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Tuesday, 21 October 2014
Gold Buying Rebounds in India on Diwali Jewelry Sales
Shweta Anand took half a day off work to get a jump on India’s jewelry shopping spree before the Hindu festival of Diwali, and she was looking for bargains.
“The best time to buy is before the shops get crowded,” said Anand, 27, as she eyed trinkets on velvet shelves at a store in Mumbai’s Zaveri Bazaar, India’s biggest jewelry market. “I buy some gold jewelry every Diwali. Last year, I bought earrings. This time, I am getting a chain as prices are lower.” She spent 30,000 rupees ($490) on a necklace.
Even after a two-week rally in bullion, domestic prices remain 7.4 percent lower than a year ago just as sales are set to climb for the festival and wedding season. India is the largest gold buyer after China. The All India Gems & Jewellery Trade Federation said fourth-quarter imports of the metal may jump 75 percent, which Barclays Plc said may support prices.
“The appetite for gold among physical buyers in India seems to have increased,” said Howie Lee, an investment analyst in Singapore for Phillip Futures Pte. “India’s attachment to gold is unlikely to break. This tradition has lasted for centuries. It’s a symbol of wealth or a form of investment, and the precious metal is deeply rooted in worship and culture.”
A salesperson shows a gold bangle to a customer at a jewelry store during the festival...Read More
After import restrictions and a weak rupee led to a 34 percent drop in demand in the first half of 2014, purchases are set to improve in India, the world’s largest buyer as recently as 2012. Retail sales of everything from rings to pendants to necklaces may rise 30 percent to 40 percent during Dhanteras, the biggest gold-buying festival, said Rajesh Exports Ltd. (RJEX), a jewelry retailer and exporter. Dhanteras is celebrated today.
Demand Recovery
Diwali, the festival of lights celebrated by the country’s more than 800 million Hindus on Oct. 23, is considered an auspicious time for buying gold. Researcher CPM Group estimates the holiday generates about a fifth of annual purchases in India, more than any other time of year in a country with a long history of hoarding the metal. About 20,000 metric tons of gold are stashed in homes and temples, and Indians often inherit bullion in the form of ornaments or family treasure.
Jewelers in India, which represented 25 percent of global bullion purchases last year, are betting demand will be rekindled by four straight quarterly declines in domestic prices, the longest slump since 2004. The premium jewelers pay to suppliers over London prices has plunged to about $17 an ounce from $120 a year earlier, cutting costs for consumers.
Buying Surge
“Prices have fallen at the right time,” said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, which represents more than 300,000 retailers and bullion dealers. Domestic demand will rise 15 percent to 20 percent over the three months through December, with imports reaching 175 tons to 200 tons, compared with 114 tons a year earlier, Bamalwa said on Oct. 15.
Gold traded in London touched $1,183.24 an ounce on Oct. 6, the lowest this year. Prices have tumbled 28 percent in the past two years as the Federal Reserve signaled an end to stimulus measures intended to revive the U.S. economy, while inflation remained in check. Even as low prices fueled a surge in physical demand in China, the appeal of the metal as a hedge has waned for investors. Holdings in exchange-traded products backed by gold have dropped 12 percent in the past year, helping to erase about $13 billion of value.
Bullion for immediate delivery traded at $1,248.04 today, while futures on the Multi Commodity Exchange of India Ltd. were at 27,551 rupees per 10 grams ($1,397 an ounce).
More Imports
In India, signs of a rebound in festival demand emerged in September. Bullion imports were valued at $3.75 billion last month, 450 percent more than a year earlier, the Commerce Ministry estimates. Shipments jumped as jewelers replenished reserves to meet demand, said Bamalwa, the federation director.
Indians purchase gold at festivals and for marriages as part of the bridal trousseau and as gifts in the form of jewelry. Demand will be 850 to 950 tons this year, compared with 974.8 tons in 2013, the World Gold Council estimates. An average of about 5 million weddings every year fuels demand for gold, regardless of prices, according to Prithviraj Kothari, managing director of Riddhisiddhi Bullions Ltd. in Mumbai. He estimates average purchases for a wedding at about 200 grams.
The increase in demand from festivals and the wedding season “alongside the potential for a short-covering rally could see gold extend its gains,” Barclays said Oct. 13. “We believe the bounce is likely to be short-lived and remain cautious given the headwinds the macro-environment presents and would look for opportunities to sell into the rally,” it said.
Insatiable Appetite
The public’s insatiable appetite for gold raised concern for the government because almost all of the metal is imported, widening the current-account deficit and weakening the rupee. India last year raised import taxes three times to 10 percent and introduced a rule obliging shippers to supply 20 percent of their cargo to jewelers for re-export.
The import curbs sent gold demand for jewelry and investment down 34 percent to 394.4 tons in the first six months, World Gold Council data show.
After the curbs throttled imports and cut the deficit to about $32.4 billion in 2013-2014, compared with a record $87.8 billion a year earlier, the government in May eased controls to allow more trading houses to bring in gold. The government may consider re-imposing some curbs after Diwali as imports surged in the past couple of months, Finance Minister Arun Jaitley told ET NOW television yesterday, the Press Trust of India reported.
Asian Buyers
Cheaper bullion may spur buyers in Asia, according to UBS AG. Prices at or below $1,200 will attract physical buyers and be seen as favorable by investors, UBS analysts Edel Tully and Joni Teves said in a report on Sept. 30. A rush to buy will not materialize unless prices fall closer to $1,100, they said.
Demand in Asia has declined this year after jumping in 2013, when global prices plunged 28 percent, the most in three decades. Consumption fell 16 percent in the second quarter to 963.8 tons, the World Gold Council estimates. While China was the top buyer in 2013, demand in the three months through the end of June fell 52 percent to 192.5 tons, less than the 204.1 tons purchased in India, council data said.
The metal will extend losses into 2015 as the dollar rallies, Morgan Stanley said on Oct. 8, listing the commodity among its least-preferred metals. Average prices will decline each quarter, reaching $1,165 in the three months through September, the bank said.
Jewelers are also hoping that steps taken by Prime Minister Narendra Modi, who was elected in May, will help revive growth in Asia’s third-largest economy and provide a boost to sales.
Harvesting Gold
“There’s a positive feeling in the economy after the Modi government came to power,” said Rajesh Mehta, chairman of Bengaluru-based Rajesh Exports. “For a reasonably long time, demand was subdued, and that pent-up demand will come in now at these price levels.”
A good crop will also help gold demand in India, where 833 million of the 1.2 billion population depend on agriculture for their livelihood. Rural India represents 60 percent of the nation’s gold consumption. After a weak start to the monsoon season, which limited planting, food-grain output will be 120.3 million tons compared with 129.2 million tons a year earlier, the Agriculture Ministry estimates. Cotton production will jump to a record 40 million bales of 170 kilograms each.
For Lynette D’Souza, a 30-year-old dentist in the western Indian state of Goa, the lower gold price means she can buy more with the 100,000 rupees she’s budgeted on a gift for her brother, whose wedding is scheduled next month.
“I was initially planning to gift my brother a honeymoon package to Southeast Asia, but I realized that people don’t value other gifts as much as they value gold,” D’Souza said in an interview on Oct. 14. “Years from now, they will still have the gold. It is also an investment.”
To contact the reporters on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net; Pratik Parija in New Delhi at pparija@bloomberg.net
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Thomas Kutty Abraham, Steve Stroth
Thursday, 2 October 2014
Sovereign doom loop haunts EU bank stress tests | Mitch Cator Investing Blog
By George Hay
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The euro zone’s nascent banking union was supposed to unpick the “sovereign doom loop” by which ropey banks endangered weak countries, and vice versa. Its first task was to be a rigorous test of how much capital each lender could count on in adverse scenarios. Yet the new single banking supervisor’s exercise could tighten, rather than loosen, the state/bank co-dependency.
The tests, scheduled for release on Oct. 26 with input from the European Central Bank, will subject the monetary union’s lenders to a generic macroeconomic shock. They will be required to show that their core Tier 1 equity afterwards would amount to at least 5.5 percent of their risk-weighted assets. But the ECB’s single supervisory mechanism, which will directly regulate large European banks as of Nov. 4, has acquiesced in making this “pass” mark easier, according to a person familiar with the situation.
The fudge concerns deferred tax credits, or money governments owe the banks when they have booked losses in previous years. National regulators in Europe have found a way around Basel III capital rules that require a variant of these, so-called “deferred tax assets,” to be phased out of a bank’s capital count by 2018. DTAs generally only kick in once a bank becomes profitable again – so they shouldn’t be viewed as loss-absorbing capital.
Tax credits, on the other hand, are due whenever a bank needs them. Italy, Spain and Portugal have already shifted many DTAs into various types of DTCs. Greece is following suit. That can be a significant boost for the banks: DTAs make up over 15 percent of Portuguese lenders’ capital on average, and 30 percent-plus of some Greek banks.
Allowing DTCs not only weakens the test’s credibility. It also restores the tie between sovereigns and their banks. True, in some cases, attempts are made to safeguard the governments’ finances by allowing them to take an equity stake in the stricken lender. But as the ECB itself warned in a pointed opinion note on Sept. 3, it would be healthier if banks raised the capital they need privately. Given that the central bank’s SSM offshoot is the European banking regulator in waiting, it has the power to impose tougher rules on prudential grounds if it wanted to. It hasn’t.
Two factors point to why. One is that at the moment, the ECB is torn between its two partly conflicted roles. As banking supervisor, it must be tough on capital. As central bank, it fears deflation and wants to boost lending in the euro zone – which will be hard if capital needs push banks into a new wave of deleveraging. There is a theoretical Chinese wall between the board of the SSM and the ECB’s governing council in charge of monetary policy, but it would be odd for the former to further complicate the job of the latter – especially as there is some overlap between the two in terms of personnel.
But there is another problem. Although the 23-strong SSM board is chaired by the tough-talking Daniele Nouy, 18 of its members are representatives of national regulators. They either already accepted DTCs as capital, or are likely to acquiesce in return for concessions that could help their own banking system.
The SSM’s overall “comprehensive assessment” should still be a step forward. A pan-euro zone definition of bad debts should at least make the denominator of the capital ratio credible – and comparisons possible. And once the test is done, the new supervisor could still slap extra capital requirements on banks that gorged on DTCs.
Yet any attempts to toughen up will still have to get past the SSM board. And by allowing banks to hold “capital” that rejoins them at the hip to their own state, the stress tests will be less meaningful than they could have been. Worse, investors could continue to treat them with suspicion.
Wednesday, 24 September 2014
Here's what Coke and Pepsi didn't tell you when they announced their plan to cut calories
For the most part our best interests are at least loosely aligned with the corporate powers that be and marketing just fades into the background noise. For example, Apple does a great job packaging its iPhones but the truth is it’s just a cool device. If you have the means, your life is probably a tiny bit more enjoyable if you have a kick-ass smartphone.
The fact that the media slavishly picks up on the story of the people camping out to buy their iPhones helps build the frenzy, and Apple certainly encourages such coverage, but the demand is organic. There’s no need to work on convincing people Apple makes a good phone. They just do. End of conversation.
Would that our world was made up entirely of iPhones. It’s not. For the most part what we see, read, eat and drink is a bunch of garbage we lap up out of habit, as much as anything else. At some point there comes a time where science catches up to habit and we realize just how horrible a beloved product really is for us.
Soda takes control
Yesterday the soda industry faced up to the daunting trends facing its business in a way that had their deceased cigarette marketing predecessors wheezing with delight. Speaking from the Clinton Global Initiative representatives from Pepsi (PEP), Coca-Cola (KO) and Dr. Pepper (DPS) pledged to reduce the number of calories consumed in the form of sugary sodas by 20% in the next 11 years.
“We’ll use the most critical levers we have at our disposal, and the focus really will be on transforming the beverage landscape in the U.S. over the next 10 years,” said Susan Neely, chief executive of the American Beverage Association, the industry trade group.
Ms. Neely called the commitment a “stretch goal” and said it had been hotly debated in executive suites at the three companies. Neely says the industry will push low and no calorie drinks by levering its promotional muscle and tie ins with literally every place that sells soda on earth.
Ladies and gentlemen we are in the presence of genius. Susan Neely of the American Beverage Association, we’ve never met but allow me to commend you on your spectacular, breathtaking cynicism and pro-activity. This transcends anything we’ve seen from the tobacco industry. The soda industry selling a 20% reduction in caloric intake over the next 11 years is right up there with “You can’t fire me, I quit” in the annals of professional spin and crisis framing.
Beyond just changing marketing strategies Coke went on a buying binge, snapping up Vitamin Water for $4.2 billion in 2007 and paying more than $2 billion for a partial stake in Monster energy drinks earlier this year.
As good fortune would have it, Vitamin Water along with Gatorade, Coke Zero and whatever low-calorie fizzy product the companies can possibly conceive of will fit quite nicely in the empty cooler space created by the soda industry’s selfless reduction goals.
Apple Pulls New IOS Amid Dropped Calls. Advice on Twitter: DO NOT UPDATE
Apple Inc. (AAPL) pulled an update for the iPhone operating system after the new software caused some people to lose cellular service.
After rolling out the latest version of its iOS 8 mobile software earlier today, the Cupertino, California-based company withdrew the update when scores of customers experienced dropped cellular service so they couldn’t make calls. The fingerprint reading Touch ID feature also wasn’t working after the update, according to some customers.
“No service on my iPhone after iOS 8.0.1,” said one Twitter user. “DO NOT UPDATE,” said another.
Apple said in a statement that it had received reports of the issues with the update, which is called iOS 8.0.1. Customers can still use iOS 8, which was released last week.
Related:
“We are actively investigating these reports and will provide information as quickly as we can,”Trudy Muller, a spokeswoman for Apple, said in the statement. “In the meantime, we have pulled back the iOS 8.0.1 update.”
The pullback adds to the snafus Apple has experienced with the iOS 8 mobile software since it was released last week. Popular applications made by Facebook Inc. (FB), Dropbox Inc. and others have been crashing more frequently. According to data from Crittercism Inc., an analytics firm, iOS 8 causes apps to crash about 3.3 percent of the time, or 67 percent more than last year’s version. Customers also have complained about having to delete photos, videos and apps to make room for the new software.
Apple Inc.'s iPhone 6 is displayed at the company's Omotesando store in Tokyo.
Going Wrong
Apple shares fell less than 1 percent to $101.75 at the close inNew York. The stock is up 27 percent this year.
Apple released the iOS 8 update today to fix software bugs and add the health and fitness-monitoring application HealthKit, a program that had been cut from last week’s initial release because the company discovered flaws. After the new version went out today, many customers immediately lost cellular service.
“That’s the danger with all these updates: if you get it wrong, it goes wrong big, bad and fast,” said Frank Gillett, an analyst with Forrester Research. “There’s a fundamental question of how it got out in the first place.”
The iOS software is the system that powers the iPhone, iPad and iPod Touch. According to Apple, 46 percent of devices connecting to the company’s App Store are running iOS 8.
Marred Rollout
For Apple Chief Executive Officer Tim Cook, the software problems tarnish what has been a record-breaking release for the latest iPhones. The company sold more than 10 million handsets of the new iPhone 6 and 6 Plus in their first weekend on sale starting Sept. 19, with the devices becoming available in more than the original list of 10 countries beginning on Sept. 26.
Apple has also dealt with problems with previous software releases, most famously when the mapping software it debuted in 2012 gave people wrong directions and showed mislabeled landmarks. Cook later apologized for the program.
“Apple’s not the first to have this kind of problem, but when a gadget is in your pocket, it’s a completely different reaction,” said Forrester’s Gillett.
To contact the reporter on this story: Adam Satariano in San Francisco atasatariano1@bloomberg.net
To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Jillian Ward
Friday, 19 September 2014
SAP buys expenses software maker Concur for $7.3 billion
(Reuters) - Germany's SAP (SAPG.DE) has agreed to buy U.S. expenses software maker Concur (CNQR.O) for $7.3 billion in cash, strengthening its position in cloud computing but sending its shares down almost 3 percent on concern over the price.
SAP has been slow to embrace cloud computing, which allows businesses to cut costs by ditching bulky servers for network-based systems, but the Concur deal announced late on Thursday accelerates its growth in the cloud while protecting its position in travel and expenses
management.
management.
The German business software company said it would offer $129 per share for Concur, a 20 percent premium over the Sept. 17 closing price and just short of the $130.36 record high Concur shares set in January after a two-year upward run.
and just short of the $130.36 record high Concur shares set in January after a two-year upward run.
That is equal to the 20 percent premium SAP paid for its 2012 acquisition of cloud procurement software maker Ariba, and comparable with the 18 and 19 percent arch-rival Oracle ORCL.O paid for Taleo in 2012 and RightNow in 2011.
"It seems expensive. But we believe that Concur is the leader in its market and the potential synergies will be a valuable addition," Bernstein analysts wrote in a note.
Societe Generale analysts wrote: "The shares are likely to react negatively today given the high price paid and Oracle's lackluster results last night."
Oracle reported profit that fell below Wall Street estimates, hurt by weak hardware sales. It also said that Larry Ellison, its co-founder and leader for 37 years, is to step down as CEO.
SAP, which competes in cloud computing with global rivals including Oracle, IBM (IBM.N) and Salesforce (CRM.N), will finance the Concur acquisition through a credit facility agreement of up to 7 billion euros ($9 billion).
The company had seen the cloud phenomenon as threatening its core business model, but it began a series of acquisitions with the $3.4 billion purchase of SuccessFactors in 2011 after Oracle embarked on its own belated cloud-buying spree.
'SOMETHING BIG'
With the acquisition of Concur, SAP will increase its cloud users to 50 million from 38 million.
"We have something big here, guys," SAP Chief Executive Bill McDermott told analysts and reporters on a conference call.
Concur has 23,000 clients, including companies, governments and universities with a total of more than 25 million users of its travel and expense-management software.
About a third of Concur users run SAP software and the German company expects to add Concur customers.
Based on 57 million outstanding shares, the offer for Concur is valued at $7.3 billion. Including debt, the offer represents an enterprise value of about $8.3 billion, SAP said.
Global business spending on cloud services is expected to jump 20 percent this year to $174 billion, research firm IHS estimates, rising to more than $235 billion by 2017.
is expected to jump 20 percent this year to $174 billion, research firm IHS estimates, rising to more than $235 billion by 2017.
Bernstein analysts said they believe that SAP is driving to own the procurement process, in which customers pay based on the volumes of goods and services they buy, rather than by the number of users, which requires extra sales efforts.
, rather than by the number of users, which requires extra sales efforts.
As well as Ariba, SAP also owns Fieldglass, which allows companies to manage their temporary staff and independent contractors and services.
"The advantage of the procurement usage-based models is that the more clients procure via Ariba and Fieldgass, the more revenue is generated," the analysts wrote.
Concur's software increasingly links suppliers and travel-management companies, and is integrated with hotel chains including Intercontinental Hotels (IHG.L) and Starwood (HOT.N).
SALES BOOST
SAP expects to gain between 3 billion euros and 3.5 billion euros in sales from cloud computing by 2017, out of a total of at least 22 billion, but CEO McDermott said that SAP would raise the outlook after completion of the Concur acquisition.
SAP shares were down 2.4 percent at 58.45 euros by 0459 ET, the biggest decliners in a 0.6 percent weaker European technology index, amid a wider market buoyed by relief that Scotland voted to stay in the United Kingdom .FTEU3.
Shares in Concur, which reported a 28.6 percent rise in revenue to $178.37 million in the quarter to June 30, have fallen more than 17 percent since early this year. The drop has been partly down to a general retreat by investors from high-momentum stocks but also because of declining margins, Jeffries’ analysts wrote in late April.
Concur trades at 44 times expected earnings before interest, tax, depreciation and amortization (EBITDA), according to Starmine data, against a ratio of 30 for Salesforce.com (CRM.N).
The Concur board of directors has unanimously approved the transaction, which is expected to close before the end of the first quarter of next year, subject to shareholder and regulatory approvals.
SAP was advised by Deutsche Bank. Concur was advised by boutique bank Qatalyst.
(1 US dollar = 0.7768 euro)
(Additional reporting by Eric Auchard and Georgina Prodhan; Editing by David Gregorio,Cynthia Osterman and David Goodman)
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