Global capital strike scare update: so have those big global investment banks gone off Australia because of the resource tax? Well, some of our excitable business writers and commentators would have us believe that Australia is now isolated and under siege by foreign investors worried about the tax eating their babies. But what’s this I spy? SocGen, the big French bank, has upgraded Rio Tinto (sovereign risk and all). Mon Dieu. Rio’s rating has gone to a “buy” from a “hold” at Societe Generale, which lifted its target price to 4150 pence from 3900 pence. The investment bank cited attractive valuation and said stronger spot iron ore prices were in the offing for Rio Tinto. “Overall, we believe that risks related to the Australian government’s proposed resources rent tax (still impossible to frame a worst case scenario), the ongoing sovereign debt crisis in Europe and fears that Chinese measures to curb property speculation may result in a sharp slowdown in economic activity are now well discounted by investors.” SocGen expects management to unveil new growth options in the future. Hmmmmm. How about Afghanistan, where there’s now reportedly lots of copper, iron ore, nickel and the like. no sovereign risk there, chaps?
The pain in Spain’s bonds: Spain sold €3 billion of 10-year bonds at a yield of 4.864% overnight. That’s a jump from the 4.045% paid at its last 10-year auction, on May 20. The 4.864% is above the bond’s long-term average and the margin over 10-year German Bunds was 221 basis points (2.21%) — the highest since the advent of the euro in January 1999. So the nerves are still there; the auction was described as being “well-received”.
Bank leaks help: helping ease the squeeze were selective leaks in Spain that suggested the country’s biggest bank, Santander, had done well in a stress test. Also helping was another leak, this one from Berlin, that the results of tests on German banks will be made public. Later the EU said all results of bank stress tests would be released in the second half of July. All this helped the euro and the Aussie dollar to rise last night, eased most global share markets to their eighth straight rise, but also boosted gold to an all-time high of $US1248.20 an ounce (the previous high was $US1246.50) and US bond yields back down again.
Health scare? Big global investors are gloomy about Europe, growth and corporate profits. According to the monthly BofA Merrill Lynch Survey of Fund Managers for June only a net 28% of big global investors surveyed now think that profits will improve in the coming 12 months, down sharply from the net 47% level in May and 67% in April. The proportion of the panel expecting corporate operating margins to improve in the coming year has halved in the past two months to a net 19%. Investors are also displaying greater concern about market liquidity conditions, as worries grow about the health and strength of European banks (especially in Spain). 42% of the panel now describe liquidity as “poor”, up from 22% in April.
Inside Europe: it was an even gloomier outlook with local investors at their gloomiest for more than a year. The survey shows that only a net 7% of European fund managers expect the region’s economy to improve in the coming year, compared with a net 23% in May. According to the regional survey, a net 20% of European portfolio managers predict an improvement in earnings over the coming 12 months, down sharply from the 74% level hit in what was a very bullish survey in April. But it’s not just Europe, confidence in China is now at its lowest level since January 2009 with a net 27% of fund managers expecting China’s economy to weaken in the coming 12 months. That’s a big turnaround from April when a net 21% expected the economy to improve.
US jobs: if the US economy was doing well, the number of people filing new claims for unemployment benefits would be falling. But they aren’t and in fact rose last week to 472,000 from 460,000 the week before. Economists had forecast a fall to 450,000. And continuing claims (people receiving benefits for a week or more) rose to 4.571 million, with a fall to 4.475 million forecast.
US inflation: there was no sign of inflation in Producer Prices in May and yesterday’s release of the May Consumer Price Index contained no terrors either. Headline CPI fell 0.2% in May, to be up 2% for the year to May. Core inflation (that strips out food and energy prices) rose 0.1% as expected after being steady in April. It was only the second monthly increase in core CPI so far this year. The rate is up by only 0.9% over the last year. The Fed will have noted that ahead of its two-day meeting next week.
No shame: they’d sell their mothers for a dollar, they sweat their employees and they do silly things such as investing in football teams and competitions, but occasionally, they produce good examples of what they claim to be: newspaper managers. And they are also like any other bunch of rent seekers when confronted with a cascade of loot from government, they want some. This story in the SMH today revealed that newspapers have started a “concerted campaign to convince the federal government to spend more money on the medium as Canberra lifts its advertising in the lead-up to the federal election”. The report said that at a meeting attended by Prime Minister Kevin Rudd and opposition leader Tony Abbott on Tuesday night, newspaper executives launched their bid to get more federal advertising dollars to be spent on newspapers.
Really no shame: among those who attended were Newspaper Works board members Brian McCarthy, CEO and managing director of Fairfax Media — owner of The Age — News Limited chairman and chief executive John Hartigan, and Chris Wharton, CEO of West Australian Newspapers. Journalists from those organisations were not invited. And every one of those organisations belted the Rudd government when it changed its rules on government advertising to spend $38 million on a pro-mining tax campaign, much of which has gone to TV (which attracts bigger audiences, works better and can be measured more quickly). So it’s the usual case of the mainstream media in this country, damn government for making wrong decisions, but try and profit from them.
Really no shame 2: and, judging from media reports, News boss Hartigan has had a big week in Canberra, taking most of the company’s gallery staff out to dinner where hush-hush things were talked about (online, anyone?) and attending the Midwinter Ball. He would have rather have been at Suncorp in Brisbane to watch NSW get flogged by Queensland, rather by the Melbourne Storm (Cameron Smith, Greg Inglis, Billy Slater and Cooper Kronk).
And finally, the best support money can buy: according to a Reuters report this morning, there were one or two supporters for BP’s beleaguered boss Tony Hayward at a Congressional hearing in Washington overnight. Republican representative Joe Barton, a major recipient of campaign contributions from the oil and gas industry, triggered an uproar with his lengthy apology to Hayward for being the victim of a White House “shakedown”. Barton’s point, made at the start of a congressional hearing featuring Hayward’s testimony, was that BP should pay for damage claims but should be allowed to follow the “due process and fairness” of the American legal system. He called it “a tragedy of the first proportion, that a private corporation can be subjected to what I would characterise as a shakedown, a $20 billion shakedown.” Barton is the biggest recipient of oil and gas industry campaign contributions in the House of Representatives, according to the non-partisan Center for Responsive Politics. Its data showed that Barton has collected $1,447,880 from political action committees and individuals connected with the oil and gas industry since 1989.” He wasn’t alone. Several conservative Republicans have voiced similar complaints. And where’s Sarah Palin when her party needs her?