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U.S. Congress pushes for spending deal
U.S. President Barack Obama pauses during remarks on the congressional budget impasse at the White House in Washington
By Andy Sullivan and John Whitesides
WASHINGTON (Reuters) - After a long night of talks, U.S. congressional negotiators pushed towards a budget deal on Thursday that would cut billions of dollars in spending and avert a government shutdown.
Facing a midnight Friday deadline when temporary funding runs out, aides to House of Representatives Speaker John Boehner, a Republican, and Senate Democratic leader Harry Reid worked deep into the night to find a compromise that can keep more than 800,000 government workers in their jobs.
There was no deal by mid-morning but negotiators were working through what President Barack Obama called " relatively narrow differences" between Democrats and Republicans over the level of federal spending between now and September 30.
Obama and Vice President Joe Biden scheduled another meeting with Reid and Boehner to work towards a budget deal for 1 p.m. EDT (6 p.m. British time).
" The numbers are basically there," Reid said of budget talks as the Senate opened on Thursday. But he said Republican policy provisions on hot-button issues such as abortion and the environment could scuttle the talks.
" I am not nearly as optimistic, and that's an understatement, as I was 11 hours ago," Reid said. " We have moved so far, and we have given everything we can give."
With the U.S. economy in the early stages of a recovery from the worst recession since the 1930s, Obama told reporters after a late-night Wednesday meeting at the White House that a government shutdown would have " ramifications all across this economy."
He said a shutdown could hit small business owners, applicants for home loans and workers who would be left without paycheques as the result of federal layoffs.
LAYOFFS
Administration officials have warned a government shutdown could halt the processing of income tax refunds right in the heart of the refund season. Various government agencies were notifying their workers of the possibility of layoffs if negotiations failed.
A final deal would clear the way for the House and Senate to vote at some point on funding the federal government through September 30 and put an end to a months-long fight over spending for the fiscal year that is now half over.
A Democratic congressional aide said total spending cuts for the remainder of this fiscal year would probably end up closer to $33 billion (20.2 billion pounds) than the Republicans' $40 billion target, although a Republican aide said their side was still pushing for closer to $40 billion.
The Republican aide said the two parties have agreed on the composition of a large portion of the spending cuts.
The Republican said a temporary stop-gap measure will probably be needed beyond Friday because staffers will not have time to turn a permanent agreement into a bill. Democrats have repeatedly said they will not support another stop-gap bill.
Boehner plans a Thursday House vote on a one-week, stop-gap funding bill that would include $12 billion in additional spending cuts and assure Pentagon funding through September 30.
Republicans hope House passage would put further pressure on the Senate to act, but Democrats oppose the legislation.
" That's just not bad policy, it's a fantasy," Reid said, calling any stop-gap bill a " non-starter" in the Democratic-controlled Senate.
Late on Wednesday, a House committee passed a Republican budget blueprint for 2012 that was unveiled on Tuesday. It would slice about $6 trillion more in spending over the next decade, largely through Medicare and Medicaid healthcare benefit cuts to the elderly and poor. Senate Democrats are expected to block it.
Forget Ireland And Greece, Here's What Country The US Is Really In Danger Of Becoming
People frequently claim that if the US doesn't watch out, it's in danger of becoming Ireland or Greece.
This is nonsense, since the US debt/monetary situation is nothing like Ireland or Greece's. It controls and borrows in its own money. In that respect, it's much more like Japan, which after years and years of people warning about its finances pays virtually nothing interest.
But there is a cautionary tale out there.
It's not Ireland and it's not Japan. It's the UK.
The UK is similar to the US: Its manufacturing base has eroded, it's too dependent on finance (arguably), and its government has sky-high debt. But it's not going bankrupt. The market hasn't lost confidence in the UK (in large part because it controls its own money).
It is facing a serious problem. In the wake of its austerity measures, UK consumer confidence is in freefall. Other economic indicators have been showing problems for the economy.
As politicians in DC continue to cut spending during the weak recovery, we have a pretty good, analogous model of what that's going to look like.
Of course, for the doom mongers, this doesn't suit their purposes, because they're the ones advocating aggressive cutting, and this is what aggressive cutting looks like.
But if you want to look at another country and play the " Is the US the next ____" game, then the UK is a pretty good candidate.
For more on the deficit and doom mongering, see here >
7.4 EARTHQUAKE HITS JAPAN, TSUNAMI WARNING ISSUED, MARKETS HEAD LOWER
A 7.4-magnitude earthquake has hit Japan in the Miyagi prefecture. That's where Sendai -- which got slammed last time. An earthquake of this magnitude occurs only 18 times per year.
A tsunami with one-meter high waves is expected says Japan NHK.
Power is out at around Sendai. Levies have broken and there are reports of coastal landslides.
The Dow is currently off 92.
TEPCO has said there is no damage at the Fukushima Nuclear Plant from the new quake. As for the local nuclear plants, they were already shut down in the wake of the March 11 quake, and no additional damage is reported.
Bullet trains in the area safely shut down during the quake. They are expected to start up again.
Here's a map from USGS.
Managing Investments in 2011
Cash is no longer king and the value of the USD is being eroded which means everyone must rethink their investment strategy and adjust their portfolio holdings.
While many think that if they live in the USA and earn in USD nothing will change, I can assure you that those days are over, growing world wide demand for food, energy, goods and services has an impact at all retail outlets in the USA.
Every investor, institutional or individual must now balance their portfolio based on currency exposure.
The IMF’s John Lipsky has warned that “the average public debt ratio of advanced countries will exceed 100 percent of their GDP for the first time since the war” by the end of this year, and that this debt is unsustainable, risking a new fiscal crisis for some.
The massive sovereign debt problems of the US and Eurozone also clearly run the risk of sharply increasing future inflation as their currency wars export inflationary pressure around the world.
This will result in real investment losses in long-term fixed interest bonds (as well as in cash), since debt that cannot be repaid from taxes will need to be printed by means of ever larger rounds of quantitative easing (money printing) measures.
All this simply implies an accelerating erosion of the value and purchasing power of money.
Investors can protect themselves from rising inflationary risks by investing in or gaining exposure to real scarcity, traditional safe haven assets like gold, as well as other commodities, I would include things like agricultural land and soft commodities as well.
Dividend stocks will become the next big thing as the Fed intends to hold rates low for an extended period.
Your dividend portfolio should be comprised of businesses that are generating a good mix of revenue in a number of currencies, it should include foreign companies, ADR’s and ETf’s. These need to be well researched and have a strong history of dividend payments.
That dividend portfolio should be 50% foreign non USD derived income at least, it should feature Food, Commodities, Soft Commodities, Agriculture, Energy and companies in that vertical.
Exposure to these asset classes, as part of a diversified portfolio, can generally provide better inflation- protection than a portfolio mostly comprising bonds or cash.
Heffcap offers such a balancing and review service for clients that qualify as institutional or accredited investors. For the general public we publish some of our research on www.livetradingnews.com.
China’s GDP to grow 9.6%
China’s GDP to grow 9.6% in Y 2011
China’s economy is expected to grow 9.6% in Y 2011 as fixed asset investment remains a Key driver, the Asian Development Bank (ADB) said in an annual report released Wednesday.
With inflation pressures building and tightened monetary policy, China’s gross domestic product (GDP) growth was forecast moderate this year, compared with a growth of 10.3% in Y 2010, said the ADB in its 2011 Asian Development Outlook, which expected a growth of 9.2% in China in Y 2012.
The inflation rate, which averaged 3.3% in Y 2010, will pick up to 4.6% in Y 2011, lifted by abundant liquidity and higher food and commodities prices, the ADB said. The bank estimated the inflation will ease back to 4.2% in Y 2012 as commodity prices level off.
Fixed asset investment will remain a Key driver of growth, although the expansion rate is set to decelerate slightly from past levels, standing at 22% in Y 2011 and 20% in Y 2012, respectively, due to the winding back of fiscal stimulus measures and tighter monetary policy, the bank said.
With the slowdown in major industrial economies, Chinese government has laid out measures to rebalance economic growth drivers in its 12th Five-Year Plan (2011-2015) by putting more emphasis on domestic consumption and services, the bank said.
“Global imbalances have become more pronounced, and the recent global recession highlighted the risk of heavy reliance on foreign demand for growth,” said Changyong Rhee, the ADB’s chief economist in a statement released in the day.
The Manila-based bank expected the private consumption in China will expand by 12.6% this year with rising incomes and increased spending on education, health care and pensions, while merchandise export growth will ease to about 20%.
The ADB projected a 1.5% GDP growth in Y 2011 in disaster-hit Japan. “Aside from energy, the regional and Global impact of the Japanese earthquake is hard to quantify but likely to be temporary and limited,” the bank said.
In light of projected slower global trade and moderating growth in Chinese mainland, Hong Kong’s economy has been forecast to expand 5% in Y 2011, easing to 4.7% in Y 2012, as inflation rate is seen to reach 4.5% due to higher Global fuel and food prices, rising housing costs, and a likely increase in wages.
The bank’s forecast growth for Developing Asia, comprising of 45 economies in the region excluding Japan, has been at 7.8% in Y 2011, with an inflation rate of 5.3%.
“Developing Asia is home to 67% of the World’s poor and it is they who are most vulnerable to the effects of price increases,” said Rhee. “Policy makers must therefore consider preemptive action to control inflation before it accelerates.”
The ADB forecast a moderate expansion of 5.5% in Southeast Asia in Y 2011 after “an exceptionally strong recovery in Y 2010,” with an accelerating inflation of 5.1%.
Though facing slower external demand and tighter fiscal and monetary policies, India’s economy will remain robust, with its GDP growth slightly slower at 8.2% in Y 2011 and expected to bounce back to 8.8% in Y 2012, the bank’s report said.
Yen falls as BOJ meets, Asian stocks muted
By Alex Richardson
SINGAPORE (Reuters) - The yen fell as the Bank of Japan began a meeting on Wednesday that may signal its readiness to further loosen monetary policy to support the earthquake-hit economy while Asian stocks were muted after an interest rate rise in China.
Brent crude oil hovered below a two-and-a-half year high struck amid war in Libya and unrest in the Middle East.
Gold sat just below its record as China's fourth rate rise since October and oil prices fuelled concerns about inflation that helped propel the yellow metal, which is traditionally a hedge against rising prices as well as a safe haven investment.
Japan's Nikkei share average dipped 0.2 percent. A weaker yen ought to be positive for Japan's heavyweight exporters, but investors remain concerned about production capacity knocked out by last month's devastating earthquake.
" The dollar going above 85 yen is a significant breakthrough," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management. " But carmakers and other manufacturers have to be able to produce at full capacity first to really feel positive impact. That's why they're not surging on the news."
MSCI's index of Asia Pacific shares outside Japan rose 0.4 percent, led by a 1 percent gain for its tech sub-index. Shanghai stocks rose 0.4 percent. U.S. stocks ended flat on Tuesday.
Copper prices rose in London and Shanghai futures jumped 1 percent after a two-day holiday.
Past Chinese rate rises have been seen as negative for stocks and commodities on the worry that a slowing economy might crimp China's growing demand for industrial raw materials, manufacturing components and, increasingly, finished goods.
But the latest 25 basis point rise announced by Beijing on Tuesday was viewed as just the latest step in a tightening cycle which has been going on for some time and was expected to continue.
" The market has become comfortable with tighter Chinese policy," said a metals trader in Singapore.
" We were looking at three rate rises this year so it's not unexpected and they also seem to be in the habit of announcing these things during market holidays."
EURO STRONG, YEN EASES
The euro rose as far as 121.89 yen, its highest in 11 months. The Australian dollar topped 88 yen for the first time since April last year and the dollar climbed to a six-month high of 85.52 yen.
The yen has been on a downward trend since a rare joint intervention by leading central banks to weaken it last month revived interest in the yen " carry trade" -- a strategy of using cheap yen loans to fund higher yielding investments.
The Bank of Japan is expected to keep policy on hold at its two-day meeting starting on Wednesday, but signal its readiness to embark on further easing as damage from a March 11 earthquake threatens to tip the economy back into recession.
In contrast, there are strong expectations the European Central Bank will bump its key policy rate up 25 basis points from a record low 1 percent on Thursday to curb inflationary pressures, with markets already pricing in more tightening later in the year.
Against the dollar, the euro traded around $1.4255, just shy of Monday's five-month high of $1.4268.
Minutes of last month's Federal Reserve policy-setting meeting, released on Tuesday, showed the U.S. central bank appeared intent to complete a $600 billion bond-buying plan and to keep rates at exceptionally low levels for an extended period.
With both the Fed and BOJ keeping ultra-loose monetary policy in place, investors have been using the yen and dollar as funding currencies to buy higher yielding assets, a lot of which has flowed into commodity currencies such as the Australian dollar.
Brent crude eased 0.3 percent to $121.80 a barrel, having jumped to a two-and-a-half year high above $122 on Tuesday. U.S. crude also weakened 0.3 percent to $108.06 a barrel.
Gold traded around $1,453.15 an ounce, after rising as far as $1,456.85 on Tuesday.
Japanese government bond futures fell, hurt by a slide in U.S. Treasuries, with June 10-year futures down 0.17 point at 139.10, while the benchmark 10-year yield rose 1 basis point to 1.28 percent.
EU and USA agree on principles to promote ICT
EU and USA agree on principles to promote ICT services
The European Union (EU) and the United States Monday agreed on 10 principles to promote trade in information and communication technology (ICT) services worldwide.
The two sides promised to promote principles such as transparency of rules affecting trade in ICT and ICT services, open networks, flows of cross-border information, non- discriminatory use of local infrastructure, efficient and non- discriminatory use of spectrum and full foreign participation in ICT services sector.
European Commission Vice President for the Digital Agenda Neelie Kroes said that the EU and the U.S. will also seek to incorporate the principles in their trade agreements with other countries in a bid to help open up the global ICT markets to the benefit of all businesses and consumers.
EU Trade Commissioner Karel De Gucht said that the principles agreed on Monday are “an excellent example” to demonstrate the important role the Transatlantic Economic Council can play in bringing transatlantic convergence activities to a higher political level.
Obama to Boost US Oil Output
US President Obama said he will cut dependency on foreign Crude Oil
President Obama set an ambitious course for the US in a speech last week at Georgetown University. He called for a 33% reduction in all US Crude Oil imports by Y 2025, with the goal of reducing America’s dependence on foreign Oil supplies.
The US President talked about a number of programs, including Bio-fuels, Nat Gas, Electric cars, Wind and Solar power, and more fuel efficient Cars and Trucks.
Further, he discussed the need to boost domestic Crude Oil production. I like that idea.
To accomplish this, Obama pointed to the big American Oil and Gas companies, “Right now, the industry holds 10’s of millions of acres of leases where there is no production, and Big Oil (an Small Oil too) is sitting on supplies of American petroleum energy just waiting to be tapped,” he said.
Now in the wake of the nuclear crisis in Japan, many people wanted to hear the President’s POV on domestic nuclear power. And he told them, “We cannot simply take it off the table. In America we get 20% of our electricity from nuclear energy. It has important potential for increasing our electricity without adding CO2 to the atmosphere. But I am determined to ensure that it is safe.”
The President’s speech was Key in its timing as protests and chaos has taken hold in the MENA region, sending the price of Crude Oil to 2.5 yr highs and forcing Americans to pay higher gasoline prices at the pump.
In Y 2011 gas prices have risen 50c and more, reaching a US national average of US$3.58 gal, according to AAA.
Plus, many Americans are concerned about the safety of the domestic nuclear power plants that are more than 32 yrs old.
Most thinking people will support the President’s 14 yr goal, and that America does need to take itself off of foreign Crude Oil pump.
But, since the mid-60’s I have heard this political rhetoric before, and nothing has been done, the USA does not have a definitive Energy policy, and right now the US uses more Crude Oil than any other Nation on Earth, and imports 11M BPD.
President Obama said, “Presidents and politicians of every stripe have promised energy independence but that promise has so far gone unmet. That has to change. We cannot keep going from shock to trance on the issue of energy security, rushing to propose action when gas prices rise, then hitting the snooze button when they fall again.”
Nevertheless, I have Strong doubts on the ability of cutting the US Crude Oil imports by a 33% in 14 yrs, as there are and have always been a lot of conflicting politics surrounding this issue.
As an example re. domestic drilling President Obama encourages Oil companies to drill on the millions of acres it already is leasing, but at the same time a spokesman for House Speak John Boehner responded, “The facts are that the White House consistently works to prevent and delay exploration of American sourced petroleum energy.” Stay tuned…
China’s central bank raised Key interest rate by 25 basis points
China’s central bank raised Key interest rate by 25 basis points
The People’s Bank of China (PBOC), the central bank, announced Tuesday it would raise the benchmark 1yr borrowing and lending interest rates by 25 basis points beginning on Wednesday.
This is the 2nd time that China’s central bank raised the benchmark interest rates this year and the 4th increase since the start of Y 2010.
After the hikes, the one-year deposit interest rate will climb to 3.25% while that of the 1 yr loan interest rate will reach 6.31%.
Analysts said the move indicates that the central bank is enhancing efforts to dampen consumer price increases.
The consumer price index (CPI), a main gauge of China’s inflation, jumped 4.9% in February from a year earlier, exceeding the government’s full-year target of 4%.
“It’s widely expected that the reading of March’s CPI will hit a new high. The interest rate rise is the central bank’s advance response to the pressure of rising inflation,” said Liu Yuhui, an economist with the Chinese Academy of Social Sciences, a government think tank
Paul A. Ebeling, Jnr.
What’s next for the S& P 500
What’s next for the S& P 500
The S& P 500 is up 5% in Y 2011, and the DJIA just tapped 12,400, on its 2.5 yr highs, so where is it headed from here?
Back at the beginning of the year the pundits and their “Noise” machine was calling for a 10 to 12% in this market, the Bears were growling in mid-Winter.
Instead, what they got was chaos and turmoil in the MENA region, some healthy backing and filling in the markets and run back to the resistance in the S& P 500 at 1,334 and no “correction”, from my POV a correction is about 10 to 12%
Below is a list of Bearish reasons for the market to have traded lower during the last 3 months
1. Protests and chaos in the MENA region
2. The US has joined NATO forces went to “war” against Col. Gaddafi’s forces
3. The devastation caused by the earthquake and tsunami in Japan, the World’s 3rd largest economy.
4. Crude Oil rallied more than 20% and is presently trading at 2.5 year highs
5. Food prices are rising on the back of rising commodities prices.
6. The US budget is in question and the Pols cannot agree on the Cuts. (No the government will not shut down IMO).
7. The so called Sovereign debt crisis in EU’s peripherals (a Red Herring from LTN’s POV).
8, The lagging employed and underemployed in the USA (a lagging indicator)
9. An anemic US housing market (the US does not need a Strong housing market yet IMO)
An with all of the above an much more the stock market’s have moved North.
The fact is the that the liquidity faucet is turned on at the US Federal Reserve at Zero + interest, and that played a major role in the rally.
The Fed funds rate has been near Zero for some time now, and the anticipation and then implementation of QE-2 sparked the Strong rally that started in September.
The Bears believe that when QE-2 finishes in June the market will finally see their long awaited correction, for it is their belief (dream) that the markets have been propped up by the US Federal Reserve, and when the stimulus runs out the stock market could fall as much as 15% or more.
And the Bulls say, I am one of those, that the US Federal Reserve might not be done stimulating the economy and QE-3 is likely.
That being the case more stimulus means an extension off the rally in the stock markets. I am of the belief that even if we do see QE-3 immediately that the stock markets will continue their charge North due to strong corporate growth and the strength in emerging markets. Stay tuned…
Asia shares mixed, Japan hit by contamination fear
HONG KONG: Asian shares were mixed in quiet trade on Tuesday as Tokyo was hurt by renewed fears over the crisis at its stricken atomic plant and China raised interest rates to curb rampant lending.
With few catalysts to spur buying, dealers returned their attention to Japan where crews at Fukushima have begun dumping radioactive water into the Pacific Ocean to prevent even more dangerous material from being released.
Tokyo's Nikkei slipped 1.06 percent, or 103.34 points, to end at 9,615.55, while Sydney gained 0.27 percent, or 13.3 points, to 4,900.1.
Seoul gained 0.69 percent, or 14.56 points, to 2,130.43.
Markets in China, Hong Kong and Taiwan were closed for public holidays.
China's central bank said it would raise one-year deposit and lending rates by 25 basis points -- the fourth hike since late last year -- in its latest effort to rein in lending and bring inflation under control.
The latest move, to take effect when markets reopen on Wednesday, takes the one-year deposit and lending rates to 3.25 percent and 6.31 percent respectively.
Authorities have been pulling on a variety of policy levers to contain consumer prices and housing costs but inflation remains stubbornly high.
Japan's losses followed a strong performance on Monday, when investors were buoyed by strong jobs figures out of the United States that suggested recovery in the world's biggest economy was gaining traction.
But despite recent gains since the March 11 quake and tsunami in Japan, concerns linger over the crisis at the Fukushima atomic plant, which has seen radiation emitted into the air, contaminating farm produce and drinking water.
Tokyo Electric Power (TEPCO), which operates the plant, insisted the release of the water -- the equivalent of more than four Olympic-sized swimming pools -- would not harm marine life or seafood safety.
However, the firm's stock price was sent tumbling again, shedding more than 18 percent amid fears over possible huge compensation claims against it.
The firm has lost more than 80 percent of its value before the earthquake.
" A couple of weeks ago, the company said all they have to do is to cool the reactors, but the situation doesn't seem to be improving," a trader at a Japanese brokerage told Dow Jones Newswires.
" Compensation to be paid will likely balloon with this contaminated water release."
On currency markets the dollar rose after US Federal Reserve chief Ben Bernanke said a recent rise in inflation would not continue, while the euro sank after Moody's cut its debt rating on Portugal, raising fresh concerns over the eurozone.
The euro bought $1.4181 in European morning trade, down from $1.4220 in New York late Monday. The single European currency had hit a five-month high of $1.4268 in intraday trade Monday.
The greenback also gained to 84.22 yen from 84.03 yen.
The euro changed hands at 119.44 yen from 119.67.
Bernanke said a jump in US inflation rates for February would be " transitory" , adding that medium-term expectations " if anything, will be a bit low."
US February inflation data released last month showed soaring consumer price levels across a large swathe of goods, with costs of staples jumping 0.5 percent -- the fastest rise since June 2009.
Bernanke's statement also hinted that he was committed to seeing through a $600 billion stimulus package expiring in June, going against fellow Federal Open Market Committee members' calls to cut it short and raise interest rates as the economy recovered.
Oil prices edged lower on profit-taking but the troubles in Libya and the Middle East continued to provide support.
Oil slid in afternoon Asian trade, with New York's main contract, light sweet crude for delivery in May, down 34 cents to $108.13 per barrel.
Brent North Sea crude for May delivery fell 27 cents to $120.79.
In other markets:
-- Singapore closed 0.20 percent, or 6.13 points, higher at 3,146.75.
DBS Bank was 0.14 percent higher at Sg$14.72 and oil-rig maker Keppel Corp was down 0.63 percent at Sg$12.62.
-- Manila fell 1.01 percent, or 42.34 points, to 4,167.09.
Metropolitan Bank fell 0.6 percent to 68.00 pesos and Philippine Long Distance Telephone shed 2.0 percent to 2,352.
-- Wellington gained 0.29 percent, or 9.87 points, to 3,469.38.
Fletcher Building added 0.9 percent to NZ$9.41 and Air New Zealand rose 0.9 percent to NZ$1.14.
-- Jakarta fell 0.38 percent, or 14.11 points, to 3,685.93.
Coal miner Bumi Resources shed 2.3 percent to 3,175 rupiah, while Bank Mandiri lost 2.9 percent to 6,650 rupiah.
i think tonite uncle ben talkin, dj may closed down. But how down is down, we'll have to see the china interest rate hike which was alredi speculated will be absorbed.
US inflation spike won't last, Bernanke says
By Pedro Nicolaci da Costa
STONE MOUNTAIN, Ga. (Reuters) - A recent increase in U.S. inflation is driven primarily by rising commodity prices globally, and is unlikely to persist, Federal Reserve Chairman Ben Bernanke said on Monday.
The comments stood in sharp contrast to a string of U.S. central bank officials, some of whom have argued the time is coming for the Fed to begin tightening monetary policy.
Earlier on Monday, Atlanta Fed President Dennis Lockhart struck a similar note, saying inflation would probably remain moderate.
Along the same lines, Bernanke argued that supply and demand factors are driving energy and commodity costs higher, but that these should eventually stabilize, allowing the United States to avoid any inflation troubles.
" I think the increase in inflation will be transitory," Bernanke said in response to questions after a speech. " Our expectation at this point is that in the medium term inflation, if anything, will be a bit low. We will monitor inflation and inflation expectations very closely."
The comments suggested the Fed chief is committed to completing a $600 billion stimulus program as scheduled in June, despite calls from some of his colleagues to consider cutting the effort short in light of an improving economy.
" He's drawing the line between him and the hawks at the Fed," said Christopher Low, chief economist at FTN Financial in New York.
The U.S. economy expanded at a 3.1 percent annualized clip in the fourth quarter, a solid performance but not one good enough to make up the ground lost during the severe recession of 2008-2009.
U.S. unemployment, while declining rapidly in recent months remains at an elevated 8.8 percent. Inflation, meanwhile, has edged higher. But at 2.1 percent in the year to February, growth in the consumer price index has yet to rise to levels that tend to make Fed officials uncomfortable.
In contrast, European Central Bank officials appear ready to pull the trigger and raise rates later this week as inflation worries have dominated the debate in Europe.
STICKING TO POLICY
Christopher Waller, research director at the St. Louis Federal Reserve Bank, told Reuters in an interview that the program's completion was all but in the bag.
" There doesn't seem to be a lot of support, from what I can tell, to stop the program," Christopher Waller, research director at the St. Louis Federal Reserve Bank, told Reuters in an interview.
" It would be reasonable to keep the balance sheet constant for at least a meeting (after June 30) and see how things are going," he said.
To do so, the Fed would have to continue its current policy of reinvesting the proceeds of securities that have matured or otherwise been paid off, Waller said.
Chicago Fed President Charles Evans, seen as one of the strongest backers of aggressive growth-boosting initiatives, told CNBC television the central bank's bond-buying program should be enough to get the economy back on its feet.
" We've seen pretty good growth and the employment numbers are improving. It's quite likely that 600 could be about the right number," he said.
Still, both Bernanke and Lockhart stressed the importance of monitoring the potentially self-fulfilling expectations of consumers regarding price increases.
Lockhart also said the shock of the recession had made consumers a lot more cautious about their spending. While negative for short-term economic growth, the pattern is healthy in the long-run, and should help to address international imbalances characterized by high savings overseas and excess spending at home.
" Consumer spending has been growing more slowly relative to income than it did before the recession," Lockhart told an audience of business executives at the Palm Beach Strategic Forum. " I expect that this more measured consumption behavior is likely to persist."
Politics In 60 Seconds: What You Need To Know Right Now
Image: AP
Good morning! Here's what you need to know:
1. President Obama's re-election campaign began in earnest yesterday. For the moment, the campaign is focused on " reaching out" to independent voters in swing states and raising money. The Obama campaign will seek to raise more than $750 million for the re-election effort.
2. The first act of the re-election effort was to reverse course on the prosecution of Khalid Sheikh Mohammed, the alleged mastermind of the 9/11 attacks. KSM, as he is known, will be tried by a US military tribunal at the Guantanamo Bay prison camp.
3. The second act of the re-election campaign was a news leak. NPR reported that General David Petraeus will be offered the job of CIA Director. The current CIA Director, Leon Panetta, is widely believed to be heading over to the Pentagon to replace Defense Secretary Robert Gates, who is retiring from public life.
4. US Rep. Paul Ryan (R-WI) today will introduce the House Republicans' budget for 2012. According to the New York Times, it represents a " fundamental rethinking" of how Medicare and Medicaid work. It seeks to reduce Federal spending over ten years by roughly $6.2 trillion. Good WSJ analysis here.
5. NYT Columnist David Brooks offers up praise for the House GOP's 2012 budget plan, an effort that was led by Congressman Ryan. Brooks notes that President Obama had exactly the same opportunity to seriously address the cost of entitlement spending, but chose not to protect his political base.
6. President Obama will meet with Congressional leaders today at the White House to try to get a deal done on funding for the remainder of the 2011 fiscal year. The Federal government will shut down this weekend if a deal is not reached.
7. Treasury Secretary Tim Geithner, in a letter to Congress yesterday, pleaded with lawmakers to raise the Federal debt ceiling. He said the federal government will hit its legal borrowing limit on 16 May and could default on its debt by 8 July.
8. Today is election day in Wisconsin. Voters will decide whether to keep the current 4-3 GOP majority balance on the Wisconsin State Supreme Court or reverse it. The balloting is widely view as a referendum on the policies of newly-elected Governor Scott Walker.
9. Influential blogger Clyde Prestowitz calls on Jeffrey Immelt to either step down as Chairman and CEO of GE or resign as head of President Obama's Economic Advisory Board. Prestowitz thinks he should step down at GE and devote himself to helping save the United States.
10. The New York Times reports that " counterterrorism operations in Yemen have ground to a halt, allowing Al Qaeda’s deadliest branch outside of Pakistan to operate more freely inside the country and to increase plotting for possible attacks against Europe and the United States."
10 Things You Need To Know Before The Opening Bell
Good morning. Here's what you need to know.
Asian indices were down in overnight trading with the
BSE falling 0.08%. Major European indices are in the red and U.S. futures indicate a negative open.
- The Nikkei dropped 1.06% in overnight trading on news that TEPCO was dumping contaminated water into the ocean. Shares in auto stocks fell after Toyota announced that shutdown plans for U.S. plants in the wake of earthquake and tsunami related supply disruptions.
- Texas Instruments is acquiring Silicon Valley’s National Semiconductor in a $6.5bn all-cash acquisition. TI is paying a 78% premium to National Semi's closing price on Monday. TI's shares fell 2% in after-hours trading.
10 Unusual Stocks Attracting Huge Interest Today
U.S. stock futures opened lower today ahead of the release of the latest Federal Reserve Open Market Committee (FOMC) meeting at 2 PM ET. Follow the release at Money Game >
Besides Portugal being downgraded again by Moody's indicating it is even closer to a bailout, the big deal of the day was Texas Instrument's $6.5 billion acquisition of National Semiconductor.
NSM shares are up 71% which has boosted other tech stocks.
Apple shares were down over 1% on the news that its weighting in the Nasdaq 100 would be reduced. There was also some earnings news already out and there is more to come.
Here is a roundup of earnings so far:
- Layne Christensen beat analyst expectations
- Schnitzer Steel beat analyst expectations
- KB Home will report its earnings later today
Portugal yields hit record high, seen rising
* Portuguese yields hit record highs after Moody's cut
* Portugal yields converging with Ireland, seen above 10 pct
* Greece seen good guide to where Portugal yields can go
(Adds detail, fresh quotes, background)
By Emelia Sithole-Matarise
LONDON, April 5 (Reuters) - Portuguese bond yields rose to their highest since the euro's launch, and were expected to top 10 percent in the coming days, after a new credit rating cut piled pressure on Lisbon to seek a bailout.
Portugal's 10-year yields rose as high as 9.033 percent on Tuesday and credit default swaps implied a 41 percent probability of a default within five years, compared with 33 percent at the end of February, provider CMA said.
The relentless rise in yields, which was compounded after Moody's downgraded Portugal's ratings by one notch to Baa1, is raising further the costs of refinancing debt -- as a treasury bill auction on Wednesday is expected to underscore.
Traders and investors have kept pushing yields higher and each credit rating downgrade by the three major ratings firms has accelerated this trend. Portugal has been downgraded three times in the past week alone and is one notch away from losing its investment grade rating from two firms.
Michael Leister, a strategist with WestLB, said the best guide to how high Portuguese yields could go was what had happened to Greece.
" Given where five-year and 10-year Greek yield levels are there's substantial room for Portugal to go higher," he said.
Greek two-year bonds yield 700 basis points above equivalent Portuguese debt.
The yield on 10-year Greek bonds hit euro-era peaks above 13 percent at the height of the sell-off in that country's debt before it was forced to seek an international bailout last May.
The Portuguese yield curve peaks above 10 percent in the five-year sector, signalling markets see an increasing risk that Portgal's debt could be restructured within that time horizon.
Greek and Irish curves flattened in a similar manner prior to both entering a bailout programme.
Portuguese 10-year bond yields are also close to converging with those of Ireland near 10 percent, though Irish bonds have trimmed some losses since last week when stress tests helped ease investor concern about its shaky banking sector.
Portuguese five-year credit default swaps rose as much as 18 bps on the day to 598 bps, according to provider Markit, meaning it costs 598,000 euros to protect an exposure of 10 million euros of debt.
Markit said the cost of protecting the bonds against a default had surpassed that of Ireland, which has already sought a bailout, for the first time since August.
" Even though Moody's still rates the sovereign two notches higher than Standard & Poor's, the downgrade is another blow to sentiment," said Gavan Nolan, an analyst at Markit.
POLITICAL LIMBO
Portugal's political limbo before a snap election on June 5 is seen complicating its efforts to fund itself ahead of bond redemptions in April and June.
The country must pay 4.8 billion euros in redemptions and coupons in mid-April and 6.95 billion euros in June. Although analysts think it can probably make the first payment, many see an eventual bailout as inevitable.
Portugal's neighbour Spain has escaped the surge in borrowing costs of the more indebted euro zone issuers, with its bond yield premium over German benchmarks narrowing. However investors are on alert for any fiscal slippage, with the European Central Bank expected to raise interest rates this week.
Lombard Odier Investment Managers, with assets under management worth 33 billion Swiss francs ($35.80 billion) said it was underweight peripheral euro zone sovereign debt, citing concern about the impact of higher official borrowing costs on some of these countries' economic recovery.
" We are concerned that spreads may move wider to reflect the underlying debt sustainability issues that peripheral economies face, particularly in the wake of ECB policy tightening," said Gregor MacIntosh, head of rates at the firm.
German bonds, the euro zone benchmarks, were largely steady, underpinned by the problems plaguing Portugal, but the trend for higher yields there remained intact ahead of Thursday's ECB policy meeting.
Keppel Corporation: Remain positive on the stock
Summary: Compared to S$3.2b of new orders for the whole of 2010, the offshore and marine arm of Keppel Corporation (Keppel) has secured S$4.6b worth of orders YTD, along with at least S$3b worth of 14 newbuild options. Looking ahead, we remain positive on the demand for high-end jack-up rigs whilst looking out for signs of a revival in the semi-submersible space, especially with more permits being granted for deepwater drilling in the Gulf of Mexico. Meanwhile, amidst concerns about competition from the Chinese yards, Keppel has also taken steps to stay ahead of the competition. We incorporate higher EBIT margins in our estimates as we think there is potential for margins to remain strong. Meanwhile, our property analyst has increased his fair value estimate for Keppel Land to S$5.12 (prev. S$4.67) and we have updated the market values of Keppel’s listed entities. As such, our fair value estimate rises to S$13.92 (prev. S$13.24). Maintain BUY. (Low Pei Han)
Raffles Medical Group: Quality healthcare play
Summary: We believe that growing demand for quality healthcare services in Singapore will provide ample growth opportunities for Raffles Medical Group (RMG). This is due to its consistent track record established over the years and is exemplified by the strong earnings growth achieved in FY10. RMG also recently announced plans for a new specialist medical centre near Orchard Road, after successfully tendering for a seven-storey freehold podium/commercial block for S$92.08m. We view this as an astute move by management, given its strategic location and complementary function to RMG’s hospital operations. Visitor arrivals also continued to show robust growth in Feb, and we expect RMG to be a key beneficiary of this trend due to its strong brand equity to medical tourists. We do not expect the recent Japan earthquake and tsunami incident to have much impact on RMG, as Japanese patients form only a small proportion of its foreign patient base. We continue to like RMG for its strong management, operating efficiencies and prudent risk management. Hence we maintain our BUY rating and S$2.45 fair value estimate on RMG. (Wong Teck Ching Andy)
ISDN: Seeding a new growth segment
Summary: ISDN Holdings Limited invited us to visit its new hydroponics farm in Subang, Malaysia, recently. Using patented Boxsell elliptical channels hydroponics, ISDN is able to grow “temperate” vegetables and premium “micro-greens” on low-land farm in a tropical country. The one-acre farm, which cost about S$400k to build but has very low running cost as it uses 60% less water and fertilizer, can produce up to 23k crops every harvest, or nearly 100k tonnes of fresh produce annually. Meanwhile, ISDN is also in the process of constructing its second farm in Suzhou, China, and expects to start the initial planting in 2Q11. While management is encouraged by the positive feedback from numerous parties (including those who were initially very skeptical over ability, pricing and delivery), it remains quite realistic about the earnings contribution in the early years. As such, management reassures us that it is still focused on growing its core motion-control engineering business. Based on its FY10 EPS of S$0.0413, ISDN is trading at a historical PER of 3.8x but we note that manufacturing peers typically command a PER of 6-8x. We do not have a rating on the stock. (Carey Wong)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- Temasek Holdings is in talks to buy a part of US private equity firm TPG Capital's holding in Indian commercial vehicle lender Shriram Transport Finance Co in a deal valued at 25 billion rupees (S$709.3m).
- Overseas Union Enterprise has priced an inaugural issue of S$300m unsecured fixed rate notes, with an interest rate of 4.3% payable semi-annually in arrear.
- A unit of BBR Holdings has secured a S$48.3m contract to construct the second phase of the Yang Kee Chemical Logistics Hub at Jurong Pier Road.
- Starhill Gallery - a mall that is part of Starhill Global REIT's portfolio - will undergo a RM25m (S$10.4m) makeover that will create about 8,100 sf in additional NLA.
- Golden Agri Resources announced that it has been accepted as a member of the Roundtable on Sustainable Palm Oil - an industry group which brings palm oil players together to develop and implement standards for sustainable palm oil production.
- GMG Global said that it has temporarily stopped its operations in Ivory Coast because of the imposition of a countrywide curfew, and the closure of all means of transportation.
- Neptune Orient Lines said it carried 12% more cargo in the four weeks from 12 Feb to 11 Mar versus a year ago, helped by higher traffic on intra-Asia and Asia-Europe routes.
Singapore’s STI gained 20.2pts (+0.7%) to 3,140.6. In the broader market, gainers led losers 342 to 142 and 1.3bn shares worth S$1.6bn changed hands. We expect the market to open higher today on the back of optimism in the economy.
Corporate News...
Economic Update. Visitor arrivals rose 15.8% yoy to 2.05m in 2M11, the highest ever recorded for a corresponding period. Concerns have been raised that a stronger S$ might affect the hospitality sector, a look at the cross-rates against Singapore’s top markets suggest otherwise. The impact of the Japanese disasters is likely to be muted as Japanese arrivals accounted for 5% of visitor arrivals. We maintain our forecast of a 12% increase in arrivals to around 13m (excluding land arrivals) in 2011. Our preferred stock picks from rising tourist arrivals: OUE and UOL, in the hotel and retail sector, will benefit directly from rising tourist arrivals.
Singapore Banks. Economic recovery, credit demand, expiry of QE2 now adds to the positives of valuations for Singapore banks. We believe that Singapore banks will have a relatively buoyant 2011 as both loan volumes and margins could potential surprise on the upside in 2011. We maintain our OVERWEIGHT rating on the Banks, with DBS (OUTPERFORM, S$17.00) and OCBC (OUTPERFORM, S$11.04) as preferred exposures.
Otto Marine. Lifting the veil behind recent vessel sales have made us more cautious of Otto’s outlook. We deem that the sales are of poor quality and indicative of continued ailing industry conditions. Wary of Otto’s precarious short-term liquidity, we downgrade the stock to UNDERPERFORM and reduce TP to S$0.19. The stock continues to be dogged by the Mosvold overhang and shipbuilding order drought. We see de-rating catalysts from weaker-than-expected contributions from charter and specialised offshore services.
Starhill Global REIT announced the asset redevelopment of Starhill Galllery in Kuala Lumpur, Malaysia. Expected to complete by 2Q 2011, the asset redevelopment will create an additional net lettable area of approximately 8,100 square feet. The Starhill Gallery asset redevelopment is expected to generate an additional NPI of approximately RM1.7 million or S$0.7 million per annum, representing a ROI of approximately 7.0%.
Telechoice announce that its 90% indirectly owned dormant subsidiary, S& I Systems (HK) Limited, a company incorporated in Hong Kong, had on 25 March 2011 been deregistered in Hong Kong.
Today’s Focus
• Ezra - Earnings have bottomed in FY10 expect growth of 8% in FY11F and 53% in FY12F. Ezra’s progression up the value chain is expedited with AMC’s capabilities and track record. We estimate that the subsea unit alone, with a combined fleet of 10 vessels, coupled with AMC’s capabilities, would be able to support annual revenue and earnings of US$1bn and US$80-120m respectively, boosting group earnings up to 170% from current levels. Positive near term catalysts include 1) the impending deliveries of its delayed newbuild vessels, likely with back-to-back contracts 2) the potential work relating to Ezion’s 6th liftboat and 3) more subsea contract wins as work under tender doubles to US$3bn. We believe earnings bottomed in FY10, and expect growth of 8% in FY11F and 53% in FY12F. Maintain BUY, TP raised to S$2.20 (from S$2.05 post-rights).
HDB has awarded Tiong Seng a S$192m contract for the construction of 1,072 units in Punggol West, called the " Waterway Terraces" . A major milestone in our view for Tiong Seng, and will represent one of its first public housing contract won by the group since its listing. We believe that this contract is also a testament of the group's strength and focus on efficiency and productivity methods, coupled by management's focus and track record in the construction of " green buildings" in Singapore, which is an emerging trend in the construction industry as developers and owners become more conscious towards environmental sustainability. The contract will boost Tiong Seng's order book to S$1.2bn, which is way ahead of peers in the construction industry, providing the group with good earnings visibility over the next 2 years. Project is expected to commence in April 2011 and complete by Sept 2014. Maintain BUY call and TP of S$0.31.
Cosco’s share price outperformed the market yesterday. We believe the positive share price reaction could be attributable to Sevan Drilling’s IPO. Sevan’s board has approved the indicative price range of the IPO. Seven Drilling is expected to raise up to US$350m through the issue of new shares. We believe the smooth progress of Seven Drilling’s IPO has brought Cosco one step closer to the finalization of its recent LOIs of 2+2 Seven drilling units worth US$1bn + US$1bn.
Maintain Buy on Cosco, TP: S$3.16.
NOL’s container shipping operating performance for the 4 weeks (Period 2) from 12 Feb 11 to 11 Mar 11:- container shipping volumes increased 12% while average revenue per FEU (Forty-foot Equivalent Unit) fell 1% yoy. The increase in volume was mainly due to higher volumes carried on the Intra-Asia and Asia-Europe trade lanes while the decline in average revenue per FEU was due mainly to falling rates in the Asia-Europe trade lane. For P2 YTD 2011, container shipping volumes increased 8% while average revenue per FEU increased 6% yoy. Otto Marine has sold another new vessel for US$31.5m, within one week subsequent to the sales of two 8,000bhp AHTS for US$43.4m. The vessel constructed is of high specifications and therefore well position for potential recovery in demand for new builds.
BBR Holdings has secured a $48.3m contract to construct the second phase of the Yang Kee Chemical Logistics Hub at Jurong Pier Road. Work on the project has begun and is scheduled for completion in the second quarter of next year.
GMG Global said that it has temporarily stopped its operations in Ivory Coast because of the imposition of a countrywide curfew, and the closure of all means of transportation. According to GMG's website, its subsidiary, Tropical Rubber Cote D'Ivoire (TRCI), is the second-largest buyer of rubber from small farmers in Ivory Coast - Africa's top exporter of the commodity. It operates a factory capable of processing up to 36,000 tonnes annually. TRCI's operations account for 12% of Ivory Coast's annual rubber exports.
OUE has priced the issue of $300m unsecured fixed rate notes, with an interest rate of 4.3% payable semiannually in arrear. The three-year notes to be issued are expected to mature on April 15, 2014. In property news, capital values of strata-titled industrial properties continued to appreciate in the first quarter of this year as investors sought refuge in the property segment not affected by curbs imposed on residential properties. Q1 this year, the average capital values for 60- year leasehold strata-titled factory space increased by about 5% q-o-q to $289 psf for ground floor units and $213 psf for upper-floor units. Capital values of freehold strata-titled warehouse space also appreciated around 5% to $449 psf for ground floor units and $392 psf for upper-floor units. Our chief economist believes that US GDP growth will run at about 2.8%-2.9% for the rest of 2011, which is below the 4% growth that investors were hopeful of at the start of the year. GDP growth overall will should pick-up towards the end of 2011 and the FED could start raising rates again in 4Q. Our economist also thinks that the FED will not end QE2 early (i.e. before June).
US markets finished marginally higher with takeover news outweighing a drop in technology stocks following a report on lower chip sales. The Semiconductor Industry Association reported that the 3- mth average for global chip sales was USD25.5bil in February, down 1.1% from the prior month. Technology bellwethers such as Intel, Hewlett-Packard and Nvidia fell. Takeover news in the commodity sector offset weakness in technology stocks. After the bell, Texas Instruments agreed to buy National Semiconductor in its biggest acquisition.
