Year: 2010

The Nikkei average clawed up 0.7 percent on Wednesday on window-dressing before the end of Japan’s financial first half, but it pared earlier gains as the yen’s strength revived and resistance held strong.

An additional boost came from a poor December outlook in the Bank of Japan’s “tankan” survey of business sentiment, which some market players said could increase expectations the central bank will discuss easing monetary policy further at a meeting next week.

“The ‘tankan’ was as expected, showing improvement in the short term and a gloomy outlook going forward. That only increased expectations for further easing by the Bank of Japan,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co.

“But more gains in the market were limited because the yen persistently remained on the strong side.”

This week also marks the end of the April-September first half in Japan, and some analysts said window-dressing, or buying by fund managers of some of the quarter’s better performers to improve their books, likely provided help.

Some analysts also cited buying of Japanese stocks by a US pension fund.

Still, market players said the longer-term outlook for the benchmark was poor, given the dollar’s persistent weakness, and resistance around 9,660 – the upper level of the Nikkei’s Ichimoku cloud on daily charts – would hold.

“Of course we have to see what happens when the BOJ meets next week, and over the next few weeks there’s likely to be some support along the way from intervention,” said Hideyuki Ishiguro, a strategist at Okasan Securities.

“But the effectiveness of intervention is likely to wear off the more it’s done, and the BOJ may not have so many options in terms of policy left. So the Nikkei could test the downside later this year.”

The benchmark Nikkei ended up 63.62 points at 9,559.38, while the broader Topix gained 0.5 percent to 846.97.

The Nikkei has gained about eight percent this month, its best monthly performance since March, helped by short-covering in exporter shares after intervention by Japanese authorities to weaken the yen two weeks ago.

But for the July-September quarter, the benchmark’s rise is only about two percent, lagging other major stock markets. The MSCI index of Asia Pacific stocks outside Japan has gained about 17 percent during the same period.

The dollar fell as far as 83.62 yen on electronic trading platform EBS, its lowest since Japanese authorities intervened to weaken the yen on September 15.

The Federal Reserve is likely preparing a fresh round of quantitative easing steps to be announced at the end of its November 2-3 meeting, a report by influential hedge fund adviser Medley Global Advisors said on Tuesday, a market source told reporters.

These expectations grew in the wake of figures showing a decline in US consumer confidence to the lowest level since February, pushing the dollar below 84 yen.

The Nikkei’s worst performer on Wednesday was Tokyo Electric Power Co (TEPCO), which tumbled 7.8 percent to 2,105 yen after media reported that Asia’s largest utility was planning a share issue worth several billion dollars to fund investments.

Impact of yen strength
Japanese manufacturers’ confidence improved for a sixth straight quarter, the BOJ’s tankan survey showed, but they turned negative on the outlook in a sign of the stronger yen’s threat to a fragile economic recovery.

Market players noted that big manufacturers surveyed in the tankan expect the dollar to average 89.66 yen in the financial year to next March, weaker than the forecast of 90.18 yen in the June survey but still sharply higher than the current level.

“Of course the currency rate, along with the generally sluggish global economy, raises quite a risk for half-year corporate earnings, which will start coming out next month,” said Hideyuki Ishiguro, a strategist at Okasan Securities.

“Should these be poor, the Nikkei might break below 9,000 sometime in November.”

Exporters rose, with Canon Inc rising 1.7 percent to 3,945 yen and Sony Corp up two percent at 2,645 yen.

Elpida Memory Inc surged 8.1 percent to 985 yen after the company said it would start mass production of advance DRAM chips in December, putting it ahead of bigger rival Samsung Electronics in technology.

Nintendo Co turned negative and fell 3.7 percent to 23,010 yen after the game maker said its launch of a 3D-capable version of its DS handheld game console would be in February in Japan and March in the US, missing the crucial holiday season.

Trade was moderate with some 1.75 billion shares changing hands on the Tokyo exchange’s first section. Advancing stocks outnumbered declining ones by about five to one.

The Lloyd’s of London insurance market revealed that record claims from disasters including the Chilean earthquake and US oil spill halved its profits, and said it saw no respite from a steady decline in prices.

Lloyd’s, which traces its origins back 322 years to a London coffee house where wealthy merchants insured ships, has posted a pretax profit of £628m ($994m) for the first half of 2010, down from $1.32bn a year earlier.

Lloyd’s, a cluster of competing insurance syndicates which specialise in covering large-scale risks, said it had to absorb more claims in the first half than in any other six-month period.

The market was also hit by a 15 percent drop in investment returns as it switched to safe low-yielding assets in the face of volatile financial markets.

Property and casualty insurers worldwide have reported bumper claims in the first half of the year, with reinsurer Munich Re estimating total insured losses over the period at $70bn, exceeding the total for all of 2009.

Insurers have had to pick up the bill for heavy storms in Europe and Australia as well as the Chilean earthquake and Gulf of Mexico oil spill, while some Lloyd’s insurers have been hit by a sharp rise in UK motor insurance claims.

The industry is also struggling with falling prices amid intense competition between insurers holding abundant supplies of capital after a relatively low volume of claims in 2009.

Lloyd’s finance director Luke Savage said prices looked set to keep falling, and most of the syndicates operating in the market would probably respond by writing less business next year.

“At the moment there is nothing that would lead us to believe that (prices) are going to improve generally. In an environment of slowly declining rates, people are going to be slowly reining in the amount of premium they write,” he told reporters.

Lloyd’s, which competes with Munich Re and Swiss Re as well as Bermuda-based insurers and reinsurers, is considering opening an office in Russia, adding to its existing overseas bases in China, Singapore, Japan and Brazil, Savage added.

Analysts say the most likely catalyst for an upturn in prices would be a US hurricane causing $30-$50bn in insured losses. The US hurricane season, which ends in November, has so far caused only moderate damage.

Listed insurers operating in the Lloyd’s maket including Amlin, Catlin, Hiscox and Lancashire have also reported lower interim profits on the back of higher claims.

Lloyd’s had a combined ratio – a key measure of profitability which expresses costs and claims as a percentage of premium income – of 98.7 percent in the first half of 2010, compared with 91.6 percent a year earlier.

A reading below the 100 percent breakeven point denotes an underwriting profit.

European workers have put aside $2.5trn less than they need to fund their retirement, condemning many to a penurious old age unless they start saving more, British insurer Aviva said.

The shortfall is equivalent to one-fifth of the EU’s annual economic output and reflects savings habits that have failed to keep pace with lengthening lifespans, according to a study published by Aviva.

Britain’s pensions gap of 26 percent of GDP, is the EU’s biggest, followed by Germany and Spain, whose deficits are equivalent to 24 percent and 18 percent of GDP respectively, the study shows.

Aviva said that without increased saving, European workers will be forced to pay for their old age by selling their homes, putting off retirement, or “accepting a significantly reduced standard of living”.

The insurer urged EU governments to help plug the deficit by adopting national pensions saving targets, warning consumers not to rely solely on state pensions, and boosting confidence in pensions products by creating a Europe-wide quality standard.

Aviva’s estimate of the EU pensions gap, which it claims is the first attempt to gauge the region’s retirement funding shortfall, is based on a calculation of the savings that would be required for those currently in employment to retire on 70 percent of their final salary.

The European Commission has said it intends to use a its plan to reform financial markets to rein in speculation on commodities markets, notably by reinforcing controls and extend the market abuse legislation.

The European Commissioner in charge of financial reform services Michel Barnier made the announcement in the opening speech of a conference on the revision of the Market in Financial Instruments Directive (MiFID) in Brussels, along with his colleague, EU Agriculture Commissioner Dacian Ciolos.

“The revision of MiFID is one of the key elements of an ambition reform of the raw materials markets,” the EU’s financial markets chief said, stressing that commodities markets regulation was a high on his agenda.

“We are ready to go further. This is a key issue. We will not hesitate to consider further measures,” Barnier, a former French farm minister, also said.

European commodity markets are under pressure to tighten regulation as the US pushes forward with plans to tame speculative activity, which was blamed by some for boosting food and energy prices to record highs in 2008.

The EU’s executive had unveiled a blueprint on Wednesday to curb or ban short-selling and tighten controls on derivatives in one of its most ambitious financial reforms since the economic crisis unfolded, but it was unclear how the EU intended to tackle the issue of volatile commodities markets.

European wheat futures gained more than 60 percent in the five weeks to August 5 on record volumes as drought-hit Russia, the world’s former third-largest grain exporter, banned its exports and other major producers, including Ukraine, also suffered from drought.

Position limits
At the conference Dacian Ciolos, said he wanted the EU executive’s plan to specifically include the issue of position limits on futures markets.

“We need to go further, especially today on the issue of position limits to counter excessive movements,” he said.

“The role of futures market is not to feed speculation and some actors’ profits. The role of futures markets is to offer tools to anticipate, manage volatility and contribute to the matching of supply and demand,” he said.

Barnier said the MiFID review would create the opportunity to strengthen the transparency, give a better framework for organised markets and increase controls on the activity of the various players in these markets, the speech said.

But the Commission also intends to review the market abuse directive and extend its field of action to strengthen how raw materials markets are controlled and supervised.

Finally, Barnier said the Commission wants the new European authority for securities markets to play an important role in how these markets operate, notably by ensuring that common rules for their functioning are established and that there is a coordinated and homogenous supervision of these rules in Europe.

His comments come after France sent detailed proposals to the Commission on August 31 calling for common action to regulate volatile commodities markets before it is due to head the Group of 20 economic powers.

In an interview with reporters on September 10, France’s Farm Minister Bruno Le Maire said speculators may have inflated EU wheat futures prices by as much as a third, as he touted the benefits of position limits as a possible part of the country’s push to toughen commodity market regulation.

Ciolos agreed fundamental parameters such as lower supplies from Ukraine and Russia could not explain recent wheat price movements alone.

“I’m not here to put finance on trial. But finance must serve the real economy,” he said.

Iran’s central bank has agreed to open won accounts at two South Korean state-owned banks to avert disruption in bilateral trade despite international sanctions, Seoul’s finance ministry has announced.

The Iranian central bank plans to open the accounts with the Industrial Bank of Korea and Woori Bank by the end of this month so that exporters and importers from both countries can settle their transactions in won, it said in a statement.

Trade with Iran accounts for less than 1.5 percent of South Korea’s trade but Iran is an important supplier of crude oil to South Korea, which imports all of its crude needs.

The two countries have settled trade deals in major currencies such as the dollar but international sanctions imposed on Iran over suspected nuclear weapons development have threatened to disrupt commercial links.

South Korea, a close ally of the US, joined the wave of international sanctions on Iran early this month by blacklisting the Seoul branch of Iran’s Bank Mellat and 101 other companies.

Potash Corp is trying to stitch together a consortium led by China to back a management buyout to trump BHP Billiton’s $38.6bn hostile offer, according to the Globe and Mail.

Potash Corp has said ever since BHP launched its bid nearly a month ago that it was working to find a white knight, and worries in China about BHP getting control over the market for a key crop nutrient have spawned talk that China would try to block BHP.

Citing unnamed sources, Canada’s Globe and Mail reported on its website the bid being considered would include a big element of capital from a Chinese resource company or investment fund, with smaller contributions from international sovereign wealth funds and possibly Canadian players such as pension funds.

It also said rival potash producer Mosaic Co could be part of the consortium.

“It is a viable option,” the newspaper quoted a source close to Potash Corp saying.

The source added that it was tough to put together a structure for the consortium and that other options were still possible.

“It is still a big cheque to write … and it is a challenge to manage multiple parties,” the source was quoted saying.

A Potash Corp spokesman in Melbourne declined to comment on the report.

Sinochem Corp, parent of China’s largest fertiliser distributor, Sinofert Holdings, has expressed concern over BHP’s bid for Potash Corp.

Unlikely consortium
Analyst Tom Gidley-Kitchin at Charles Stanley in London said such a consortium would be unwieldy since China as the world’s top potash consumer would want to keep a lid on potash prices while other investors would have the opposite motive.

“Everyone else who might come into a consortium like that if they weren’t Chinese would be certainly interested in maximising returns and doing everything that BHP would be doing,” he said.

“I do think that local regulators (in Canada) would certainly be asking themselves why the Chinese were getting involved here. China would be taking quite a risk in getting involved in something like this is there was a significant possibility that regulators would stop it.”

The deadline for BHP’s offer is October 19, but it needs clearance from regulators before going ahead.

The Globe and Mail report came a day after a respected Chinese business magazine Caijin quoted an official at Sinochem saying that a bid for Potash Corp would not be a good deal for the firm but it may consider other assets of the world’s biggest fertiliser maker.

The magazine has since deleted any comments from the Sinochem official from the report on its web site.

A German central bank board member who caused outrage with remarks about Muslim immigrants and Jews has resigned after coming under pressure from political leaders including Chancellor Angela Merkel.

The Bundesbank said Thilo Sarrazin, 65, who accused Turks and Arabs of exploiting the welfare state, refusing to integrate and lowering the average intelligence, would leave his post at the end of the month.

“Dr Sarrazin has asked the president to relieve him of his duties,” the bank said in a brief statement and Sarrazin himself confirmed he had stepped down during a book reading in Potsdam near Berlin.

He had already been relieved of some of his central bank responsibilities over remarks he made last year about immigrants but the strict independence of the central bank made it difficult to have him removed.

However, after he published stronger comments in his new book “Deutschland schafft sich ab” (“Germany does away with itself”) and remarks in the run-up to its publication, Merkel and President Christian Wulff gave strong hints he should step down.

Sarrazin argues in the book that Muslims undermine German society and threaten to change its character and culture with their higher birth rate. He angered many by saying “all Jews share a particular gene”.

The central bank board voted unanimously for his removal, which required the approval of the head of state.

“I found it too risky in the current atmosphere … to stand up to the entire political and media establishment. That would be presumptuous and would not have worked,” Sarrazin said at the book reading after news of his resignation.

“So, a strategic retreat and now (I will) work on the topics that are important to me,” Sarrazin added.

He had previously vowed to fight attempts to remove him, raising the prospect of a bruising court case that would have raised questions over whether Merkel, her ministers and Wulff had acted correctly.

Merkel, senior ministers and the main political parties criticised Sarrazin, who belongs to the centre-left Social Democrats (SPD) and is a former finance chief of the city of Berlin.

The SPD has launched proceedings to expel him, although a recent opinion poll showed this would be unpopular with the public and SPD voters, who believed the party should devote its attentions to more important matters.

“I want no selection by genetics … as a Social Democrat,” SPD party leader Sigmar Gabriel told a TV show after the resignation, adding that Sarrazin had “crossed a line and people in the party are saying it’s not okay with us”.

A legal battle to remove him from the central bank or from the party could risk making him a hero figure and embroil the government in a dispute at a time of falling poll ratings.

Sarrazin has become an embarrassment for Bundesbank President Axel Weber, who several German leaders hope will succeed Jean-Claude Trichet as president of the European Central Bank next year when the Frenchman’s contract runs out.

The US trade deficit narrowed more than expected in July, as imports retreated and exports shot to their highest since August 2008, according to a government report that could lift hopes for third-quarter economic growth.

The monthly trade deficit shrank 14 percent to $42.8bn, which was smaller than the mid-point forecast of $47.3bn from economists surveyed before the Commerce Department report.

Exports rose to 1.8 percent to $153.3bn, led by strong overseas demand for US civilian aircraft, machinery, computers and other capital goods.

Imports fell 2.1 percent to $196.1bn, after a three percent rise in June that had caught many analysts by surprise and lowered estimates of second-quarter US growth. The drop in July was the largest since February 2009.

The dollar regained some ground against the Japanese yen after the favourable data on the US trade balance and a separate report showing fewer claims for jobless benefits.

Stock futures continued to gain after the reports.

Despite the improvement in the monthly trade gap, the cumulative deficit for the first seven months of 2010 rose to $288.83bn from $203.96bn in the same period in 2009.

In the second quarter of this year, a sharp widening in the trade gap sliced nearly 3.4 percent points off of US economic growth.

July imports from both China and Germany – two countries with persistent trade surpluses – were the highest since October 2008.

The closely watched trade deficit with China fell almost one percent in July, but for the first seven months of the year it was nearly 18 percent higher, at $145.4bn, compared to the same period in 2009.

With congressional elections looming in November and US unemployment a high 9.6 percent, US lawmakers are expected to turn their attention to China’s exchange rate practices when they return next week from their summer recess.

Many accuse Beijing of deliberately undervaluing its currency by as much as 40 percent to give Chinese exporters an unfair trade advantage.

However, the July increase in US  exports, including to China, is good news for President Obama’s administration, which has hoped healthy foreign demand will help put the US economy back on a strong footing. Obama has set a goal of doubling exports in five years.

Prices for imported oil fell slightly in July to an average of $72.09 per barrel, the second consecutive monthly decline.

Afghan security forces used batons on unruly customers scrambling to withdraw their savings from a branch of the graft-hit Kabulbank, the country’s biggest private financial institution.

Officers from the National Security Directorate struggled to maintain control of up to 200 people outside one branch in the capital as desperate customers tried to take out money ahead of a three-day Muslim holiday.

The crisis in Afghanistan’s top private bank developed after the company’s top two directors quit amid unproven media allegations of corruption.

The central bank ordered the assets of Kabulbank’s former chairman Sher Khan Farnood and chief executive officer Khalilullah Fruzi to be frozen, together with those of several other shareholders and major borrowers.

Witnesses saw officers of the National Security Directorate beat several people among queues of angry customers.

“It’s Eid, we need money for food, clothes, candy,” said Hameed Iqbal, a customer in air force uniform.

“They said all the bank branches would be open, they lied. I’m extremely angry,” he said.

Corruption is one of the most common complaints from ordinary Afghans and Washington fears widespread graft is boosting the Taliban-led insurgency and complicating efforts to strengthen central government control so US and other foreign troops can begin withdrawing.

Another customer who identified himself as Rahim, blamed the government for the crisis at the bank.

“If they do not listen to us we will break all the windows of Kabulbank, we will loot all the branches and even … the presidential palace,” said Rahim, who said he was a cook in a government office.

Kabulbank’s include 250,000 state employees and it also handles salaries for the Afghan security forces. Witnesses saw an NSD officer beating at least one man wearing a police uniform.

Sayed Hammad, a 38-year-old grocery store owner, said he had heard on television on Tuesday that all Kabulbank branches would be open instead of just the single branch in Kabul. He said he wanted withdraw $3,000 and close his account.

“I used to trust the bank but not anymore,” Hammad said. “You put your money in you don’t know if you’ll get it out.”

At the start of the month, US media reported the central bank had taken control of Kabulbank, forcing Farnood and Fruzi to resign and ordering the chairman to hand over $160m worth of luxury villas bought with bank funds in Dubai.

The Afghan government and the central bank governor have both rejected the allegations, denying that the central bank had stepped in and saying Farnood and Fruzi had stepped aside in line with new financial regulations.

South Africa’s biggest union federation COSATU, a partner of the ruling ANC party, has called for a reversal of measures taken to relax foreign exchange controls and taxing short-term capital flows.

The positions laid out in an economic policy paper put pressure on the ruling African National Congress to reconsider its foreign exchange and economic policies.

COSATU said the ANC’s policies in the past ten years had failed to create employment. It called for job creation to be the primary mandate of the South African Reserve Bank.