By Nick Baker
Aug. 31 (Bloomberg) -- RWE AG was added to Europe’s Dow Jones Stoxx 50 Index, replacing Royal Philips Electronics NV, Stoxx Ltd. said in a statement today.
Anheuser-Busch InBev NV and CRH Plc were selected to replace Fortis and Renault SA in the Dow Jones Euro Stoxx 50 Index, a measure of stocks in nations using the common European currency.
By Oliver Suess
Sept. 1 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.
The DAX Index fell 1 percent to 5,464.61.
Air Berlin Plc (AB1 GY): Europe’s third largest discount carrier said BlueBay Asset Management Plc’s BlueBay Multi- Strategy (Master) Fund Ltd. and BlueBay Global Convertible Bond Fund bought convertible bonds Aug. 25 which can be converted into 3.99 million shares between Nov. 17 and Aug. 15, 2014, which would give BlueBay a possible 5.2 percent stake in the airline’s voting rights. The shares fell 1.6 percent to 3.81 euros.
BayWa AG (BYW6 GY): Europe’s largest grain broker is considering at least 10 takeover targets, Chief Executive Officer Klaus Josef Lutz told Frankfurter Allgemeine Zeitung in an interview. The shares declined 0.4 percent to 23.90 euros.
Commerzbank AG (CBK GY): Dresdner Kleinwort, the investment bank that traces its name back 223 years to a trade financier, will cease to exist as of Sept. 1 as a brand as Commerzbank marks the first anniversary of its takeover of Dresdner Bank. The stock fell 1.3 percent to 6.44 euros.
Fraport AG (FRA GY): The owner of the Frankfurt airport is not interested in buying the U.K.’s Stansted and Gatwick airports, Frankfurter Allgemeine Zeitung said, citing Stefan Schulte, who will be the company’s chief executive officer. While talks about operating and developing the Pulkovo Airport in St. Petersburg in Russia “are going well,” the completion of the first segment of the Frankfurt airport’s new Terminal 3 will probably be delayed by two years, the newspaper cited Schulte as saying. The shares lost 1.5 percent to 35.22 euros.
RWE AG (RWE GY): Germany’s second-biggest utility was added to Europe’s Dow Jones Stoxx 50 Index, replacing Royal Philips Electronics NV, Stoxx Ltd. said in a statement. RWE shares fell 0.7 percent to 64.60 euros.
To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net
By Ben Martin and David Merritt
Sept. 1 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.
The benchmark FTSE 100 Index rose 39.55, or 0.8 percent, to 4,908.9. The FTSE All-Share Index rose 0.9 percent and Ireland’s ISEQ Index fell 0.6 percent.
AstraZeneca Plc (AZN LN): The U.K.’s second-largest drugmaker’s experimental clot-fighting drug Brilinta prevented 16 percent more heart attacks, strokes and deaths than standard therapy with Sanofi-Aventis SA’s and Bristol-Myers Squibb Co.’s Plavix in a study. The stock fell 29 pence, or 1 percent, to 2,840 pence.
BAE Systems Plc (BA/ LN): Europe’s biggest defense company is seeking to export as many as 300 Eurofighter Typhoon jet planes, the Sunday Telegraph reported, without saying where it obtained the information. The stock climbed 6.2 pence, or 2 percent, to 312.2 pence.
BT Group Plc (BT/A LN): The chief executive officer of the U.K.’s largest phone company’s U.K. Global Services unit, Royston Hoggarth, left the company, the Sunday Telegraph reported. The stock rose 1.8 pence, or 1.3 percent, to 138.4 pence.
Cairn Energy Plc (CNE LN): Cairn India Ltd., a unit of the U.K.-based explorer, started producing crude oil from its biggest field in Rajasthan state. The stock rose 37 pence, or 1.5 percent, to 2507 pence.
Dechra Pharmaceuticals Plc (DPH LN): The veterinary drugs and services company is scheduled to report earnings. The shares rose 12.4 pence, or 3 percent, to 428.8 pence.
Gulfsands Petroleum Plc (GPX LN): Sinochem Corp., China’s state-owned chemicals trader, is in talks to acquire Gulfsands Petroleum Plc, a U.K. explorer with operations in the Middle East and the U.S., the Sunday Mail reported. The stock rose 1 pence, or 0.4 percent, to 230 pence.
ITV Plc (ITV LN): The U.K.’s biggest commercial broadcaster is considering former British Sky Broadcasting Group Plc Chief Executive Officer Tony Ball for the position of CEO, the Financial Times reported, citing people familiar with the process. The shares rose 1.7 pence, or 3.6 percent, to 48.73 pence.
Lloyds Banking Group Plc (LLOY LN): The U.K.’s biggest mortgage lender has agreed to a one billion-pound deal with the U.K. government to guarantee half the risk on a portfolio of its existing short-term loans to companies in return for Lloyds agreeing to more business lending, the FT said. The bank’s Halifax unit plans to review its licensing of 300 outlets in the offices of real-estate agents, lawyers and financial consultants, after agreeing to shut 26 of the independent bank counters. Lloyds also offered to sell the Scottish branches of Lloyds TSB and the Cheltenham & Gloucester Plc network, the Sunday Times reported. The stock rose 6.64 pence, or 6.3 percent, to 111.34 pence.
National Express Group Plc (NEX LN): The U.K. travel company whose East Coast rail franchise is being taken over by the government plans to hold a smaller-than-expected rights offer to raise 300 million pounds within three weeks, the Sunday Times reported, without saying where it got the information. The stock fell 10.2 pence, or 2.5 percent, to 398.4 pence.
Royal Dutch Shell Plc (RDSA LN): Europe’s largest oil company began construction of its first lubricants plant in Russia. The stock climbed 18.5 pence, or 1.1 percent, to 1711 pence.
Safestore Holdings Plc (SAFE LN): The U.K.’s largest self- storage operator will report third-quarter earnings. The stock jumped 10 pence, or 8.3 percent, to 131 pence.
Songbird Estates Plc (SBDB LN): Qatar plans to increase its stake in Songbird Estates, Canary Wharf’s biggest landlord, to almost 30 percent, two people familiar with the transaction said. The stock fell 0.25 pence, or 0.7 percent, to 33.5 pence.
Stagecoach Group Plc (SGC LN): The U.K.’s biggest rail franchise is considering a bid for National Express Group Plc, the Times of London reported, citing unidentified people close to National Express. The stock fell 2 pence, or 1.5 percent, to 134.8 pence.
RSA Insurance Group Plc (RSA LN): The U.K.’s biggest non- life insurer is considering a rights offer to raise $1 billion, the Sunday Telegraph said, citing unidentified people close to the company, the newspaper said. The stock rose 1 pence, or 0.8 percent, to 130.6 pence.
Yell Group Plc (YELL LN): The publisher of the U.K.’s Yellow Pages phone directory is planning a 350 million-pound rights offering to help reduce its 3.8 billion pounds of debt, the Sunday Independent reported, without saying where it got the information. The stock jumped 5.5 pence, or 13.6 percent, to 46 pence.
To contact the reporters on this story: Ben Martin in London bmartin38@bloomberg.net; David Merritt at dmerritt1@bloomberg.net.
By Rita Nazareth
Sept. 1 (Bloomberg) -- The following companies may be active in European trading. Stock symbols are in parentheses, and share prices are from the previous close.
Europe’s Dow Jones Stoxx 600 fell 0.6 percent to 236. The Dow Jones Stoxx 50 Index dropped 0.4 percent to 2,401.57. The Euro Stoxx 50 Index, a benchmark for nations using the euro, retreated 1 percent to 2,775.17.
Air Berlin Plc (AB1 GY): Europe’s third largest discount carrier said BlueBay Asset Management Plc’s BlueBay Multi- Strategy (Master) Fund Ltd. and BlueBay Global Convertible Bond Fund bought convertible bonds Aug. 25 which can be converted into 3.99 million shares between Nov. 17 and Aug. 15, 2014, which would give BlueBay a possible 5.2 percent stake in the airline’s voting rights. The shares fell 1.6 percent to 3.81 euros.
Areva SA (CEI FP): The world’s biggest builder of nuclear reactors said first-half profit fell 79 percent to 161 million euros after a delay on a Finnish nuclear plant project. The company’s investment certificates slid 0.1 percent to 400.85 euros.
A2A SpA (A2A IM): Cheuvreux raised its price estimate for shares in the nation’s biggest commercial utility to 1.75 euros from 1.60 euros. The shares gained 0.6 percent to 1.35 euros.
Fiat SpA (F IM): Italy’s Transport Ministry releases August new-car registration figures. The carmaker’s shares dropped 0.8 percent to 8.26 euros.
Eiffage SA (FGR FP): France’s third-biggest builder said first-half net income fell 64 percent to 50 million euros. The shares rose 1.2 percent to 49.57 euros.
Partners Group (PGHN SW): The Swiss money manager focused on private equity investments releases fist-half earnings. The shares gained 0.5 percent to 122 Swiss francs.
RWE AG (RWE GY): Germany’s second-biggest utility was added to Europe’s Dow Jones Stoxx 50 Index, replacing Royal Philips Electronics NV, Stoxx Ltd. said in a statement. RWE shares fell 0.7 percent to 64.60 euros.
Securitas AB (SECUB SS): The world’s largest guarding company will host an investor day on Sept. 1 in London. The shares declined 0.4 percent to 69.40 kronor.
Tecnicas Reunidas SA (TRE SM): The Spanish provider of engineering and construction services to the energy industry said first-half net profit rose to 67.96 million euros from 60.74 million euros a year earlier. The shares lost 0.7 percent to 37.89 euros.
Vinci SA (DG FP): The world’s biggest builder said first- half profit fell 5.8 percent to 690 million euros on lower revenue from its contracting business, and forecast a faster sales decline for that division in the second half. Separately, Vinci said it plans to buy French engineering company Cegelec SA from Qatari Diar for 31.5 million Vinci shares, or 1.18 billion euros at the Aug. 31 closing price. The shares dropped 1.3 percent to 37.43 euros.
Vivendi SA (VIV FP): France’s biggest media company reports first-half earnings before the market opens in Paris. The shares added 0.5 percent to 19.87 euros.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
By Courtney Schlisserman
Sept. 1 (Bloomberg) -- Manufacturing in the U.S. probably expanded in August for the first time in 19 months, helping lead the economy out of the worst recession since the 1930s.
The Institute for Supply Management’s factory gauge increased to 50.5 from 48.9 in July, according to the median of 74 forecasts in a Bloomberg News survey. Fifty is the dividing line between expansion and contraction. Other reports may show housing is also rebounding.
The gains indicate Federal Reserve efforts to thaw credit markets together with the Obama administration’s “cash-for- clunkers” program and tax credits for first-time homebuyers are reviving demand. Factories and builders, which have accounted for half of all the jobs lost since the recession began in December 2007, may keep growing in coming months as sales rise.
“Things are stabilizing and we are probably heading higher from here,” said Jonathan Basile, an economist at Credit Suisse in New York. “And this is all happening without the major part of the stimulus reaching the economy yet.”
The Tempe, Arizona-based purchasing managers’ factory report is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 49 to 53.5. The projected August reading would be the highest since January 2008.
A report from the National Association of Realtors at the same time may show pending sales of existing houses increased 1.6 percent in July, according to the Bloomberg survey median. It would be a sixth consecutive advance, marking the longest stretch of gains since records began in 2001.
Construction
Also at 10 a.m., the Commerce Department may report that construction spending was little changed in July, held back by declines in work on commercial and multifamily-residential projects, such as apartment buildings.
Reports last month indicated manufacturing, which accounts for about 12 percent of the world’s largest economy, was strengthening. The Institute for Supply Management-Chicago Inc.’s business barometer rose more than forecast in August and measures from the Fed Banks of Philadelphia and New York showed those regions expanded.
Also today, industry figures may show sales of cars and light trucks climbed to a 13.3 million annual pace in August, the most since August 2008, according to economists surveyed by Bloomberg.
Ford Motor Co, General Motors Co. and Honda Motor Co. were among automakers citing the popularity of the federal cash-for- clunkers plan in announcing production increases for the coming months.
Clunkers
The program, which ended Aug. 24, offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The program produced almost 700,000 auto sales before it ended, the Transportation Department said Aug. 26.
Ford, the second-largest U.S. automaker, posted its first monthly U.S. sales gain in July since 2007.
“We had a solid July sales month and we are headed toward an even stronger August,” Ford marketing chief Ken Czubay said last week in a statement.
GM last month called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it boosted second-half production, in part because of “cash for clunkers.”
Smaller stockpiles are also contributing to a rebound in output as orders rise to stock bare shelves. Inventories dropped at a record $159.2 billion annual rate in the second quarter, the Commerce Department said last week. They fell at a $113.9 billion pace in the first three months of the year.
More Sales
Intel Corp., the world’s biggest chipmaker, is among companies benefiting as customers increase inventories back to more normal levels. The Santa Clara, California-based company last week increased its sales forecast for this quarter.
Intel joined computer-industry companies including Dell Inc. and Hewlett-Packard Co. in predicting a recovery, and has credited consumers in Asia for a rebound in orders for personal computers.
U.S. exports in May and June showed the biggest two-month gain in almost a year, signaling the worst global recession since World War II was easing.
The Standard & Poor’s 500 Index was been up for six consecutive months on growing optimism that the worldwide economic slump was abating. The index ended the month yesterday on a down note on concern the rally has outpaced the outlook for profits.
Bloomberg Survey
===============================================================
ISM Construct Pending
Manu Spending Homes
Index MOM% MOM%
===============================================================
Date of Release 09/01 09/01 09/01
Observation Period Aug. July July
---------------------------------------------------------------
Median 50.5 0.0% 1.6%
Average 50.7 -0.1% 1.6%
High Forecast 53.5 0.6% 5.0%
Low Forecast 49.0 -0.8% -1.0%
Number of Participants 74 49 34
Previous 48.9 0.3% 3.6%
---------------------------------------------------------------
4CAST Ltd. 51.0 0.6% 3.0%
Action Economics 50.0 -0.6% -1.0%
AIG Investments 51.0 0.5% 0.5%
Aletti Gestielle SGR 50.0 --- ---
Ameriprise Financial Inc 51.0 -0.1% 1.3%
Argus Research Corp. 50.2 0.2% ---
Bank of Tokyo- Mitsubishi 52.8 -0.8% ---
Bantleon Bank AG 51.0 --- ---
Barclays Capital 53.0 0.0% -1.0%
Bayerische Landesbank 50.5 --- ---
BBVA 52.1 0.1% 1.5%
BMO Capital Markets 50.7 0.0% 1.5%
BNP Paribas 51.0 -0.3% ---
Briefing.com 49.7 -0.3% ---
Calyon 50.5 --- ---
Capital Economics 53.0 0.5% 2.5%
CIBC World Markets 52.0 0.1% ---
ClearView Economics 50.5 -0.3% 4.0%
Commerzbank AG 51.0 --- 2.0%
Credit Suisse 50.5 0.3% ---
Daiwa Securities America 50.0 0.0% ---
Danske Bank 51.0 --- ---
DekaBank 50.5 0.3% 1.0%
Desjardins Group 50.5 0.0% ---
Deutsche Bank Securities 52.0 0.2% 2.0%
Deutsche Postbank AG 50.0 --- ---
DZ Bank 50.5 --- 2.5%
First Trust Advisors 53.5 0.0% ---
Fortis 51.0 --- 1.5%
Goldman, Sachs & Co. 51.0 0.5% ---
Helaba 50.5 --- ---
Herrmann Forecasting 51.7 -0.3% 2.3%
High Frequency Economics 51.0 -0.5% 3.0%
HSBC Markets 51.0 0.1% 1.5%
IDEAglobal 51.0 -0.3% 1.0%
IHS Global Insight 51.0 0.5% ---
Informa Global Markets 50.0 -0.5% -1.0%
ING Financial Markets 51.5 -0.7% 2.0%
Insight Economics 51.0 0.2% 3.0%
Intesa-SanPaulo 50.5 0.2% ---
J.P. Morgan Chase 51.0 0.3% 2.0%
Janney Montgomery Scott L 51.5 0.3% 2.1%
Johnson Illington Advisor 50.0 --- ---
Landesbank Berlin 50.5 -0.3% ---
Landesbank BW 50.5 -0.5% ---
Merrill Lynch/BAS 52.0 -0.8% ---
MFC Global Investment Man 50.5 -0.4% ---
Moody’s Economy.com 50.3 0.1% 0.5%
Morgan Keegan & Co. --- -0.7% ---
Morgan Stanley & Co. 51.0 -0.5% ---
National Bank Financial 51.0 --- ---
Natixis 50.0 --- ---
Newedge 50.5 --- ---
Nomura Securities Intl. 49.8 --- ---
Nord/LB 51.0 --- ---
PNC Bank 50.5 -0.5% ---
Raymond James 50.2 0.3% ---
RBC Capital Markets 50.7 --- 1.6%
RBS Securities Inc. 50.5 --- ---
Ried, Thunberg & Co. 49.0 0.1% 1.0%
Schneider Foreign Exchang 49.0 --- 1.9%
Scotia Capital 51.0 --- ---
Societe Generale 52.0 --- ---
Standard Chartered 50.1 --- 2.0%
Stone & McCarthy Research 50.1 0.0% ---
TD Securities 51.0 --- 2.0%
UBS 50.5 0.5% ---
UniCredit Research 50.0 --- ---
Union Investment 51.0 --- ---
University of Maryland 50.2 -0.1% 0.0%
Wells Fargo & Co. 50.1 -0.8% ---
WestLB AG 50.1 -0.2% 1.5%
Westpac Banking Co. 50.0 0.5% 5.0%
Woodley Park Research 49.1 -0.2% 0.6%
Wrightson Associates 49.0 --- 1.0%
===============================================================
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net.
By Gillian Wee
Sept. 1 (Bloomberg) -- Pacific Investment Management Co., led by former Harvard University fund chief Mohamed El-Erian, is seeking to mimic the strategy of top U.S. endowments while avoiding the cash crunch that hurt their returns last year.
The richest colleges beat market indexes in the decade through June 2008 by loading up on hard-to-sell assets such as private equity and real estate, while cutting stocks and bonds, a style pioneered by Yale University’s David Swensen. Pimco is refining the model to appeal to investors who want more flexibility to sell assets quickly to raise cash, Mark Taborsky, an executive vice president at the firm, said in an interview.
“One of the lessons from 2008 is liquidity matters a lot more than we ever thought it did,” said Taborsky, 43, who previously oversaw external managers at Harvard Management Co., the unit responsible for Harvard University’s endowment. “The strategy we’re developing is likely to be more liquid than more longer-term endowment strategies.”
El-Erian ran the Harvard fund from February 2006 to December 2007, following seven years as an emerging-markets investor at Pimco. Since returning to the Newport Beach, California-based money manager in 2008 as chief executive officer, he has hired Taborsky and Marc Seidner, Harvard’s head of U.S. fixed income, who started last month.
Harvard’s endowment, the largest in the U.S., recorded annual average gains of 14 percent in the decade ended June 30, 2008, beating the 6.5 percent return of U.S. and Canadian universities. Plunging capital markets cut the fund by an estimated 30 percent in the past year to $25.8 billion.
Questioning Harvard, Yale
The Cambridge, Massachusetts, school sold $2.5 billion of bonds in December, cut jobs and postponed building projects as its endowment’s value declined and losses on derivatives used to protect the university against rising interest rates squeezed the school for cash.
As Harvard’s investment chief, El-Erian returned 23 percent in the fiscal year ended June 30, 2007. Beating the 17 percent increase of market benchmarks, it was the fourth-biggest gain posted since the management company was started in 1974.
El-Erian shares the role of chief investment officer with Pimco’s founder, Bill Gross. The 65-year-old Gross said in May that endowments managed by Harvard and Yale may have to cut their investments in hedge funds and other illiquid assets because their risks outweigh the possible rewards.
Liquidity
Taborsky, a product manager at Pimco’s $800 million Global Multi-Asset Fund, said the endowment strategy may appeal to investors “looking for an institutional-quality product that was previously out of reach or a difficult resource.”
Being able to trade in and out of assets more quickly than endowments, which historically viewed cash as a drag on returns, will allow the approach to be more nimble, he said last week in a telephone interview from his Newport Beach office. He declined to say what kind of products may use the investment plan or how much money Pimco may seek to raise from investors.
“Liquidity is a premium and sometimes it’s worth investing in that and sometimes it’s not,” said Taborsky. “One of the lessons from 2008 that is part of asset allocation is being able to stay in the game and take advantage of the opportunities.”
Swensen, Yale’s chief investment officer, is the top-ranked college endowment manager in the 10 years through June 2008. He ramped up returns by trimming stock and bond holdings and buying more real estate, private equity, hedge funds and resources such as timber, a strategy that was copied by schools across the country.
After committing to private equity and real estate, colleges and universities across the U.S. have little choice but to make good on agreements with fund managers to buy more of those assets. Private-equity funds tie up money for as long as 10 years.
Access to Cash
Yale, which delivered average annual returns of 16 percent in the decade through June 2008, estimates its endowment dropped 30 percent for the year ended June 2009 as investment declines cut the fund by 25 percent and the school spent 5 percent. Swensen said in May that his approach to diversification can’t prevent losses during market declines, and the crisis that slashed the Standard & Poor’s 500 Index by 54 percent from the start of 2008 to the nadir on March 9 underscored the importance of maintaining access to cash.
Pimco, the world’s biggest bond-fund manager, oversees more than $840 billion, including the largest U.S. mutual fund, Pimco Total Return Bond Fund. It is owned by Munich-based insurer Allianz SE.
‘New Normal’
Pimco’s endowment strategy coincides with U.S. endowment losses while colleges consider outsourcing investment operations. Perella Weinberg Partners hired Christopher Bittman, former chief investment officer of the University of Colorado Foundation, in July to head a unit that manages money for endowments. David Russ, a former manager of Dartmouth College’s endowment, was hired in June at Credit Suisse Group AG as a chief investment strategist.
A former deputy director of the International Monetary Fund, El-Erian, 51, said in May that investors must reassess how much money they can afford to lose, in a “new normal” characterized by heightened government regulation, slower growth and rising unemployment.
Jane Mendillo, 50, El-Erian’s successor at Harvard, is setting aside cash to increase the fund’s flexibility, breaking with the endowment’s past strategy of being fully invested and borrowing to amplify gains, she said in an interview last month. The endowment didn’t sell all of the $1.5 billion of private- equity stakes it put on the market last year as bids for the holdings weren’t high enough.
Best Managers
The strategy Taborsky is developing will give investors access to “best-in-class” in-house asset managers as well as outside firms, along with Pimco’s “cyclical and secular views of the world,” he said.
“If your only view in terms of asset allocation is very long term, it ignores the concept that you need to remain solvent over the journey,” said Taborsky, who spent five years at Stanford University’s endowment before joining Harvard. “You can’t just see a destination.”
To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net;
By Cristina Alesci
Sept. 1 (Bloomberg) -- Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery.
Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff. The firms oversee a combined $15 billion in so- called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities.
“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”
Equity and credit markets have rallied on hopes that government intervention is pulling the U.S. out of the deepest economic slump since the Great Depression. The Standard & Poor’s 500 Index jumped 51 percent from its 12-year low in March through yesterday.
The economy will expand at an annualized rate of 2 percent or more in four straight quarters through June 2010, the first such streak in more than four years, according to the median estimate of at least 53 forecasters in a Bloomberg survey.
Tudor, the Greenwich, Connecticut-based firm started by Jones in the early 1980s, told clients in an Aug. 3 letter that the stock market’s climb was a “bear-market rally.” Weak growth in household income was among the reasons to be dubious about the rebound’s chances of survival, Tudor said.
Yields Drop
Yields on corporate bonds relative to U.S. Treasury benchmarks have sunk to levels unseen since before the collapse of Lehman Brothers Holdings Inc. in September, a positive sign for credit markets. Spreads on junk bonds fell in July to within 10 percentage points of Treasuries, lifting them out of the distressed category for the first time in almost a year.
“We think the recession is ending right now,” Abby Joseph Cohen, senior investment strategist at Goldman Sachs, said in a Bloomberg Radio interview Aug. 17. The New York-based bank forecasts 2 percent growth in U.S. gross domestic product in 2010.
Economists at New York-based Morgan Stanley in the past month have incrementally raised their GDP growth estimate for the current quarter to 4.8 percent annualized from 3.5 percent.
President Barack Obama said a decline in July’s unemployment rate signaled “the worst may be behind us.” GDP shrank 6.4 percent in the first quarter and 1 percent in the second, after a 4 percent contraction in the second half of 2008.
Different Jobless Rate
A focus on misleading indicators is driving markets, macro managers say.
Clarium watches the unemployment rate that accounts for discouraged job applicants and those working part-time because they can’t find full-time positions, Harrington said. July joblessness with those adjustments was 16 percent, according to the Department of Labor, rather than the more widely reported 9.4 percent.
The housing data isn’t as rosy as some see it, Harrington said. As existing U.S. home sales rose 7.2 percent in July from the previous month, distressed deals including foreclosures accounted for 31 percent of transactions, according to the National Association of Realtors, a Chicago-based trade group.
A report by the Mortgage Bankers Association, based in Washington, showed the share of home loans with one or more payments overdue rose to a seasonally adjusted 9.24 percent in the second quarter, an all-time high.
Loaded for Bear
Clarium, which oversees about $2 billion, is positioned for an equity bear market through investments in the U.S. dollar, Harrington said. Falling stock prices will strengthen the currency by forcing leveraged investors to sell equities to pay down the dollar-denominated debt they used to finance those trades, he said.
High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010, Tudor said. The firm, which manages $10.8 billion, is at odds with 55 economists projecting an average of 2.3 percent growth next year, according to the Bloomberg survey.
Macro managers’ pessimism is fueled in part by the U.S. government’s response to last year’s financial crisis, which they say fails to address the root cause. Banks still hold hard- to-sell assets on their balance sheets, the managers said.
Subdued Credit Growth
“Some critical initiatives have been cut short,” Tudor said. “As a result, toxic assets remain on balance sheets and credit growth is likely to be subdued for a long period.”
Some firms, including Brevan Howard Asset Management LLP, see the recession at its end while dismissing the likelihood of robust growth.
Brevan Howard, Europe’s largest hedge-fund manager with $24 billion in assets, told clients the U.S. could stumble when stimulus spending fades after the current quarter. The London- based firm, whose macro fund gained 20 percent last year, said consumer wealth erosion, scant bank lending and troubled world economies may result in a lackluster recovery.
The U.S. Federal Reserve and other policy makers took unprecedented steps in the past year to stave off financial disaster. The Fed’s Board of Governors used emergency powers to rescue markets for commercial paper, housing bonds and asset- backed securities. The Fed’s balance sheet swelled to $2.08 trillion last week, more than doubling from a year earlier.
Accounting Effect
The Financial Accounting Standards Board voted in April to relax fair-value accounting rules. The change to mark-to-market accounting allowed companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities that plunged with the housing market.
Banks are reporting better earnings because they haven’t been forced to account for their losses yet, Clarium’s Harrington said.
“We haven’t fixed the problem,” he said. “We’ve just slowed down the official recognition of it.”
Hedge funds rose in July for the fifth consecutive month, returning an average of 2.4 percent as stocks advanced, according to data compiled by Hedge Fund Research Inc. Bearish stances prevented some macro funds from joining the rally. The category lagged behind the industry average in July, rising 0.6 percent.
Fund Performance
Clarium, whose assets were mostly in fixed income, dropped 6 percent this year through June. Horseman’s fund slid 16.3 percent. Tudor’s BVI Global Fund Ltd. returned 11 percent.
The funds held up in 2008 amid the industry’s record 19 percent loss. Horseman’s Global Fund USD, which focuses on stocks, made HSBC’s private bank list of top 20 performers by gaining 31 percent. Tudor’s and Clarium’s funds fell 4.5 percent.
Macro managers are examining China for hints on how to place currency and commodities bets. Tudor said the country’s spending spree on raw materials inflated commodity prices and weakened the U.S. dollar.
A government mandate forcing banks to make about $1 trillion in loans during this year’s first half is spurring short-term growth that may not last, according to Clarium. China’s banking regulator drafted capital requirements Aug. 19 that may lead banks to rein in lending.
Horseman, with $4.1 billion under management out of London, was investing in long-term U.S. Treasury bonds. The firm believes interest rates will stay low for longer than the market expects, benefiting the asset class.
“Despite every effort by government in North America and Europe to avoid deflation,” Horseman wrote, “the current numbers suggest they are losing the battle.”
To contact the reporter on this story: Cristina Alesci in New York at calesci2@bloomberg.net
By Alexander Ragir
Sept. 1 (Bloomberg) -- Petroleo Brasileiro SA’s common shares will outperform preferred stock after the gap between the two shrank to the narrowest in seven months on the government’s proposed oil law, said Eric Conrads, a hedge fund manager at ING Investment Management.
Petrobras common shares traded at a 20 percent premium to preferred stock after they sank 4.5 percent yesterday on speculation the company’s plan to sell additional equity to finance exploration will dilute minority holders. International investors will start buying common shares as they realize the dilution concerns are “overblown,” Conrads said.
“It’s a good time to start building the trade,” said Conrads, who helps manage about $12 billion in emerging-market assets at ING Investment Management in Mexico City. He said he’s adding U.S.-traded Petrobras common shares while short-selling the preferred in a so-called pair trade.
Brazilian President Luiz Inacio Lula da Silva is seeking to increase state control of the nation’s oil reserves through exploration rules he unveiled yesterday. As part of the plan, Petrobras said it may sell new shares. The plan sent Petrobras common shares to their biggest retreat in six months.
International Investors
International investors tend to buy the common shares, which carry voting rights, rather than the preferred shares because they are the more-typical class of stock in the U.S. market, Conrads said. The preferred shares, which fell 3.6 percent yesterday, are the more traded class of stock in Brazil.
The common shares fetch 37.53 reais in Brazil while the preferred stock trades at 31.38 reais. In the U.S., common-share ADRs trade at $39.64. The preferred-share ADRs fell to $33.20. The gap between the common and preferred shares traded in Brazil had swelled to 27 percent in April, the widest since at least 1994, according to data compiled by Bloomberg.
Short-selling is when traders sell borrowed stock on the expectation prices will fall, allowing the investor to pocket the profit after buying it back later at a lower price.
Billionaire George Soros’s hedge-fund firm, Soros Fund Management LLC, made the opposite trade recently, according to an Aug. 14 filing with the U.S. Securities and Exchange Commission. Soros’s fund sold 22 million U.S.-listed common shares of Petrobras and bought 5.8 million shares of the company’s U.S.-traded preferred shares, according to the filing.
Even though it makes sense to buy the preferred shares as a long-term investment, the common shares will outperform in coming weeks as foreigners become “more bullish” on Petrobras, Conrads said.
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The U.S.-traded common shares were raised to “outperform” from “neutral” at Credit Suisse Group AG, which cited proposed changes to regulations and valuation.
“Petrobras is one of the most promising oil companies in the world,” Emerson Leite, a Sao Paulo-based analyst at Credit Suisse, wrote in a report yesterday. Given a proposed share sale by Petrobras and capital injection from the government, the spread between the two classes of shares may widen, he said.
The government plans to transfer rights of 5 billion barrels of oil to Petrobras in exchange for securities, Cabinet Chief Dilma Rousseff said yesterday.
The Rio de Janeiro-based company plans to spend $174.4 billion in the next five years, including more than $30 billion earmarked for the development of the offshore fields.
Petrobras common shares rose 37 percent this year, trailing the 50 percent gain in the Bovespa stock index, after declining the past three months on concern lending curbs in China will hurt demand for raw materials such as oil.
“Once you have a bit less noisy news coming out of China, these types of stocks will come back,” said Conrads. “And it’s no surprise that Petrobras needs financing and that there was dilution risk. I think it’s a bit overblown.”
To contact the reporhoter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net
By Alexander Ragir
Sept. 1 (Bloomberg) -- Petroleo Brasileiro SA’s common shares will outperform preferred stock after the gap between the two shrank to the narrowest in seven months on the government’s proposed oil law, said Eric Conrads, a hedge fund manager at ING Investment Management.
Petrobras common shares traded at a 20 percent premium to preferred stock after they sank 4.5 percent yesterday on speculation the company’s plan to sell additional equity to finance exploration will dilute minority holders. International investors will start buying common shares as they realize the dilution concerns are “overblown,” Conrads said.
“It’s a good time to start building the trade,” said Conrads, who helps manage about $12 billion in emerging-market assets at ING Investment Management in Mexico City. He said he’s adding U.S.-traded Petrobras common shares while short-selling the preferred in a so-called pair trade.
Brazilian President Luiz Inacio Lula da Silva is seeking to increase state control of the nation’s oil reserves through exploration rules he unveiled yesterday. As part of the plan, Petrobras said it may sell new shares. The plan sent Petrobras common shares to their biggest retreat in six months.
International Investors
International investors tend to buy the common shares, which carry voting rights, rather than the preferred shares because they are the more-typical class of stock in the U.S. market, Conrads said. The preferred shares, which fell 3.6 percent yesterday, are the more traded class of stock in Brazil.
The common shares fetch 37.53 reais in Brazil while the preferred stock trades at 31.38 reais. In the U.S., common-share ADRs trade at $39.64. The preferred-share ADRs fell to $33.20. The gap between the common and preferred shares traded in Brazil had swelled to 27 percent in April, the widest since at least 1994, according to data compiled by Bloomberg.
Short-selling is when traders sell borrowed stock on the expectation prices will fall, allowing the investor to pocket the profit after buying it back later at a lower price.
Billionaire George Soros’s hedge-fund firm, Soros Fund Management LLC, made the opposite trade recently, according to an Aug. 14 filing with the U.S. Securities and Exchange Commission. Soros’s fund sold 22 million U.S.-listed common shares of Petrobras and bought 5.8 million shares of the company’s U.S.-traded preferred shares, according to the filing.
Even though it makes sense to buy the preferred shares as a long-term investment, the common shares will outperform in coming weeks as foreigners become “more bullish” on Petrobras, Conrads said.
Upgrade
The U.S.-traded common shares were raised to “outperform” from “neutral” at Credit Suisse Group AG, which cited proposed changes to regulations and valuation.
“Petrobras is one of the most promising oil companies in the world,” Emerson Leite, a Sao Paulo-based analyst at Credit Suisse, wrote in a report yesterday. Given a proposed share sale by Petrobras and capital injection from the government, the spread between the two classes of shares may widen, he said.
The government plans to transfer rights of 5 billion barrels of oil to Petrobras in exchange for securities, Cabinet Chief Dilma Rousseff said yesterday.
The Rio de Janeiro-based company plans to spend $174.4 billion in the next five years, including more than $30 billion earmarked for the development of the offshore fields.
Petrobras common shares rose 37 percent this year, trailing the 50 percent gain in the Bovespa stock index, after declining the past three months on concern lending curbs in China will hurt demand for raw materials such as oil.
“Once you have a bit less noisy news coming out of China, these types of stocks will come back,” said Conrads. “And it’s no surprise that Petrobras needs financing and that there was dilution risk. I think it’s a bit overblown.”
To contact the reporhoter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net
By James Attwood
Sept. 1 (Bloomberg) -- The following companies may have unusual price changes today in Latin American trading. Stock symbols are in parentheses and share prices reflect the previous close.
The MSCI Latin America Index fell 2 percent to 3,294.54.
Brazil
Minerva SA (BEEF3 BS): Brazil’s third-largest publicly traded beef producer said it plans to raise up to 159 million reais ($84.6 million) by selling new common shares. The company said yesterday it plans to sell between 20.4 million and 30 million new stock for 5.30 reais each. Minerva fell 0.9 percent to 5.7 reais.
Petroleo Brasileiro SA (PETR4 BS): Brazilian President Luiz Inacio Lula da Silva unveiled a plan to increase state control of the oil industry, proposing regulations to help the country become one of the world’s 10 largest oil-producing nations. Petrobras, as the state-run producer is known, will be the sole operator of all so-called pre-salt oil fields that include the Americas’ largest discovery since 1976. The Rio de Janeiro-based company also will hold a minimum 30 percent stake in all joint ventures set up to bid for licenses, and the government may increase its ownership of Petrobras in exchange for oil rights, according to a statement from Lula’s office. Petrobras fell 3.6 percent to 31.38 reais.
Chile
Cap SA (CAP CC): Chile’s largest steel and iron-ore producer had its share projection increased at brokerage EuroAmerica, which cited prospects for higher prices next year. Cap probably will rise to 15,630 pesos by the end of next year, analyst Carla Araya wrote in a note to clients distributed yesterday, replacing an end-2009 estimate of 13,527 pesos. Cap fell 2 percent to 13,260 pesos.
Mexico
Controladora Comercial Mexicana SAB (COMERUBC MM): The Mexican retailer that defaulted on debt in October said local bondholders approved a proposal to exchange their bonds for new debt. Each of the defaulted bonds can be exchanged for a new seven year bond, the company known as Comerci, said yesterday in an e-mailed statement. Comerci fell 5.2 percent to 10.94 pesos.
To contact the reporter on this story: Emily Schmall in Mexico City at eschmall@bloomberg.net
By Lu Wang
Sept. 1 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.
Hospira Inc. (HSP US): The maker of generic injectable drugs for hospitals said the U.S. Food and Drug Administration approved the company’s applications for six new presentations of therapeutic heparin in single- and multiple-dose vials.
Immunomedics Inc. (IMMU US): The maker of products for cancer and autoimmune diseases plans to raise as much as $151.1 million selling stock and warrants, the company said in a filing with the U.S. Securities and Exchange Commission.
Motorola Inc. (MOT US): The largest mobile-phone maker in the U.S. had its rating raised to “outperform” from “neutral” by Credit Suisse Group AG, which said a recovery at the company’s mobile-phone division is imminent and the unit should approach break-even by the end of next year.
Sina Corp. (SINA US): China’s biggest Internet portal forecast sales of $94 million at most in the third quarter, missing the average analyst estimate of $96 million in a Bloomberg survey.
YRC Worldwide Inc. (YRCW US): The biggest U.S. trucking company by sales said its lenders relaxed the terms of a $950 million credit line, according to a filing with the SEC.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
| Daily Forex Fundamentals | Written by AC-Markets | Aug 31 09 08:09 GMT | | |
Market BriefThe Greenback ended the past week mixed against major currencies trading in a range bound, lower against the Aussie, Kiwi and Yen but higher against Lonnie and Cable which was the weakest currency versus majors loosing 1.4% against the dollar, while Euro & Swiss franc was almost unchanged , falling 0.1% and 0.2% respectively. Crude Oil remained trading above $70 per barrel after reaching $75 earlier in the week, meanwhile U.S. stocks closed at its highest levels in 2009 with Standard and Poor's 500 Index advancing 0.3% to 1,028.93. The Dow Jones Industrial Average added 0.4% to 9,544.20, and Nasdaq increased by 0.4% to 2,028.77. Economic data released last week is giving more evidence of economic recovery. From the Euro Zone, Confidence rose in economic, consumer, services and industrial sectors. In Germany the biggest economy in the Euro Zone IFO business climate rose to 90.5, Gfk consumer confidence rose to 3.7. Meanwhile UK second quarter GDP was revised slightly upwards QoQ to shrink by 0.7%. Japanese unemployment rose more the expected to 5.7%. The better news came from the U.S. with second quarter GDP left unrevised at -1.0% where expectations were to contract further by 1.4%. Durable goods rose 4.9% in July which was much higher than expected, and new home sales rose to 433,000 in July. This week is expected to be more exiting and probably a break out from the recent ranges could be seen. The main event risk for the US Dollar is on Wednesday, where the Fed's last meeting minutes will be released. On Thursday the ISM non-manufacturing is expected to rise to 11 months high of 48.0 in Aug and Friday could be volatile with the release of the Non Farm Payrolls which is expected to have its smallest drop in a year. Away from the US, we have two central banks meetings, the ECB and RBA. Both banks are expected to keep rates unchanged at 1% and 3%. From ECB focus will be on Trichet's comments on recent economic data and ECB's covered bond purchase program. RBA Focus will be on any affirmation on markets view that the easing cycle is already over and RBA could be the first to remove policy accommodations Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment. | |
| Daily Forex Technicals | Written by FOREX Ltd | Aug 31 09 07:39 GMT | | |
CHFThe estimated test of key resistance range levels has been confirmed with conditions for the implementation of pre-planned short positions. OsMA trend indicator, having marked preservation of bearish party priority gives grounds for preservation of opened short positions but relative bullish activity rise marked by the indicator and a sign of buying activity incompleteness remains the probability of the achievement of Ichimoku cloud border where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for opened and re-opened sales the targets will be 1,0590/1,0600, 1,0550/60, 1,0480/1,0500 and (or) further break-out variant up to 1,0420/40, 1,0360/80. The alternative for buyers will be above 1,0700 with the targets of 1,0740/60, 1,0800/20, 1,0860/80.
GBPThe pre-planned long positions from key supports were implemented with achievement of minimal estimated targets. OsMA trend indicator, having marked activity fall of both parties and does not clarify the choice of planning priorities for today. Nevertheless, considering rate positions below Ichimoku cloud favoring to bearish party we can suppose rate return to close Ichimoku cloud border and to channel line '1' at 1,6260/80 where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term sales on condition of the formation of topping signals the targets will be 1,6200/20, 1,6140/60, 1,6080/1,6000 and (or) further break-out variant up to 1,6020/40, 1,5960/80. The alternative for sales will be above 1,6400 with the targets of 1,6440/60, 1,6500/20, 1,6580/1,6620.
JPYThe pre-planned break-out variant for sales has been implemented with the achievement of minimal estimated target. OsMA trend indicator having marked high level of sales activity at the break-out of key support and gives grounds for bearish priority direction of planning of trading operations for today. On the assumption of it as well as of reversal momentum of indicator chart we can assume probability of rate return to channel line '1' at 93,00/20 levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for sales on condition of formation of topping signals will be 92,40/60, 91,60/80 and (or) further break-out variant up to 91,00/20, 90,40/60, 89,80/90,00. The alternative for buyers will be above 93,80 with the targets of 94,20/40, 94,80/95,00.
EURThe estimated test of key supports ranges has been confirmed with conditions for the implementation of pre-planned long positions. OsMA trend indicator, having marked sign of formation of topping bullish signal with keeping of buyers party priorities and gives grounds for preservation of opened long positions with the targets of 1,4300/20, 1,4360/80, 1,4420/40 and (or) further break-out variant up to 1,4480/1,4500, 1,4560/80, 1,4660/1,4700. The alternative variant for sales will be below 1,4200 with the targets of 1,4140/60, 1,4060/80, 1,4000/20.
FOREX Ltd | |
By Joshua Goodman and Adriana Brasileiro
Aug. 31 (Bloomberg) -- Banco Central do Brasil President Henrique Meirelles’ political ambitions are raising concern among some investors as he seeks to pull Latin America’s biggest economy out of recession ahead of next year’s election.
The former FleetBoston Financial Corp. banker already is rallying beside President Luiz Inacio Lula da Silva and grinning for crowds in his home state of Goias, where he won a congressional seat in 2002 that he gave up for the central bank post. Meirelles, 64, said Aug. 25 he may join a political party in September. He’s most likely to run for Goias governor, Bank of America Corp. said in an Aug. 18 report.
Meirelles’ predecessor, Arminio Fraga, urged him last week to stay in place until December 2010, when Lula’s term ends. Luiz Fernando Figueiredo, a former bank director, said speculation over Meirelles’ bid for office generates “some risk” for investors as policy makers prepare to meet this week.
“The anchor of the central bank’s autonomy and successful monetary policy is Meirelles, no doubt,” Figueiredo, who runs Sao Paulo-based hedge fund Maua Investimentos, said in an interview. “The lack of details about his political future generates some risk because, conceptually, a run for office and the technical responsibility over economic policy are incompatible.”
‘Solid Commitment’
Meirelles, having tamed inflation and slashed interest rates to a record, indicated last week he may try to leverage his success at stabilizing the economy into public office. Attending a conference in New York on Aug. 25, Meirelles said his policies and the central bank’s autonomy would be maintained should he seek an elective office. He cited Lula’s “solid commitment” to a stable economy.
“Should I become a candidate to a public office and leave the central bank in April 2010, I believe we will see continuity,” said Meirelles, the longest-serving central bank president in Brazil after almost seven years in the job.
Under Meirelles, Brazil’s benchmark lending rate fell below 10 percent for the first time and inflation dropped to 4.5 percent from more than 17 percent in May 2003. Speaking alongside Meirelles in the bank chief’s hometown of Anapolis this month, Lula told a cheering crowd, “I owe to this comrade and the government’s economic team the economic stability and respect that Brazil enjoys today in the world.”
Fraga, the chairman of Brazil’s stock exchange BM&FBovespa SA, said it would be “extremely positive” for the country if Meirelles would stay in command of the central bank until the end of the current government’s mandate in December 2010.
“I hope he stays,” Fraga said in an Aug. 28 interview at an investment conference in Campos do Jordao, Brazil.
Rate Meeting
Meirelles would have to resign by April to become a candidate. For now, he has said he’s focused on lifting Brazil out of its first recession since 2003.
Meirelles will preside over the last meeting of the eight- member monetary policy committee before an Oct. 3 deadline to join a political party if he wants run in October 2010. Policymakers will likely keep the benchmark Selic rate at a record low 8.75 percent on Sept. 2, according to 22 of 24 economists in a Bloomberg survey.
‘Non-Event’
Luis Stuhlberger, managing director of Credit Suisse Hedging-Griffo, said in an interview any change in the presidency of the central bank would be a “non-event.”
Asked if Meirelles’ political ambitions could affect his decisions in coming months, Deutsche Bank AG’s Drausio Giacomelli said it’s unlikely.
“The central bank has been stress-tested over the years on political grounds and I think they have passed, ” Giacomelli, Deutsche Bank’s head of emerging-market strategy in New York, said in a telephone interview last week.
The most likely and “market neutral” replacement for him would be one of the bank’s current directors, Bank of America said. The leading candidate is Alexandre Tombini, current bank director for financial regulation, said Zeina Latif, chief economist at ING Bank NV in Sao Paulo.
Whoever Lula picks will follow the same path, resisting political pressure to keep rates low in an election year should inflation return, said Paulo Vieira da Cunha, a central bank director from 2006-2008.
“The market may be apprehensive, but there’s not much reason for it,” said Vieira da Cunha, who now helps oversee $160 million in emerging-market assets at Tandem Global Partners in New York.
Surprise Hike
Meirelles’ appointment in 2002, after he won a seat in congress for the opposition Social Democratic Party, signaled Lula would abandon his past as a labor activist and discard earlier threats to default on Brazil’s then-$300 billion of public debt.
During his first policy meeting in 2003, Meirelles surprised investors by raising the benchmark rate to 25.5 percent. It was the first sign the incoming Lula administration would fight inflation and resist calls from even the socialist Workers’ Party that Lula founded to stoke growth with looser lending.
The strategy paid off. Since inflation peaked at 17.24 percent in 2003, the government has met its inflation target every year. With price stability, the stock market’s value has soared eight times in dollar terms as gross domestic product tripled. The Brazilian real is the best performer among the world’s 16 most traded currencies this year with a gain of 23 percent against the dollar. It has strengthened to 1.88 per dollar from 3.5 in January 2003.
Goias Trip
The trip to Goias with Lula fed media and market speculation that after more than a decade in Boston and Brasilia, the Harvard University-educated banker plans to run for governor in the rural backland, better known for its thorn- filled pequi fruit than high finance.
Meirelles could also bolster the market credentials of Lula’s chosen successor, Cabinet Chief Dilma Rousseff, by serving as the former Marxist guerrilla’s running mate, said Luis Stuhlberger, Brazil’s biggest hedge fund manager and managing director at Credit Suisse Hedging-Griffo.
“It would certainly make her a stronger candidate,” Stuhlberger said.
Such ambitions would probably exceed Meirelles’ appeal to voters, said Thomas Trebat, director of Columbia University’s Center for Brazilian Studies in New York.
“The only one other position that’s suitable to the stature he currently enjoys is the presidency, but that’s not in the cards,” Trebat said in a phone interview. “Brazil has stronger and younger candidates with more charisma.”
Markets
The Bovespa fell 0.3 percent to 57,573 last week, led by Cosan SA Industria e Comercio, which climbed 12.5 percent, and JBS SA, which gained 6.5 percent. Net Servicos de Comunicacao SA fell the most with a 2.6 percent drop. The yield on the local- currency zero-coupon bonds due January 2010 rose 2 basis points, or 0.02 percentage point, to 8.7 percent. Brazil’s real fell 2.7 percent to 1.8801 per U.S. dollar.
The following is a list of events in Brazil this week:
Event Date
Industrial Production Aug 31
Monthly Trade Balance Sept 1
Selic Target Rate Sept 2
FIPE Consumer Price Index - Monthly Sept 2
Anfavea Monthly Vehicle Sales Sept 4
To contact the reporters on this story: Joshua Goodman in Rio de Janeiro jgoodman19@bloomberg.net; Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net.
By Nasreen Seria
Aug. 31 (Bloomberg) -- South Africa’s current account deficit, which the government describes as the Achilles heel of the economy, may have narrowed in the second quarter, prolonging a surge in the rand.
The country’s first recession in 17 years has come to the government’s aid, slashing imports just as exports of platinum and other metals rebound, after years of reliance on volatile foreign investment in stocks and bonds to finance the deficit.
“Imports are very weak because of the general weakness in the economy,” said Elna Moolman, an economist at Barnard Jacobs Mellet Holdings Ltd. in Johannesburg. “The current account deficit should become less of a factor in investors’ decisions in South Africa. That’s positive for the rand.”
The currency has rallied 36 percent against the dollar since March as the first signs of a pick-up in the global economy help restore foreign portfolio investment in emerging markets. With the current account gap now narrowing, the rand is unlikely to lose those gains and may even rise further.
The deficit, the broadest measure of trade in goods and services, shrank to a four-year low of 4.3 percent of gross domestic product in the second quarter, according to the median estimate of 11 economists surveyed by Bloomberg. The central bank will publish the data at 12 p.m. in Pretoria on Sept. 3.
The shortfall compares with 7 percent of GDP in the previous three months and a record 8.8 percent in the first quarter of 2008.
The deficit is the “Achilles heel of the South African economy,” the government said in a report on April 16, adding that the global crisis makes financing the shortfall a “concern” and a hindrance to faster economic growth.
Contraction
Africa’s biggest economy contracted an annualized 3 percent in the three months through June, the third consecutive quarterly decline. That curbed demand for imports, which rose by less than 1 percent in June from the previous month after falling 6.4 percent in May, the South African Revenue Service said on July 31.
“We have to attract foreign investment because savings are low,” Finance Minister Pravin Gordhan said on July 23. South Africa’s savings rate of 17 percent of GDP is “not high enough for the investment needs in South Africa.”
The rand has climbed 21 percent against the dollar this year, the second-best performer of 16 major currencies tracked by Bloomberg, partly because of an improvement in the current account deficit, said Jean-Francois Mercier, an economist at Citigroup Inc. in Johannesburg.
Dependent
“The rand is dependent on strong portfolio inflows” to finance the deficit, Mercier said. “If the projection is that the current account deficit will stay low, then that’s better” for the currency.
The National Treasury forecast on Feb. 11 that the current account shortfall will reach 6.3 percent of GDP this year, down from 7.4 percent in 2008.
The following is a list of events in South Africa this week:
Event Date
African Rainbow Minerals Ltd. annual earnings Aug. 31
M3 and private sector credit data Aug. 31
Sallies Ltd. annual earnings Aug. 31
Bidvest Group Ltd. annual earnings Aug. 31
Sable Holdings Ltd. first-half earnings Aug. 31
Trade data Aug. 31
Kagiso purchasing managers index Sept. 1
Metropolitan Holdings Ltd. first-half earnings Sept. 2
Discovery Holdings Ltd. annual earnings Sept. 2
Afgri Ltd. annual earnings Sept. 2
Metorex Ltd. annual earnings Sept. 2
Cadiz Holdings Ltd. annual general meeting Sept. 2
Vehicle sales data Sept. 2
Sanlam Ltd. first-half earnings Sept. 3
Metrofile Holdings Ltd. first-half earnings Sept. 3
Business confidence index Sept. 3
Current account deficit data Sept. 3
Reserve Bank publishes annual economic report Sept. 3
To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net
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