in the case. ``The French courts have made it clear that they're not going to tolerate this kind of activity.''
EBay claims LVMH is using the ruling to ``confuse separate issues'' and targeted EBay to ``exact ever greater control over e-commerce'' and its markets.
EBay has cracked down on counterfeit sales, particularly since 2006, Sharpe said. The company is working with patent and copyright owners, boosting its own monitoring, removing suspect listings and blocking certain sellers from the site.
Last year EBay removed 2.2 million suspected counterfeit listings, most within hours of being reported or detected, Sharpe said. The company suspended about 50,000 sellers and blocked another 40,000, who were suspended earlier, from coming back.
647 Million Listings
EBay has more than 82.3 million ``active users'' worldwide, Sharpe said. About 647 million listings were added in the first quarter, according to EBay's Web site.
The court ruled that EBay isn't qualified to sell LVMH perfumes, which should be distributed only through selected retailers with trained staff.
``This decision lays down the rules for sale of specific merchandise such as perfumes whose sale is reserved for special places with appropriate presentation,'' Gode said. ``Online retailers will now be subject to the same rules as traditional retailers.''
Another court ruled this month in a case filed by Hermes International SA that EBay is a partner to its vendors and must take more steps to fight fakes.
The cases in France, EBay's fourth-largest market, are seeking to raise the legal requirements on the company. The judge in the Hermes case said EBay should require certificates of authenticity and serial numbers for sales.
Germany's highest court last year ruled EBay needed to better police online sales in a case bought by Rolex Group, said McDonald.
To contact the reporters on this story: Ladka Bauerova in Paris at lbauerova@bloomberg.net; Beth Jinks in New York at bjinks1@bloomberg.net
Last Updated: June 30, 2008 16:51 EDT
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Japan's Tankan Sentiment Falls Less Than Estimated
By Jason Clenfield
July 1 (Bloomberg) -- Confidence among Japan's largest manufacturers fell less than economists estimated, signaling that the nation's exporters expect to withstand the U.S. slowdown and rising raw-materials costs.
The Tankan index of manufacturer sentiment slid to 5 points in June from 11 in March, a third quarterly decline, the Bank of Japan said today in Tokyo. The median estimate of 32 economists surveyed by Bloomberg was for a drop to 3 points.
Large companies said they plan to increase capital spending 2.4 percent this fiscal year, after saying they would cut investment three months ago. Exporters are turning to Asia and oil-producing nations amid waning sales in the U.S., the nation's largest market. That demand is easing the impact that record commodities costs have on corporate profits at home.
``Things are reasonably tough in terms of profitability but not so tough in terms of underlying demand,'' Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo, said before the report. ``In some ways, this is why people have been mistakenly pessimistic on the state of the economy.''
The yen traded at 106.09 per dollar at 9:08 a.m. in Tokyo from 106.15 before the report was published. The Nikkei 225 Stock Average rose 0.2 percent.
The large manufacturer index is still above the negative numbers recorded during Japan's most recent recession, which ended in 2002. The survey plunged to minus 51 in 1998, when Asia was in the throes of a currency crisis and the government had to buy failed lenders including Long-Term Credit Bank of Japan Ltd.
Komatsu's Profit
Companies are largely debt-free and cash-rich, Tetsuro Sugiura, chief economist at Mizuho Research Institute Ltd. in Tokyo, said before today's survey was released. Businesses have managed to control costs by trimming staff and keeping wages down. ``Companies are better prepared to handle external shocks than before,'' he said.
Komatsu Ltd., the world's second-largest maker of earthmovers, in April forecast its fifth year of record earnings, buoyed by demand for construction and mining equipment in markets from China and Russia to the Middle East.
Still, the U.S. slowdown is starting to spread to Europe and Asia, weakening Japan's export growth, while record energy and commodity prices are taking a toll on profits. Japan's economy probably contracted last quarter, as growth in overseas shipments slowed and households, whose budgets have also been squeezed by higher gas and food prices, tightened their belts.
Bank of Japan
Slower growth is likely to prevent the Bank of Japan from raising its key interest rate from 0.5 percent this year, even as inflation runs at the fastest pace in a decade, according to economists surveyed by Bloomberg News.
Crude oil prices have doubled in the past year, squeezing household budgets and the small businesses that employ more than 70 percent of Japan's workers. Consumer confidence slumped to a six-year low in May, household spending has fallen for three months and job vacancies are at a three-year low. Takashimaya Co., Japan's second-biggest department store, last week cut its full-year sales outlook.
``Japanese consumers find themselves between a rock and a hard place,'' said Takuji Okubo, a senior economist at Merrill Lynch & Co. in Tokyo. ``With mounting evidence of weakening demand, a rate hike by the Bank of Japan is a very remote possibility.''
To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net
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U.S. Economy: Chicago Purchasing Manager Index Gains
By Timothy R. Homan
June 30 (Bloomberg) -- U.S. business purchases unexpectedly shrank at a slower pace in June, indicating a prolonged economic slowdown that isn't getting any worse.
The National Association of Purchasing Management-Chicago said today its business index increased to 49.6 this month from 49.1 in May. Fifty is the dividing line between growth and contraction.
``Although it's slightly higher than last month, it's still lower than we would like to see and suggests that we will be in a period of weakness for a while,'' said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, North Carolina, who forecast the index would rise to 49.5.
The figures reflect an increase in consumer spending this quarter spurred by federal tax rebates, and record exports aided by a weaker dollar. At the same time, the report showed a fifth straight month of contracting activity, indicating no sign of a sustained acceleration in growth.
Treasuries were little changed after the report, and stocks recovered earlier losses. Yields on benchmark 10-year notes were at 3.97 percent at 4:16 p.m. in New York, the same as last week's close. The Standard & Poor's 500 Stock Index advanced 0.1 percent to close at 1,280.
Economists surveyed by Bloomberg News had projected the index would fall to 48, according to the median of 60 forecasts in a Bloomberg News survey. Estimates ranged from 46 to 51.
2007 Comparison
June showed the slowest pace of contraction since Chicago- area activity started shrinking in February. The index averaged 54.4 last year.
Consumer spending rose in May as households spent some of the more than $100 billion of tax rebates the government is distributing this year. Record gasoline costs, rising food prices and declining payrolls mean the boost may prove temporary, economists said.
``The fiscal stimulus is supporting the economy to some extent,'' said Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania. ``Beyond the rebates, spending is going to be very weak. Along with the other headwinds, the consumer faces potentially stronger inflation. That will sap household spending power.''
Foreign demand has helped manufacturing perform better than in previous economic downturns. Gross domestic product rose at a 1 percent annual pace in the first quarter, the Commerce Department said last week. The trade gap was $480.2 billion, the lowest since the third quarter of 2002, and contributed 0.8 percentage point to growth.
Harley-Davidson
Harley-Davidson Inc., the biggest U.S. motorcycle maker, this month said it expects to see an increase in foreign demand for the remainder of 2008.
``Given the strength we are seeing, we're going to continue to increase investment in international markets, and we're going to continue to increase shipments'' overseas, Chief Financial Officer Thomas Bergmann said in a June 19 interview with Bloomberg Television.
Consumer spending and personal income surged in May, a sign the biggest part of the economy is benefiting from the government tax-rebate checks.
The 0.8 percent rise in spending followed a 0.4 percent increase in April, the Commerce Department said last week. Incomes grew 1.9 percent, the most since September 2005.
The Chicago report's measure of new orders fell to 52, signaling smaller gains, from 56.1 in May. Order backlogs dropped to 42.3 from 46.8.
The Chicago group's employment index increased to 46.7 from 41.2 a month ago.
June Payrolls
The Labor Department is scheduled to release the June payrolls report on July 3. Manufacturers have lost jobs every month since July 2006.
Brunswick Corp., the maker of Sea Ray yachts and Boston Whaler fishing boats, last week said it will close four more North American plants and cut as much as 10 percent of staff to trim costs. The Lake Forest, Illinois-based company will have 17 or fewer plants at the end of 2009, compared with 29 in 2007.
The production gauge in today's Chicago report decreased to 45.1, the lowest reading since August 2001, from 51.5 in May. The group's inventories index rose to 50.5 from 42.2.
The purchasing managers' measure of prices paid for raw materials decreased to 85.5 from 87.5 the previous month.
Some companies are trying to pass on higher costs to customers. Dow Chemical Co., the biggest U.S. chemical maker, last week said it will raise prices as much as 25 percent in July to offset higher input costs. The increase is the largest in company history and the second in two months.
The Chicago purchasers' group surveys companies with U.S. and worldwide operations. Any group member, even those not located in the Midwest, can respond to the survey.
National Index
Economists monitor the Chicago index for an early reading on the outlook for U.S. manufacturing, which makes up about 12 percent of the economy. The Institute for Supply Management is scheduled to release its June manufacturing survey tomorrow.
Regional reports earlier this month showed manufacturing shrinking. The Federal Reserve Bank of Philadelphia's general economic index dropped to minus 17.1, a seventh month of contraction, from minus 15.6 in May. The New York Fed's measure fell to minus 8.7 from minus 3.2 a month earlier.
Other releases indicate the slowdown in manufacturing. Excluding orders for cars and planes, which tend to be volatile, bookings for durable goods declined 0.9 percent in May, the first drop in three months, the Commerce Department said last week.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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June 30 (Bloomberg) -- U.S. business purchases unexpectedly shrank at a slower pace in June, indicating a prolonged economic slowdown that isn't getting any worse.
The National Association of Purchasing Management-Chicago said today its business index increased to 49.6 this month from 49.1 in May. Fifty is the dividing line between growth and contraction.
``Although it's slightly higher than last month, it's still lower than we would like to see and suggests that we will be in a period of weakness for a while,'' said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, North Carolina, who forecast the index would rise to 49.5.
The figures reflect an increase in consumer spending this quarter spurred by federal tax rebates, and record exports aided by a weaker dollar. At the same time, the report showed a fifth straight month of contracting activity, indicating no sign of a sustained acceleration in growth.
Treasuries were little changed after the report, and stocks recovered earlier losses. Yields on benchmark 10-year notes were at 3.97 percent at 4:16 p.m. in New York, the same as last week's close. The Standard & Poor's 500 Stock Index advanced 0.1 percent to close at 1,280.
Economists surveyed by Bloomberg News had projected the index would fall to 48, according to the median of 60 forecasts in a Bloomberg News survey. Estimates ranged from 46 to 51.
2007 Comparison
June showed the slowest pace of contraction since Chicago- area activity started shrinking in February. The index averaged 54.4 last year.
Consumer spending rose in May as households spent some of the more than $100 billion of tax rebates the government is distributing this year. Record gasoline costs, rising food prices and declining payrolls mean the boost may prove temporary, economists said.
``The fiscal stimulus is supporting the economy to some extent,'' said Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania. ``Beyond the rebates, spending is going to be very weak. Along with the other headwinds, the consumer faces potentially stronger inflation. That will sap household spending power.''
Foreign demand has helped manufacturing perform better than in previous economic downturns. Gross domestic product rose at a 1 percent annual pace in the first quarter, the Commerce Department said last week. The trade gap was $480.2 billion, the lowest since the third quarter of 2002, and contributed 0.8 percentage point to growth.
Harley-Davidson
Harley-Davidson Inc., the biggest U.S. motorcycle maker, this month said it expects to see an increase in foreign demand for the remainder of 2008.
``Given the strength we are seeing, we're going to continue to increase investment in international markets, and we're going to continue to increase shipments'' overseas, Chief Financial Officer Thomas Bergmann said in a June 19 interview with Bloomberg Television.
Consumer spending and personal income surged in May, a sign the biggest part of the economy is benefiting from the government tax-rebate checks.
The 0.8 percent rise in spending followed a 0.4 percent increase in April, the Commerce Department said last week. Incomes grew 1.9 percent, the most since September 2005.
The Chicago report's measure of new orders fell to 52, signaling smaller gains, from 56.1 in May. Order backlogs dropped to 42.3 from 46.8.
The Chicago group's employment index increased to 46.7 from 41.2 a month ago.
June Payrolls
The Labor Department is scheduled to release the June payrolls report on July 3. Manufacturers have lost jobs every month since July 2006.
Brunswick Corp., the maker of Sea Ray yachts and Boston Whaler fishing boats, last week said it will close four more North American plants and cut as much as 10 percent of staff to trim costs. The Lake Forest, Illinois-based company will have 17 or fewer plants at the end of 2009, compared with 29 in 2007.
The production gauge in today's Chicago report decreased to 45.1, the lowest reading since August 2001, from 51.5 in May. The group's inventories index rose to 50.5 from 42.2.
The purchasing managers' measure of prices paid for raw materials decreased to 85.5 from 87.5 the previous month.
Some companies are trying to pass on higher costs to customers. Dow Chemical Co., the biggest U.S. chemical maker, last week said it will raise prices as much as 25 percent in July to offset higher input costs. The increase is the largest in company history and the second in two months.
The Chicago purchasers' group surveys companies with U.S. and worldwide operations. Any group member, even those not located in the Midwest, can respond to the survey.
National Index
Economists monitor the Chicago index for an early reading on the outlook for U.S. manufacturing, which makes up about 12 percent of the economy. The Institute for Supply Management is scheduled to release its June manufacturing survey tomorrow.
Regional reports earlier this month showed manufacturing shrinking. The Federal Reserve Bank of Philadelphia's general economic index dropped to minus 17.1, a seventh month of contraction, from minus 15.6 in May. The New York Fed's measure fell to minus 8.7 from minus 3.2 a month earlier.
Other releases indicate the slowdown in manufacturing. Excluding orders for cars and planes, which tend to be volatile, bookings for durable goods declined 0.9 percent in May, the first drop in three months, the Commerce Department said last week.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Copper Is Little Changed in N.Y. as Dollar Rebound Curbs Demand
By Millie Munshi
June 30 (Bloomberg) -- Copper was little changed, paring gains, as the dollar's rebound eroded demand for commodities as a hedge against inflation.
The dollar rose as much as 0.4 percent against the euro today, snapping a four-session slump. The Reuters/Jefferies CRB Index of 19 raw materials fell from a record. Copper has gained 28 percent this year as the sagging dollar and soaring energy costs boosted demand for commodities as a store of value.
Copper ``drifted lower as the dollar strengthened,'' said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. ``The copper trade now is based on people using metals and commodities as inflationary hedges.''
Copper futures for September delivery rose 0.45 cent, or 0.1 percent, to $3.8825 a pound on the Comex division of the New York Mercantile Exchange. Earlier, the price fell as much as 1.2 percent.
On the London Metal Exchange, copper for delivery in three months dropped $20, or 0.2 percent, to $8,510 a metric ton ($3.86 a pound). The metal climbed to a record $8,880 a ton on April 17.
Investors may shift away from commodities as an alternative to dollar-denominated assets. The U.S. currency will end a two- year slide and advance in the second half, according to forecasts compiled by Bloomberg.
``We would expect demand for commodities will start to cool,'' Sean Darby, the head of regional strategy for Nomura Holdings Inc., said in an interview on Bloomberg Television. The key to lower raw-material prices will be a ``firmer dollar,'' he said.
Strike in Peru
Earlier, copper reached $3.913, the highest since May 6, as a strike threatened supplies from Peru, the world's third- largest producer of the metal.
The third national strike in less than 14 months started today in Peru as workers at more than a dozen mines walked off the job, said Luis Castillo, the general secretary of the Mining Federation.
``Copper is getting some support from the strike,'' said Frank McGhee, the head metals trader at Integrated Brokerage Services LLC in Chicago. The market is ``tightly supplied,'' he said.
Labor unrest in Latin American countries including Mexico and Chile, the world's biggest copper producer, has reduced output in the past year. The price of the metal has quadrupled in the past five years as mining companies struggled to keep up with increasing demand from China and other emerging economies.
Copper on the Comex climbed 7.7 percent in June and is up 13 percent in the past 12 months.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.
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June 30 (Bloomberg) -- Copper was little changed, paring gains, as the dollar's rebound eroded demand for commodities as a hedge against inflation.
The dollar rose as much as 0.4 percent against the euro today, snapping a four-session slump. The Reuters/Jefferies CRB Index of 19 raw materials fell from a record. Copper has gained 28 percent this year as the sagging dollar and soaring energy costs boosted demand for commodities as a store of value.
Copper ``drifted lower as the dollar strengthened,'' said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. ``The copper trade now is based on people using metals and commodities as inflationary hedges.''
Copper futures for September delivery rose 0.45 cent, or 0.1 percent, to $3.8825 a pound on the Comex division of the New York Mercantile Exchange. Earlier, the price fell as much as 1.2 percent.
On the London Metal Exchange, copper for delivery in three months dropped $20, or 0.2 percent, to $8,510 a metric ton ($3.86 a pound). The metal climbed to a record $8,880 a ton on April 17.
Investors may shift away from commodities as an alternative to dollar-denominated assets. The U.S. currency will end a two- year slide and advance in the second half, according to forecasts compiled by Bloomberg.
``We would expect demand for commodities will start to cool,'' Sean Darby, the head of regional strategy for Nomura Holdings Inc., said in an interview on Bloomberg Television. The key to lower raw-material prices will be a ``firmer dollar,'' he said.
Strike in Peru
Earlier, copper reached $3.913, the highest since May 6, as a strike threatened supplies from Peru, the world's third- largest producer of the metal.
The third national strike in less than 14 months started today in Peru as workers at more than a dozen mines walked off the job, said Luis Castillo, the general secretary of the Mining Federation.
``Copper is getting some support from the strike,'' said Frank McGhee, the head metals trader at Integrated Brokerage Services LLC in Chicago. The market is ``tightly supplied,'' he said.
Labor unrest in Latin American countries including Mexico and Chile, the world's biggest copper producer, has reduced output in the past year. The price of the metal has quadrupled in the past five years as mining companies struggled to keep up with increasing demand from China and other emerging economies.
Copper on the Comex climbed 7.7 percent in June and is up 13 percent in the past 12 months.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.
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Iraq seeking help to develop oil
BBC News, Iraq has begun the process of opening up its oil industry to foreign investment in an effort to boost output of the country's key income earner.
Iraq is seeking external help to boost output from six key oil fields and has attracted interest from leading US, Asian and European producers.
Oil production is currently at its highest since the 2003 invasion.
But political wrangling has so far prevented agreement over who should agree deals and how income is shared.
Political problems
Iraq has reserves of about 115 billion barrels, the world's third largest, and the development of its oil facilities is essential to help to fund the country's long-term reconstruction.
But huge investment is needed to modernise its infrastructure and Iraq's Parliament has so far failed to agree a legal basis for who should agree contracts and how the country's oil should be shared among different groups.
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Iraq is seeking external help to boost output from six key oil fields and has attracted interest from leading US, Asian and European producers.
Oil production is currently at its highest since the 2003 invasion.
But political wrangling has so far prevented agreement over who should agree deals and how income is shared.
Political problems
Iraq has reserves of about 115 billion barrels, the world's third largest, and the development of its oil facilities is essential to help to fund the country's long-term reconstruction.
But huge investment is needed to modernise its infrastructure and Iraq's Parliament has so far failed to agree a legal basis for who should agree contracts and how the country's oil should be shared among different groups.
The authorities in Baghdad have long been at odds over the issue with the semi-autonomous Kurdistan regional government in the north of the country.
Production currently totals 2.5 million barrels a day and Iraq hopes to increase output to 2.9 million barrels by the end of 2009.
Iraq confirmed on Monday that it was seeking foreign investment to develop six of its most important oil fields - Rumaila, Kirkuk, Zubair, West Qurna, Bai Hassan and Maysan.
It has identified 35 foreign firms which are qualified to tender for the contracts, to be awarded next summer.
Amid concerns about foreign firms reaping huge financial rewards, Baghdad said the successful firms would have to have an Iraqi partner and give 25% of the value of contracts to locally owned firms.
Significance
The BBC's Nicholas Witchell in Baghdad said the move was highly significant since it paved the way for large foreign firms to re-enter a market they have been effectively barred from since Saddam Hussein nationalised Iraq's main oil company in 1972.
"It is not possible for Iraq, which has large oil reserves, to stay at the current level of production," said oil minister Hussain al-Shahristani.
"Iraq should be the second or third source of oil exportation."
Iraq's courting of foreign investment is at an early stage but has already attracted controversy due to claims that some contracts might be awarded without competitive bids.
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Reports suggested that officials were hoping to announce short-term service agreements - an interim measure pending political agreement over a national oil law - with Exxon Mobil, Shell, Total and BP on Monday.
The AFP news agency said Iraqi officials were unwilling to share revenue from oil sales with the firms, as reportedly sought by them, preferring instead to pay them consultancy fees.
However, negotiations over contract terms are believed to be continuing.
The reduction in violence in much of the country over the past year has helped the oil sector achieve greater stability.
On Saturday, Iraq announced it was setting up a third state-owned oil business to expand production from the Maysan region in the south east of the country.
With oil prices at record levels and, according to many experts, set to rise further, the prospect of increased output from Iraq will provide some comfort amid growing worries about whether global supplies can meet long-term demand for oil.
Officials hope the presence of multinational oil firms in Iraq will stimulate more foreign investment in Iraq, our correspondent added.
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