Wednesday, September 23, 2009

Bullish Estimates Fail to Keep Up With S&P 500 Gain (Update1)

By Lynn Thomasson and Michael Tsang

Sept. 23 (Bloomberg) -- Strategists at Wall Street’s biggest securities firms can’t keep up with the Standard & Poor’s 500 Index after the steepest surge since the 1930s.

The benchmark gauge for U.S. equities climbed 0.7 percent yesterday to 1,071.66, leaving it above all but one of the 10 projections by forecasters in a Bloomberg survey this month, the first time that’s happened in data going back to 1999. The average forecast for the S&P 500 from the strategists is 1,022, about 5 percent below the index’s current level.

While the strategists raised estimates by an average of 5.8 percent from March this year, they’re divided on whether the U.S. economy will be strong enough to justify further revisions. The last time the S&P 500 rose above the consensus was in 2006, when Wall Street responded by increasing projections, helping spur an 11 percent advance that ended when the index hit a record high in October 2007.

“There’s a little bit of a wall of worry right now, but the market just feels like it wants to go up,” said Michael Mullaney, a Boston-based fund manager at Fiduciary Trust Co., which oversees $9 billion. “There’s going to be a very strong near-term economic rebound greater than expectations. I think we’ll end the year higher.”

Bulls say the 58 percent advance since March 9 can continue because the U.S. economy will emerge from the worst recession since the 1930s and grow 2.9 percent in the third quarter, according to the median of 61 economists in a Bloomberg survey. S&P 500 futures rose 0.2 percent at 8:51 a.m. today in London.

Bond Sales

Credit markets are healing from the collapse of subprime mortgages in 2007 and the bankruptcy of Lehman Brothers Holdings Inc. a year ago. Investment-grade companies sold a record $836.9 billion of corporate bonds in the U.S. this year through Sept. 18 as the relative cost of borrowing narrowed, according to data compiled by Bloomberg.

The decline in credit costs will improve profitability, according to JPMorgan Chase & Co.’s Thomas Lee, the only strategist whose year-end forecast of 1,100 is above the S&P 500’s level. The index’s valuation doesn’t yet reflect prospects for a “strong” economic recovery, he said.

Bears say the highest U.S. unemployment rate since 1983 and concern the housing market will continue to deteriorate means the best is over for the rally. Frankfurt-based Deutsche Bank AG said last month that almost half of U.S. homeowners may owe more on mortgages than the properties are worth by 2011.

Share Valuations

Forecasters at Barclays Plc and Goldman Sachs Group Inc. say the gains may falter because stocks are no longer bargains. Since March, the S&P 500’s valuation doubled to 20 times the reported profit from continuing operations of its companies.

“When you start looking at valuations relative to other asset classes and relative to history, the equity market is not looking cheap any longer,” Barry Knapp, Barclays’ New York- based head of U.S. equity strategy, said in a Bloomberg Television interview. “The market looks somewhat extended.”

About $4.9 trillion has been restored to U.S. equity markets on signs that the more than $12 trillion spent, lent or committed by the U.S. government and the Federal Reserve has ended the credit crisis and revived the economy. Bond sales by investment-grade companies are 10 percent more than the record pace of 2007, Bloomberg data shows. Borrowing costs fell to the lowest in four years.

Investment-grade bond yields slipped to 5.04 percent on Sept. 22 from 9.3 percent in October 2008, the highest level since 1991, according to Merrill Lynch & Co. index data. Companies pay 230 basis points more to borrow on average than the government, the narrowest gap since February 2008. A basis point is 0.01 percentage point.

Money Flow

U.S. companies are piling up cash at the fastest rate ever compared with interest costs, setting the stage for a surge in mergers and acquisitions.

Cash relative to share prices will climb to the highest level in at least two decades next year compared with yields on corporate bonds, according to data compiled by Bloomberg and Zurich-based Credit Suisse Group AG. The previous high in 2005 preceded the two busiest years ever for takeovers.

The S&P 500 has added 5 percent this month as Northfield, Illinois-based Kraft Foods Inc.’s $16 billion bid for Cadbury Plc in London and Burbank, California-based Walt Disney Co.’s $4 billion purchase of Marvel Entertainment Inc. in New York signaled increasing confidence among executives.

Rally Conditions

Improving credit markets and more mergers aren’t enough to extend the gain in stocks, said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $580 billion. The economy must create jobs and companies earn more before that happens, she said.

“What the markets want to see, what investors want to see, is demand is picking up,” Krosby said. “We should see a pullback and the market just waiting for the data to come in. Much will depend on the earnings and guidance.”

The third-quarter earnings season starts in two weeks, when New York-based Alcoa Inc., the largest U.S. aluminum producer, reports results. Profits will have to be “dramatically” above analysts’ estimates to justify higher stock prices, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist in New York.

Increasing estimates now would be “just chasing the tape,” Levkovich said in a telephone interview. “I could make an argument that momentum carries the market because people just want to throw money at it, but that’s not a really good reason to buy stocks.”

Gun Shy

The U.S. unemployment rate climbed to 9.7 percent last month, bringing the number of Americans thrown out of work since the recession began in December 2007 to 6.9 million, the most in any post-World War II contraction, Bloomberg data show.

The S&P 500’s 38 percent loss last year, the biggest since 1937, has kept some investors from pouring more money back into stocks. Individuals withdrew a total of $7.5 billion from U.S. equity mutual funds on a net basis in the four weeks ended Sept. 9, even as the index rose to an 11-month high, according to Washington-based Investment Company Institute. That’s the longest stretch of selling in more than a year.

“It’s hard for people to let go that the crisis is over,” New York-based JPMorgan’s Lee said in a telephone interview. “In a lot of people’s minds, not enough has changed since March to declare things are better.”

The S&P 500 fell as much as 57 percent from Oct. 9, 2007, through March 9. Stocks plunged as the credit-market freeze spurred $1.6 trillion in losses and writedowns at the world’s biggest financial firms, data compiled by Bloomberg.

Bouncing Back

This year’s rebound was underpinned by signs the economy is bouncing back from the longest contraction since the Great Depression. Fed Chairman Ben S. Bernanke said last week in Washington that “the recession is very likely over,” while reports on industrial production and consumer prices showed the U.S. economy is emerging from the economic slump without spurring inflation.

“We’re in the part of the business cycle where you do want exposure to equity risk,” Michael Aronstein, president of Marketfield Asset Management in New York, said on Bloomberg Television. His mutual fund has gained 14 percent since the S&P 500 peaked, compared with a 32 percent drop in the index. “For people who expect the market to make a new low, which means that sentiment would be worse, the wealth destruction would be worse, the fundamental environment would be worse -- you shouldn’t be in the business if that’s your expectation.”

Sunday, September 20, 2009

China Can’t Buy Enough Treasuries as Dollar Drop No Deterrent

By Cordell Eddings and Lukanyo Mnyanda

Sept. 21 (Bloomberg) -- International investors are increasing purchases of Treasuries on a bet U.S. inflation will remain subdued, even as the dollar falls to the lowest levels of the year and the budget deficit tops $1 trillion.

Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show. The Merrill Lynch & Co. Treasury Master Index of U.S. securities returned 1.18 percent in the third quarter after the worst first half on record as demand from the investor group that includes central banks climbed to record levels at Treasury auctions.

The trade-weighted U.S. Dollar Index’s 15 percent decline from its high this year on March 4 has proved no obstacle in Treasury auctions, aiding President Barack Obama’s efforts to sell an unprecedented amount of debt. Fund managers say their money is safe in the U.S. with expectations for inflation as measured by indexed bonds below the five-year average.

Treasuries are “starting to look like even a better value with a weaker dollar,” said Dave Chappell, who manages $90 billion in London at Threadneedle Asset Management Ltd., and has been buying longer maturity U.S. government debt.

The benchmark 10-year note yield rose 12 basis points last week, or 0.12 percentage point, to 3.46 percent, according to BGCantor Market Data. That’s the most since gaining 37 basis points in the five days ended Aug. 7. The 3.625 percent security due August 2019 fell 1, or $10 per $1,000 face amount, to 101 11/32.

Record Issuance

This week the U.S. will sell $112 billion of 2-, 5- and 7- year notes. The amount will be a record for that combination of maturities, exceeding the $109 billion sold the week of Aug. 24. Treasuries rallied that week, with the yield on the 10-year note falling 12 basis points to 3.45 percent.

Federal Reserve holdings of Treasuries on behalf of foreign accounts rose 16 percent to $2.07 trillion since the March high in the Dollar Index.

China, the biggest foreign owner of Treasuries, added $24.1 billion in July after net sales of $25.1 billion in June, raising its stake in U.S. government debt 3.1 percent to $800.5 billion, Treasury data showed on Sept. 16. The country’s holdings have risen 10 percent this year, after a 52 percent gain in 2008 amid the surge in demand for the safety of U.S. government debt as global credit markets froze.

Foreign governments have little choice than to buy Treasuries because they hold so may dollars. The U.S. dollar accounts for 65 percent for world currency reserves, up from 62.8 percent in mid-2008, according to the International Monetary Fund in Washington.

Chinese Demand

The Obama administration needs the foreign help to fund the debt sales needed for his $787 billion stimulus spending package. Chinese Premier Wen Jiabao said in March that the Asian nation was “worried” about the safety of its investment as a weakening dollar erodes the value of its record $2.1 trillion of foreign-exchange reserves.

“The interest rate on long-term Treasury bonds is at a very low level by historical standards,” said David Dollar, the U.S. Treasury Department’s economic and financial emissary to China on Sept. 11 at the World Economic Forum meeting in Dalian, China. “That says that the market has confidence the U.S. will get the fiscal problem under control.”

Inflation Protected Debt

Yields on U.S. inflation-protected debt show there’s little concern about consumer prices eroding the value of bonds’ fixed payments. The difference in rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, is 1.82 percentage points. While up from 0.04 points in November, the level is below the average of 2.19 points over the past five years.

The U.S. has the lowest so-called breakeven rates of any major sovereign debt market except Japan. The difference between three-year maturities is 0.71 point, below the average of 2.21 points this decade.

Prices of goods imported into the U.S. tumbled 15 percent in August from a year earlier, after a record 19.2 percent drop in July, the Labor Department said Sept. 11.

“There is no inflation on the horizon,” said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. “The market is comfortable that the Fed will keep rates low and there isn’t much of an alternative.”

Current Account Deficit

The Fed’s announcement June 24 that it anticipates the target rate for overnight loans between banks will stay at zero to 0.25 percent for an extended period is keeping two-year notes anchored near current levels. Policy makers meet Sept. 22-23 in Washington. Traders are pricing in less than a 50 percent chance of a rate increase before March, federal funds futures show.

A weaker dollar has increased concerns among some investors as the budget and current-account deficits come back into focus in the currency market. The U.S. government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets.

Economists forecast the current-account deficit will rise to 3.2 percent of gross domestic product in 2010 and 3.5 percent in 2011 from 2.9 percent this year as consumer and business spending boost imports and oil prices increase, according to the median estimates in Bloomberg News surveys.

“Even though U.S. asset markets are doing well, they’re not doing well enough,” Steven Englander, the chief currency strategist for the Americas at Barclays Capital Inc., said in an interview with Bloomberg Radio on Sept. 17. “The question is, what is there in the U.S. to attract capital? And that answer is hard to find.”

Yield Forecast

Investors buying a 10-year note today will lose 0.2 percent if yields rise to 3.57 percent by year-end as projected in a Bloomberg News survey of forecasts. On an unhedged basis, European investors would have lost 13 percent on 10-year notes since the start of the year, according to Merrill Lynch index data.

Even with last week’s drop in bond prices Treasuries have returned 2.8 percent in the past three months, including reinvested interest, beating the 2.3 percent return for mortgage-backed bonds, according to indexes compiled by Merrill. The rally reflects skepticism about the sustainability of the economic recovery once government stimulus ends.

The Obama administration forecasts that unemployment in the world’s largest economy will rise above 10 percent in the first quarter. The jobless rate increased to 9.7 percent in August, a quarter-century high. Fed Chairman Ben S. Bernanke said in Washington Sept. 15 that the worst U.S. recession since the 1930s probably ended, while adding that growth may not be strong enough to quickly reduce unemployment.

Good ‘Entry Point’

“If you subscribe to the double dip school of thought this may not be a bad entry point for Treasuries,” said Steve Rodosky, the head of Treasury and derivatives trading at Newport Beach, California-based Pacific Investment Management Co., manager of the word’s biggest bond fund. “The longer term risk is that the weaker dollar is the cause or affect of people diversifying their holdings or using other currencies as a global currency, but we are a long way from that.”

Yields on 10-year notes may fall toward 3 percent, the least in five months and down from 3.47 percent last week, as the inflation rate drops, Francesco Garzarelli, chief interest- rate strategist in London at Goldman Sachs Group Inc., wrote in a Sept. 15 research report.

“The international community has not lost favor with Treasuries, and the weakening currency allows an opportunity to increase their exposure,” Rodosky said.

Pimco’s Changes

Bill Gross, who runs the fund, increased holdings of government-related debt last month to the most in five years, according to the Pimco Web site. Gross boosted the $177.5 billion Total Return Fund’s investment in Treasuries, so-called agency debt and other bonds linked to the government to 44 percent of assets, the most since August 2004, from 25 percent in July.

The U.S. will sell $43 billion in two-year notes tomorrow, $40 billion of five-year debt on Sept. 23 and $29 billion in seven-year securities on Sept. 24.

Indirect bidders, the class of investors that includes foreign central banks, bought 49.4 percent of the notes at the two-year auction, up from 33 percent in July’s sale. They purchased 56.4 percent of the five-year notes, compared with 36.7 percent in July, and 61.2 percent of the seven-year notes, above the average of 43.7 percent at the prior six sales of that maturity.

“China and a few other central banks have grumbled about the dollar but they don’t have many other alternatives so they keep buying,” said Michael Atkin, head of sovereign research at Putnam Investments in Boston, who helps oversee $12 billion in fixed-income assets.

Wednesday, September 16, 2009

Stocks, Commodities Climb on Bernanke, Buffett; Dollar Declines

By Daniel Hauck

Sept. 16 (Bloomberg) -- Stocks climbed around the world and commodities advanced as Federal Reserve Chairman Ben S. Bernanke indicated the recession is over and billionaire investor Warren Buffett said he’s buying equities.

The Dow Jones Stoxx 600 Index of European shares added 1.2 percent to an 11-month high at 12:35 p.m. in London. Futures on the Standard & Poor’s 500 Index gained 0.4 percent. The MSCI Emerging Markets Index rose as much as 1.8 percent, more than doubling from a four-year low in October 2008. Lead rose for a third day on the London Metal Exchange and copper added 2.3 percent. The dollar fell against all but three of the 16 most- traded currencies tracked by Bloomberg.

Bernanke said yesterday in Washington that “the recession is very likely over,” while Buffett told a conference in Carlsbad, California yesterday that the economy is responding to government stimulus measures. The Group of 20 nations has committed about $12 trillion to reviving growth. Figures today are likely to show U.S. inflation remains subdued and that the housing market is improving.

“The bigger and uglier the bear market, usually the bigger the V,” Kenneth Fisher, who manages $28 billion as chief executive officer of Fisher Investments Inc. in Woodside, California, said in an interview. “A normal V-shaped recovery lasts one year, and the current rally started in March.”

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against its major trading partners, dropped to the lowest level since Sept. 23, 2008, as signs the world’s biggest economy is emerging from recession prompted investors to buy higher-yielding assets. A report today may show the Fed’s measure of U.S. industrial production rose 0.6 percent last month, the most since October, according to the median of 75 economists’ forecasts in a Bloomberg survey.

The MSCI World Index of 23 developed nations has climbed 64 percent since March 9 as the Fed kept its target rate for overnight lending between banks at near zero to unlock credit markets after the bankruptcy of New York-based Lehman Brothers Holdings Inc. a year ago.

The MSCI World added 0.9 percent today, led by companies dependent on consumer spending and raw-material producers. The global gauge trades at 27.3 times the earnings of its 1,659 companies, the most expensive level since 2003.

Inditex SA rose 4.2 percent in Madrid as Europe’s largest clothing retailer reported earnings that beat analysts’ estimates. BHP Billiton Ltd., the world’s biggest mining company, added 2.3 percent as copper, lead and nickel climbed in London.

Buffett Buying

The increase in U.S. index futures indicated that the S&P 500 may extend an 11-month high. Indexes climbed yesterday as Buffett, known as the “Oracle of Omaha,” said his Berkshire Hathaway Inc. is currently buying stocks because “I am getting a lot for my money.”

Buffett built an equity portfolio valued at more than $48 billion by betting on companies including soft-drink maker Coca- Cola Co. and Kraft Foods Inc. that he believes have competitive advantages and enduring brand popularity.

The MSCI Emerging Markets Index advanced to the highest level in more than a year. South Korea’s Kospi index led the advance among Asian developing nations, rising 1.8 percent as exporters including Samsung Electronics Co. and Hyundai Motor Co. rallied. Indonesia’s rupiah climbed 1.2 percent to the highest level in 11 months and the government’s benchmark 10- year notes gained after Moody’s Investors Service raised the nation’s credit rating. Hungary’s BUX index added 2.6 percent.

Metals Rally

Metals advanced in London. Lead, used mainly in auto batteries, climbed 4.1 percent to $2,255 a metric ton. Platinum and palladium rallied to one-year highs on speculation vehicle- scrapping programs in the U.S. and Europe will revive car demand. Automakers account for about 60 percent of platinum and palladium use.

Treasuries rose for the first time in three days, with the yield on the benchmark 10-year note falling 4 basis points to 3.42 percent, as the absence of inflation in the U.S. economy encouraged investors to buy fixed-income securities. Consumer prices declined 1.7 percent in August from a year earlier, almost the biggest drop since 1950, the Labor Department will say today, according to the median of 38 forecasts in a Bloomberg survey.

Pimco, Mervyn King

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., increased holdings of government-related debt last month to the most in five years and cut mortgage securities. Gross boosted the $177.5 billion Total Return Fund’s investment in Treasuries, so-called agency debt and other bonds linked to the government to 44 percent of assets, the most since August 2004, from 25 percent in July, according to Pimco’s Web site. The fund cut mortgage debt to 38 percent, the lowest level since February 2007, from 47 percent.

U.K. government bonds advanced, sending the yield on the two-year gilt 4 basis points lower to 0.69 percent, the lowest level since at least 1992, after Bank of England Governor Mervyn King said yesterday policy makers are considering cutting the rate paid to financial institutions on deposits at the central bank.

Sentiment among stock investors deteriorated from Tokyo to Paris and New York on speculation the rally in stocks has outstripped the prospects for earnings.

Optimism for equities fell in seven of 10 countries in the Bloomberg Professional Confidence Survey. Users expect stocks to slide during the next six months in the U.S., Japan and Spain, while investors in Brazil and the U.K. were the most bullish. Sentiment had improved in all 10 nations in August.

Sentiment on equities dropped even as confidence in the world economy held at a record high in September.

The Bloomberg Professional Global Confidence Index rose to 58.54 this month from 58.12 in August. The index exceeded 50 for a second month, which means optimists outnumbered pessimists. Measures of confidence in France and Germany surged after their economies unexpectedly returned to growth last quarter.

Thursday, September 10, 2009

Japan’s Economy Grew 2.3%, Less Than First Estimated (Update1)

By Jason Clenfield and Tatsuo Ito

Sept. 11 (Bloomberg) -- Japan’s economy grew less than initially estimated in the second quarter as companies cut spending and stockpile levels fell.

Gross domestic product expanded at an annual 2.3 percent pace in the three months ended June 30, following a 12.4 percent contraction in the first quarter, the Cabinet Office said in Tokyo. Economists surveyed by Bloomberg News forecast a 3.7 percent expansion, unchanged from the preliminary report.

The recovery is already showing signs of slowing. The Democratic Party of Japan, which last month unseated a government that’s ruled for 55 years, inherits an economy where more than a third of the country’s factory capacity sits idle and unemployment has surged to a record high.

“This is a weak recovery,” said Tetsuro Sugiura, chief economist at Mizuho Research Institute in Tokyo. “Consumers and business are anxious about the outlook.”

The yen traded at 91.70 per dollar at 8:59 a.m. in Tokyo from 91.65 before the report was published.

Last quarter’s growth was led by a bounce in exports and consumer spending. Manufacturers such as Nippon Steel Corp. saw orders rise as customers rebuilt stockpiles depleted during the recession, while construction equipment-makers like Komatsu Ltd. befitted from China’s 4 trillion yuan ($586 billion) in stimulus spending. Consumers also spent more on cars and electronics, as incentives introduced by the outgoing Liberal Democratic Party took effect.

“The economy has gotten a boost from the inventory cycle, stimulus packages at home and abroad, and pent-up demand,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “These factors will fade probably by year end.”

Slowing Economy

Reports since the second quarter suggest the economy is slowing. Gains in industrial production decelerated for a fourth month in July, exports plunged 36.5 percent and the jobless rate jumped to 5.7 percent, the worst reading since 1953. Machinery orders, an indicator of capital spending, tumbled 9.3 percent.

Toyota Motor Corp., which estimates it will make about a third fewer cars this year than it has the capacity to build, said last month it will close an assembly line at its Takaoka plant in central Japan. The carmaker plans to cut capital spending by 36 percent in the year ending March 31.

Declining corporate profits and falling tax revenues means that the DPJ, which won national elections on Aug. 30, will have more difficulty funding its promises to beef up the country’s safety net and encourage more consumer spending through childcare handouts and abolishing highway tolls. The party pledged not to increase new bond sales to avoid expanding a debt burden that’s the largest in the industrialized world.

“They’re saying they’ll finance their projects by reshuffling the budget,” said BNP’s Shiraishi. “Under the best of circumstances that wouldn’t be easy.”

Tuesday, September 8, 2009

Stocks Rise for Fourth Day as Gold Exceeds $1,000, Dollar Falls

By Daniel Hauck

Sept. 8 (Bloomberg) -- Stocks rose for a fourth day as higher metals and computer-memory prices boosted the earnings outlook for raw-material and technology companies. Gold climbed above $1,000 an ounce for the first time in six months.

The MSCI World Index of 23 developed countries advanced 0.7 percent at 12:17 p.m. in London. Futures on the Standard & Poor’s 500 Index rallied 1.2 percent after U.S. markets were closed for a holiday yesterday. Silver jumped to a 13-month high, copper gained for a fourth day and crude oil increased. The dollar fell against all but one of the 16 most-traded currencies tracked by Bloomberg.

Goldman Sachs Group Inc. raised its forecasts today for metals because of “increasing evidence of a stronger-than- anticipated recovery in global industrial activity.” International Monetary Fund Managing Director Dominique Strauss- Kahn told the Il Sole 24 Ore newspaper that the crisis phase that toppled Lehman Brothers Holdings Inc. in September 2008 “is almost certainly behind us.”

“This is the best phase of the economic cycle,” a team of Credit Suisse Group AG strategists led by London-based Andrew Garthwaite wrote in a note today. “Many economic and financial variables are back to pre-Lehman levels.”

Credit Suisse said that investors should favor stocks over bonds and cash, and forecast gains in equity indexes worldwide ranging from 12 percent for Europe to 23 percent for Japan through mid-2010 as the economy recovers.


The Dow Jones Stoxx 600 Index of European shares rose 0.5 percent. Raw-material producers climbed 2.7 percent as a group and technology shares added 1.3 percent.

BHP Billiton Ltd., the world’s biggest mining company, rose 2.8 percent in London and Rio Tinto Group, the third-largest, gained 3.4 percent as copper, nickel, zinc and tin increased on the London Metals Exchange.

STMicroelectronics NV, Europe’s largest semiconductor maker, advanced 3.4 percent, while Elpida Memory Inc., Japan’s biggest maker of dynamic random access memory, gained 5.4 percent in Tokyo. Prices of the benchmark 1-gigabit computer- memory chip climbed to $1.71 yesterday, from as low as 58 cents in December, according to Dramexchange Technology Inc., operator of Asia’s biggest spot market for the chips.

Cadbury Plc, which soared 38 percent yesterday, increased 1.9 percent. The maker of Dairy Milk chocolates may attract suitors ranging from Nestle SA to Hershey Co. and sell for as much as $21 billion after rejecting Kraft Food Inc.’s $16.7 billion bid yesterday, according to analysts.

U.S. Futures

The gains in U.S. futures indicated the S&P 500 may advance for a third straight day. Apple Inc., maker of the iPod, rose 1.5 percent in pre-market New York trading. The company will host an event tomorrow in San Francisco that may be the first opportunity for Chief Executive Officer Steve Jobs to make a public appearance after his liver transplant.

The MSCI Emerging Markets Index added 1.2 percent, climbing for a fourth straight day. Russia’s Micex index jumped 2.5 percent as oil rose in New York. Russia is surpassing Saudi Arabia in oil exports for the first time since the Soviet Union’s collapse in 1991. China’s Shanghai Composite Index gained 1.7 percent.

Gold for immediate delivery rose to $1,007.70 an ounce, trading within 3 percent of its record $1,032.70 set in March 2008. Copper added 2.3 percent to $6,470 a metric ton and lead rallied 4.4 percent to the highest price since May 2008.

Copper will climb to $7,650 a ton by the end of 2010, up from a previous forecast of $5,800 a ton, Goldman Sachs analyst Jeffrey Currie wrote in a report today. Prices of the metal have more than doubled this year.

Oil Rallies

Oil futures rose above $69 a barrel in New York, gaining as much as 2.5 percent from the last week’s close as the weaker dollar increased demand for commodities as a currency hedge. The contract didn’t settle yesterday because of the Labor day holiday.

Ministers from the Organization of Petroleum Exporting Countries meet tomorrow in Vienna to set production targets. Saudi Arabian Oil Minister Ali al-Naimi said the market is in “good shape,” with price between $68 and $73 a barrel satisfactory for both consumers and producers.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six major U.S. trading partners, fell 1 percent to 77.267.

The dollar weakened 1.3 percent against the pound after a report showed U.K. manufacturing rose in July by three times as much as economists forecast. The U.S. currency declined 1 percent versus the yen.

Euro Rises

The euro rose against the dollar after the German government reported an unexpected drop in industrial production in July, while also revising higher output in June.

“The near-term prospects do not look particularly encouraging for the dollar,” Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an e-mailed report. “Gold has just broken through the $1,000 level and this along with the Dollar Index approaching the low recorded in early August may well encourage another wave of speculative dollar selling.”

The Group of 20 nations has committed about $12 trillion to resuscitate the global economy, according to the International Monetary Fund, including a package of stimulus measures from the Chinese government of about $586 billion. Figures today showed that China’s passenger-car sales surged a record 90 percent last month as tax cuts and government subsidies spurred demand. Full- year sales of cars, trucks and busses may hit 12 million, the government said last week, enough for China to likely surpass the U.S. as the world’s largest auto market.

European borrowers ranging from Fiat SpA and Bayerische Motoren Werke AG to Bank Nederlandse Gemeenten started selling bonds in the busiest day of issuance since the summer vacation lull, according to data compiled by Bloomberg. Italy started marketing its issue of 30-year benchmark bonds, its longest- dated security.

Friday, September 4, 2009

U.S. Payrolls Probably Fell, Posing Risk to Spending (Update1)

By Timothy R. Homan

Sept. 4 (Bloomberg) -- Employers in the U.S. probably cut another 230,000 jobs in August, and the jobless rate increased, underscoring threats to consumer spending, economists said before a report today.

The unemployment rate rose to 9.5 percent from 9.4 percent, according to the median of 77 estimates in a Bloomberg News survey. The projected drop in payrolls would be the smallest since August 2008, and follow a 247,000 July decline.

Rising joblessness underscores Treasury Secretary Timothy Geithner’s judgment that it’s “too early” to start exiting from the unprecedented stimulus measures helping stabilize the economy. AMR Corp. and Whirlpool Corp. are among the companies continuing to cut staff to lower costs and revive profits in the aftermath of the deepest recession since the 1930s.

“Given that we expect only modest economic growth in the initial phase of the recovery, it might not be until the second half of next year until payroll growth really begins to ramp up,” said Joseph Brusuelas, a director at Moody’s in West Chester, Pennsylvania. “Job cuts will need to slow further if spending is to avoid steep declines.”

Today’s report, scheduled for 8:30 a.m. in Washington, comes hours before Geithner meets in London with finance ministers and central bankers from the Group of 20 emerging and developed nations.

‘Long Way’

While the G-20 gathering will discuss how policy makers plan to exit from their fiscal and monetary stimulus efforts, now isn’t the time to start pulling back, Geithner told reporters in Washington this week. “We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still.”

Federal Reserve policy makers waited at least a year after unemployment peaked before raising interest rates in the aftermath of the previous two recessions.

Economists’ payroll forecasts ranged from declines of 100,000 to 365,000. Job losses peaked at 741,000 in January, the most since 1949.

The August projection would bring total jobs lost since the recession began in December 2007 to 6.9 million, the biggest decline in any post-World War II economic slump.

Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by early 2010 and average 9.8 percent for all of next year.

Job Cuts

Announcements of staff reductions continued last month. Whirlpool, the world’s largest appliance maker, said Aug. 28 that it will close its Evansville, Indiana, manufacturing plant, resulting in the elimination of 1,100 jobs, or 1.6 percent of the company’s workforce.

Fort Worth, Texas-based American Airlines, a unit of AMR, said this week it will furlough 228 flight attendants and put 244 more on involuntary leave as part of the 1,600 job cuts it announced in June.

“If you have workers that aren’t taking home paychecks or taking home small paychecks, that means consumption’s going to be seriously constrained and that’s going to be a real damper on overall growth,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “We are talking about a very weak recovery because at the end of the day, consumption is going to be central.”

Meanwhile, other companies are starting to increase staff as sales stabilize. General Motors Co. 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 the government’s “cash for clunkers” program.

The administration’s plan, 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.

More Sales

Cars and light trucks sold at a 14.1 million annual pace last month, up 25 percent from July, industry figures this week showed. It was the biggest gain since October 2001, when automakers including GM introduced zero-percent financing to boost sales following the terrorist attacks on New York and Washington.

The U.S. recession “is bottoming out” and the economy is poised for “a slow return,” Alcoa Inc. Chief Executive Officer Klaus Kleinfeld said in a Sept. 2 interview. The head of the largest U.S. aluminum producer said government stimulus in the U.S. and China will affect the New York-based company’s earnings “positively” this year.

The Standard & Poor’s 500 Index yesterday snapped a four- day losing streak as sales at chain stores from Costco Wholesale Corp. to Gap Inc. last month topped analysts’ estimates. The S&P 500 has climbed almost 50 percent since reaching a 12-year low on March 9 as evidence mounted the economic slump was nearing an end.

Bloomberg Survey

Nonfarm Unemploy Manu Hourly
Payrolls Rate Payrolls Earnings
,000’s % ,000’s MOM%
Date of Release 09/04 09/04 09/04 09/04
Observation Period Aug. Aug. Aug. Aug.
Median -230 9.5% -60 0.1%
Average -230 9.5% -58 0.1%
High Forecast -100 9.8% -35 0.3%
Low Forecast -365 9.3% -80 0.0%
Number of Participants 79 77 20 56
Previous -247 9.4% -52 0.2%
4CAST Ltd. -180 9.6% --- 0.1%
Action Economics -200 9.5% -60 0.2%
AIG Investments -250 9.6% --- 0.1%
Aletti Gestielle SGR -260 9.4% -80 ---
Ameriprise Financial Inc -270 9.6% -45 0.2%
Argus Research Corp. -365 9.7% -65 0.2%
Banesto -225 --- --- ---
Bank of Tokyo- Mitsubishi -290 9.3% --- 0.1%
Bantleon Bank AG -200 9.5% --- ---
Barclays Capital -200 9.5% --- 0.1%
Bayerische Landesbank -165 9.6% --- 0.1%
BBVA -205 9.5% -64 0.2%
BMO Capital Markets -220 9.5% --- 0.1%
BNP Paribas -275 9.6% --- 0.1% -265 9.5% --- 0.0%
Calyon -230 9.5% --- 0.2%
Capital Economics -240 9.7% --- 0.0%
CIBC World Markets -275 9.6% --- 0.1%
ClearView Economics -200 9.6% -35 0.3%
Commerzbank AG -200 9.5% --- 0.2%
Credit Suisse -225 9.5% --- 0.1%
Daiwa Securities America -200 9.5% --- ---
Danske Bank -300 9.5% --- ---
DekaBank -240 9.5% --- 0.0%
Desjardins Group -250 9.6% --- 0.1%
Deutsche Bank Securities -150 9.6% --- 0.1%
Deutsche Postbank AG -220 9.5% --- ---
DZ Bank -190 9.5% --- ---
First Trust Advisors -165 9.4% -50 0.2%
Fortis -250 9.4% --- ---
Goldman, Sachs & Co. -250 9.5% --- 0.2%
Helaba -200 9.5% --- 0.2%
Herrmann Forecasting -238 9.6% -67 0.2%
High Frequency Economics -250 9.6% --- ---
HSBC Markets -150 9.5% --- 0.2%
IDEAglobal -210 9.5% -45 0.1%
IHS Global Insight -250 9.5% --- 0.2%
Informa Global Markets -240 9.5% -65 0.1%
ING Financial Markets -290 9.6% -80 0.1%
Insight Economics -275 9.7% --- 0.0%
Intesa-SanPaulo -200 9.6% --- 0.1%
J.P. Morgan Chase -200 9.5% --- 0.2%
Janney Montgomery Scott L -255 9.7% --- ---
Johnson Illington Advisor -275 9.6% -50 0.2%
Landesbank Berlin -320 9.8% --- 0.0%
Landesbank BW -340 9.5% --- ---
Maria Fiorini Ramirez Inc -250 9.6% --- 0.1%
Merrill Lynch/BAS -200 9.8% --- 0.2%
MFC Global Investment Man -250 9.5% -55 0.1%
Mizuho Securities -275 9.6% --- ---
Moody’s -235 9.5% -60 0.2%
Morgan Keegan & Co. -224 --- --- ---
Morgan Stanley & Co. -250 9.6% --- 0.2%
National Bank Financial -100 9.3% --- ---
Natixis -175 9.5% --- 0.2%
Newedge -230 9.5% -45 ---
Nomura Securities Intl. -115 9.5% -75 0.2%
Nord/LB -200 9.5% -65 0.1%
PNC Bank -155 9.6% -40 0.2%
Prestige Economics -270 9.5% --- ---
Raymond James -265 9.5% --- 0.2%
RBC Capital Markets -260 9.4% --- ---
RBS Securities Inc. -225 9.5% --- ---
Ried, Thunberg & Co. -200 9.4% --- ---
Scotia Capital -240 9.5% --- 0.2%
Societe Generale -250 9.5% --- 0.2%
Standard Chartered -225 9.5% --- 0.1%
Stone & McCarthy Research -235 9.4% -55 0.2%
TD Securities -200 9.6% --- ---
Thomson Reuters/IFR -200 9.6% --- 0.1%
UBS -215 9.5% --- 0.3%
UniCredit Research -275 9.6% --- ---
Union Investment -150 9.5% --- 0.1%
University of Maryland -265 9.6% -60 0.1%
Wells Fargo & Co. -306 9.6% --- ---
WestLB AG -200 9.5% --- 0.1%
Westpac Banking Co. -150 9.5% --- ---
Woodley Park Research -328 9.4% --- 0.1%
Wrightson Associates -200 9.4% --- 0.1%