Saturday, May 29, 2010
IBM is to acquire Sterling Commerce from AT&T for approximately US$1.4 billion in cash. The acquisition of the Dublin, OH-based company will expand IBM's ability to help organizations create more intelligent and dynamic business networks by simplifying and automating the way they connect and communicate with customers, partners and suppliers both on-premise or through cloud computing delivery models. Sterling Commerce is well known in the banking industry for its payment automation solutions. Typically, a bank will work with Sterling to build payment hubs that can handle ACH payments, checks, wire transfers, EDI and other payment types - with audit trails and data analysis built in. This has been an area of investment of most treasury management departments. Sterling's bank clients include Ameriprise Financial, BNP Paribas, Russell Investment Group and Bank of China.
The US government revised its reading on first-quarter gross domestic product (GDP) to an annual growth rate of 3%. The figure was below expectations of 3.3%, according to a consensus of economists. The initial reading, released last month, was a 3.2% rate. But the revision also showed that the rate of consumer spending has doubled since the fourth quarter of 2009, and remains consistent with the forecast for annual GDP to grow between 3% and 3.5% in 2010. Consumer spending, which accounts for about 70% of the US economy, rose at a 3.5% pace last quarter, compared with the 3.6% the government estimated last month. Consumer spending rose by 1.6% in the previous three months. The first-quarter increase was the biggest since 2007.
Company earnings increased 5.5% in the first quarter after climbing 8% in the previous three months. Profits were up 31% from the same time last year, the biggest year-over-year gain since 1984. Business spending on new equipment and software advanced at a 12.7% pace last quarter after growing at a 19% rate the previous three months, the biggest gain since 1998, the GDP report showed. Spending on structures, including office buildings and factories, dropped at a 15.3% pace in the first quarter. The GDP report was the second for the January to March quarter and will be revised in June as more information becomes available to the government.
The pace of global economic growth is picking up faster than expected, but the recovery process could be hit by the ongoing euro-zone debt crisis and overheating in countries like China, the Organization for Economic Cooperation and Development (OECD) said. In its twice-yearly economic outlook, the Paris-based organisation for industrialised nations raised its forecast for global growth to 4.6% in 2010 and 4.5% in 2011. Last November, it predicted growth of 3.4% this year and 3.7% in 2011, after a 0.9% contraction in 2009. "Strong growth in emerging-market economies is contributing significantly," the OECD said. "The spillover from growth in non-OECD Asia could be stronger than expected, especially in the United States and Japan. From this point of view, the overall environment is relatively auspicious." the Paris-based organisation said.
Gross Domestic Product (GDP) across member countries will rise by 2.7% this year and 2.8% in 2011, up from November's forecasts for 1.9% growth this year and 2.5% growth in 2011, the OECD said. "Instability in sovereign debt markets poses a serious risk. It has highlighted the need for the euro area to strengthen its institutional and operational architecture and take bolder steps to ensure fiscal discipline," the OECD said.
The OECD raised its forecast for US economic growth in 2010 and 2011 to 3.2% each, from 2.5% and 2.8% in its forecasts of last November. Japan's growth will be 3% in 2010 and 2% in 2011, up from 1.8% and 2% previously. The euro-zone will lag with growth of 1.2% and 1.8% this year and next, still marginally more than forecasts of 0.9% and 1.7% announced in November 2009. For China, the OECD forecast economic growth of 11.1% this year and 9.7% in 2011, saying there was a danger that measures to cool property markets and curb land prices would not see off the risk of overheating. In November, the OECD had forecast Chinese growth of 10.2% in 2010 and 9.3% in 2011.
Telecom companies, who have emerged winners in the just concluded 3G auction mobilised Rs360bn in loans of the total Rs677.19bn they will have to pay-up by the month end. Telcos have also lined up an additional Rs290bn from their cash reserves and a further Rs110bn in internal accruals to pay for the 3G airwaves. A third of the Rs360bn loans that have been raised by telcos are through the issue of commercial papers. Bharti Airtel has raised Rs85bn from a consortium of financial institutions. Vodafone Essar will pay for 3G airwaves from its Rs100bn loan from SBI. Reliance Communications has so far raised Rs40bn from selling commercial papers at 6% interest. Aircel Cellular has raised Rs40bn by issuing commercial papers at 6% interest for a one-year period. Tata Teleservices has raised close to Rs50bn to pay for 3G airwaves.
Bids for one set of all-India licence for broadband wireless access (BWA) reached Rs41.84bn on the third day of the auction on Wednesday. This is about 139% above the base price of Rs17.50bn set by the Government for a pan-India BWA slot. There was no auction on Thursday on account of a public holiday. Bidding process for the auction of BWA spectrum began on Monday. It is a simultaneous online auction for two slots in each of the country's 22 service areas. As per the details given by the Department of Telecommunications (DoT), six more Clock Rounds were completed on Wednesday. Thus total number of clock round completed comes to 16. The Round Price in Round 16 for Delhi, Mumbai, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu service areas has been recorded at Rs4.53bn each. At this price, the Government is expected to garner Rs122.96bn. The Government expects a revenue of Rs150bn (US$3.2bn) from the auction of BWA airwaves, Telecommunications Minister A. Raja said on Monday. "I expect the competition will be very high for BWA as competitive as 3G. I am expecting Rs150bn from the BWA auction," Raja said in Hyderabad on the sidelines of an international telecom conference.
Southwest monsoon, crucial for India's agriculture sector and the overall economic prosperity, remains on track to hit Kerala on the southern coast in the next 3-4 days despite the tropical cyclone Laila. Earlier, there were fears that monsoon may get delayed owing to Laila. "Conditions are becoming favourable for onset of southwest monsoon over Kerala during next three days," the Indian Meteorological Department (IMD) said. Separately, an IMD official was quoted as saying that Kerala will not receive monsoon showers before June 2 as against the original prediction of May 30. Monsoon current has not advanced for the past six days after reaching the Andaman & Nicobar islands three days earlier than normal, D. Sivananda Pai, director of the National Climate Center at Pune, said. "Monsoon winds were weak, and may need up to two days to strengthen," Pai said. The Andaman and Nicobar Islands received the first monsoon showers on May 17, two days ahead of schedule, before moving to many parts of the Bay of Bengal in the following week. The progress has been slow since then due to cyclone Laila.
The World Gold Council ("WGC") expects that demand for gold will be strong during 2010, driven by growing demand for jewellery in China and India as well as an increase in European and US investment in the context of continued economic instability, sovereign risk and the threat of a ‘double dip’ recession.
According to WGC’s Gold Demand Trends report, published today, demand in India and China will continue to grow driven by jewellery demand, in spite of high local currency gold prices. In Q1 2010, India was the strongest performing market as total consumer demand surged 698% to 193.5 tonnes. In China, demand proved resilient; demand increased 11% in Q1 2010 to 105.2 tonnes.
This strong demand is despite high local gold prices, which on May 12 in India increased to Rs 56,032/0z, the highest level for the year, while at the same time in China prices reached an all-time high of RMB8,480/oz, suggesting that consumers in India and China are becoming accustomed to higher gold prices.
Concerns over Greece’s public finances and debt contagion fears in Europe have led to strong buying in particular for gold coins, bars and gold exchange traded funds (ETFs) during May which may show up in the Q2 2010 figures. While momentum in ETF tonnage paused during Q1 2010, gold ETF flows started to rise strongly again in April and May as investors sought less volatile investments in which to protect their funds against economic turmoil. On 20 May the GLD SPDR Gold Trust held a record 1,200 tonnes, with a value of US$46.88 billion.
Aram Shishmanian, CEO of the World Gold Council commented: "Currently, European gold investment demand is exceptionally strong, especially from German and Swiss investors. This is mainly attributable to concern over public debt levels in the Eurozone and the potential inflationary impact of the European Central Bank’s (ECB) announcement of the US$1 trillion rescue package to purchase Eurozone government bonds to address the Greek debt crisis."
"With the global economic recovery still burdened by high and rising debt levels in Western economies, as well as the renewed threat of recession driving down the US dollar and equities, the outlook for gold as a liquid, reliable asset class and as a store of wealth remains highly favourable."
According to the WGC, global jewellery demand in non Western countries will continue to recover after reaching 70.7 tonnes in Q1 2010. Economic recovery in Europe and the US will add to this demand, as a potential return to restocking in the jewellery sector is likely, given that existing inventories have been run down since the first half of 2009 to very lean levels. This should provide fundamental support to the gold price.
Aram Shishmanian continued: "The diversity of demand for gold, both by sector and geography ensures that the outlook for gold remains strong for the remainder of 2010. Despite increasing gold prices, consumers in China and India will continue to drive market growth, particularly in jewellery. In Western markets, the uncertain economic outlook and sovereign risk fears will add further impetus to growth in investment as investors seek to protect wealth. In the instance that we continue to see elevated levels of risk around the world, however, investment demand will remain strong in 2010."
Whilst total investment demand during Q1 2010 fell in comparison with Q1 2009, this decrease was driven by the very strong level of demand in Q1 2009 for investment particularly ETFs. This exceptional activity created a bias for the total demand figures for Q1 2010 when ETF demand paused. However, the strong recovery in jewellery demand which was driven by China and India in Q1 2010, combined with recent high inflows into ETFs, has created a firm basis for an optimistic outlook for the remainder of 2010.
Demand Statistics for Q1 2010
India's food prices inched lower in the middle of May while prices of non-food articles as well as that of fuel items also declined, data released by the Government showed. Inflation in the Food Articles group fell to 16.23% in the week ended May 15 as against 16.49% in the previous week, the Commerce & Industry Ministry said today. It stood at 8.79% in the corresponding period last year. The WPI for the Food group dropped 0.1% to 293.6. Inflation in the Primary Articles group softened to 15.90% in the week under review compared with the previous week's annual reading of 16.19%. Inflation in the group stood at 6.97% during the week ended May 16, 2009. The WPI for this group declined by 0.1% to 298.9.
Non-food Articles' inflation fell to 18.25% in the week ended May 15 from 18.68% in the preceding week. Inflation in this group stood at 3.16% in the year-ago period. The WPI for this group declined by 0.1% to 281.8. India's Fuel price inflation fell to 12.08% in the week under review compared to 12.33% in the week ended May 8. It was at -6.08% during the corresponding week of the previous year. The WPI for this group rose by 0.05% to 365.5.
Wholesale prices eased in line with expectations to 9.59% in April from a year earlier, stoking speculation that the Reserve Bank of India (RBI) would not increase interest rates too aggressively amid concerns about the state of some of the advanced economies. Food inflation would fall sharply to 4-5% by November from the current level of more than 16%, Planning Commission member Abhijit Sen said on Wednesday. Sen also noted that agriculture growth would be revised upwards to 0.2% in FY10 from the previous estimate of 0.2% contraction. Earlier this week, Prime Minister Dr. Manmohan Singh also hoped that inflation would come down to 5% to 6% by December.
It was another topsy-turvy week for world markets, as global investor sentiment deteriorated following a bailout of a Spanish saving bank and rising geopolitical tension in the Korean peninsula. Stocks across the world plunged anew after Spain's central bank was forced to takeover ailing Church-controlled savings bank CajaSur. The seizure came as authorities grapple with a sector reeling from the collapse of the housing market at the same time that the government is hard-pressed to fix its own finances. The IMF warned that the Spanish banking sector needs to speed up restructuring to create more robust institutions. Separately, Four Spanish banks submitted a plan to combine their businesses in a move that would create the country's fifth largest lender, raising fears that the euro-zone debt crisis was worsening.
Risk aversion escalated after North Korea warned that it may take military action to defend its western sea border. North Korean leader Kim Jong-il ordered his military to be on a combat footing, Yonhap news agency said. The report came after a multinational investigation concluded that a North Korean submarine torpedoed a South Korean warship in March. South Korea’s won fell the most in more than a year to touch a 10-month low but the currency pared losses on speculation that financial regulators intervened after the finance ministry said it was watching the market.
Reports that Spain was moving closer to a general strike over spending cuts underscored difficulties that the governments in the debt-strapped euro-zone region face in implementing spending cuts and other tough austerity measures. Recent steps from Greece, Portugal and Spain are encouraging but represent only the beginning of what is set to be a tough adjustment, noted some analysts.
Separately, the UK kicked off its own fiscal-deficit-reduction efforts, detailing 6.2 billion pounds (US$8.9bn) of budget cuts. An austerity budget was also approved by Italy's cabinet on Tuesday cutting public sector hiring and pay, temporarily delaying retirement for some state workers and reducing funds to local government, according to a draft.
Reports also said that the German government was reportedly planning to ban the naked short-selling of all German stocks listed on the country’s exchanges in a sweeping extension of the contentious bar on the naked short-selling of key financial instruments.
The euro touched a four-year low against the dollar after a report in the Financial Times (FT) said that China was considering reviewing its holdings of euro-zone bonds amid growing concerns over the region's fiscal problems. However, China later dismissed the FT news as "groundless", sparking a worldwide rally across markets and asset classes. European stocks rose for a third day on Friday, extending a weekly gain for the Stoxx Europe 600 Index, after US shares had the biggest rally in almost three weeks. Asian equities also advanced. The Stoxx 600 rallied 6% over the last three days of the week after plunging to an eight-month low on May 25, bringing this week’s advance to 3.7%.
The MSCI Asia Pacific Index rallied 1.5% on Friday, a third day of gains. Oil rallied above $75 a barrel and the South Korean won strengthened. The euro rose for a second day against the dollar on Friday, strengthening 0.4% to US$1.2411. It appreciated 0.6% compared with the yen, which declined against all 16 of its most-traded counterparts. The US Dollar Index, which tracks the currency against six trading partners, slid 0.2%.
After a long time, most equity markets in the world had a positive week. Although the start was quite rocky amid persistent concerns over the European debt crisis and geopolitical tensions, stocks staged a remarkable come back on assurance from China that it was not paring down its holding of euro-zone bonds. Even so, the undertone remains jittery and risk appetite will take time to recover fully amid lingering worries over the fiscal issues confronting the euro-zone. Some volatility is likely to persist depending on the newsflow, especially from the global markets. But, on the whole, things could turn out to be better and brighter unless some fresh bad news hits the markets.
The US markets will be closed on Monday due to the Memorial Day. But, back home, the Government will come out with the GDP data Q4 and FY10. Reports suggest the GDP data could surprise on the upside. Next week should also bring the latest update on the progress of the southwest monsoon. The market could rally further if the GDP figures and monsoon updates are encouraging. Beginning of the new month also means that we will get fresh manufacturing PMI data from across the globe. This particular data has been holding up well and may help restore confidence. Among the other data points to watch out for will be the monthly auto sales and the US unemployment data.
Reliance Industries Ltd. (RIL), led by Mukesh D. Ambani, and Reliance ADA Group companies, led by Anil D. Ambani, approved and signed an agreement canceling all existing non-compete arrangements entered into between the two groups in January 2006 pursuant to the scheme of reorganization of the Reliance Group and entered into a new simpler, Non Compete Agreement with respect to only Gas Based Power Generation. The above agreements have been approved by the Board of Directors of RIL and the respective Reliance ADA Group companies.
The cancellation of the existing non-compete agreement will provide enhanced operational and financial flexibility to both groups, and greater ability to participate in high growth sectors of the Indian economy, such as oil & gas, petrochemicals, telecommunications, power, and financial services. However, RIL has agreed not to enter into Gas Based Power Generation Business for the period upto March 31, 2022. An appropriate exception has been made in respect of RIL’s captive gas based power plants.
These developments will eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations. RIL and Reliance Natural Resources Ltd. (RNRL) will expeditiously negotiate Gas Supply arrangements in accordance with the orders of the Supreme Court of India. We hope to conclude these negotiations very soon. RIL and Reliance ADA Group are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups, thereby further enhancing overall shareholder value for shareholders of both groups.
Separately, reports said that RIL could reportedly buy equity stakes in gas-based power plants run by ADAG companies and that the Government may give preference in gas allotment to power projects of the ADAG group if RIL picks up equity stakes in them. RIL and RNRL may enter into a new gas supply and purchase agreement in two week's time, according to reports. In case the Government approves the deal, it would ensure gas to power plants owned by Anil Ambani's companies for 10 years commencing 2012. Reports added that RNRL might get gas at US$4.23 till 2014, but silent about the price that would be charged after that period.