Interview: The reserve bank will raise rates
>> retailing shares may fall today. fast retailing says net income will be $352 million. mike firn joins me for more on that story from tokyo. why the revision?
>> it’s blaming the weather. this winter was unseasonably mild in japan. the japan meteorological agency says tokyo temperatures were an average .7 of a degree celsius higher than normal from december to february. fast retailing sells things like fleeces, sweatshirts and coats. sales at its 524 stores open at least a year fell 12.3% in february from a year ago even with clearance sales.
>> we increased production, anticipating strong sales at the end of the year. unfortunately for us, weather turned warm so sales in november and december suffered. then we were forced to hold clearance sales for winter clothing in january and february to cover our losses.
>> japan’s largest retailer also says the weather hurt clothing sales on tuesday. aeon cut its full-year earnings forecast 15%. and a week ago, japan’s number two retailer cut its full-year forecast 75%. ito-yokado said it would earn 15.5 billion yen and is taking a 45 billion yen charge to close 10 unprofitable stores. even so, it’s starting a fashion design company to attract higher end customers. looking at the shares year to date, ito-yokado and aeon barely changed and fast retailing down 11.25%.
>> they’re blaming the weather for low sales. will things improve?
>> it seems so, things may return to normal in spring. the meteorological agency forecasting temperatures from march until may to be average. back to you.
>> thank you, mike. australian miners ratings cut by credit suisse first boston. b.h.p. billiton and zinifex among those to watch. we’ll go to david tweed in sydney for more. what was behind csfb’s decision to cut the recommendation for both companies?
>> it was simply recent share price gains unlike when b.h.p. billiton was cut two days ago by investec in london. investec thought the risks for b.h.p. earnings were on the downside, true for the share price and commodity prices. in this case, csfb said the 5.6% increase in b.h.p.’s share price from the past 12 days is beyond the movement of the asx 200 index itself, up .7% in that period. zinifex, similar story, it’s up 14% in the last 13 days, outperforming the market , which is why they have been cut by csfb. u.b.s. has increased its recommendation for lend lease, citing the same reason, the fact that lend lease has been underperforming the market . bringing to your attention a stock moving in new zealand. fletcher building, the company that has just bought ametek, a seller of insulation and precast concrete. today, the shares are trading for the first time because it just finished a capital raising in order to fund the 530 million dollar purchase. the company has said that the purchase of ametek will be earnings accretive immediately, so will add to earnings, and has been welcomed by investors who see the shares trading higher at the moment.
>> economic numbers out today in australia. retail sales numbers due at 11:30 a.m. sydney time. is that likely to affect trading?
>> we’re expecting to see the first gain in four months in retail sales for january. that’s an increase of .8%, so the first gain in four months. that might have an effect on trading because people have been very concerned by the decline in retail sales. it seems to have been accompanied with a slowdown in economic growth in australia. that’s why we’ve seen companies like harvey norman and david jones, the operator of the second biggest department store in australia, those sorts of stocks have been falling with that concern. if we see a number that meets expectations or is better than expectations, you may see movement in the retail stocks but even as we had that increase in interest rates yesterday in australia, cathy.
>> thank you, david. citigroup agrees to settle shareholder lawsuits over its role in the 2002 collapse of global crossing. the world’s largest bank will pay $75 million. investors claimed in a class-action suit citigroup analyst jack grubman overstated global crossing’s health reports. the suit claimed citigroup was among the banks liable for damages as it signed off on incorrect financial statements to help global crossing sell stock. up next, we’ll find out why bonds in emerging markets are attracting investors as we speak to the head of fixed income at abn amro asset management.
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Listen Interview: The reserve bank will raise rates
nably good and deficits are unsustainable send the dollar higher and bonds lower. we’ll speak with cantor fitzgerald’s chief u.s. economist in a moment. in the headlines, oil shoots above $53 a barrel on signs fuel supplies are tightening. crude finishes at the highest close since setting a record in october, sending u.s. stocks lower. the s&p, dow and nasdaq all fell. the rock band motley crew raining the closing―rang the closing bell. qwest steps up the battle for m.c.i. qwest’s c.e.o. gets m.c.i. to reconsider the $8 billion bid after convincing some shareholders that the rival bid from verizon is inadequate. fed chairman alan greenspan told congress the record budget deficit is unsustainable and spending cuts are needed before costs balloon for social security and other programs. for more, i’m joined by chief u.s. economist at cantor fitzgerald from new york. what were the highlights of greenspan’s testimony?
>> clearly, he delivered very brief assessment of where the economy was, didn’t weigh in at all on monetary policy and spoke about the long-term structural risks to the economy. so that was the main focus. the main focus being the potential bubble brewing beneath the surface in the treasury deficit along with the fuel adding to the current account deficit but chairman greenspan really focused in on fiscal policy today and that was really the main thrust of his discussion.
>> have has comments strengthened the case for further rate increases?
>> from our point of view, we consider chairman greenspan on a path to raise rates to about 4% by year end. that’s been our long-held view since the early part of september. the market has had a rich perspective relative to that and over time, over the last six months, the markets have sort of ratcheted up their views, not quite up to 4% yet. chairman greenspan just noted the fact that the economy is off on a sustainable path, that cap-ex spending is picking up and he noted that business c.e.o. confidence is improving and is much higher but the one thing we want to note is that we’ve raised our own assessment of first-quarter g.d.p. growth to just a little over 4% from about 3.4%, because cap-ex spending is getting off to a solid start this year and there’s lots of other good things going, as well. so we’ll finish the fourth quarter at around 3.9% and ratchet it up to 4% in the first quarter. it’s clear the economy has a good head of steam at this point.
>> given the size of the current account deficit, is the u.s. close to a massive flight of capital from the dollar?
>> this is a big question. chairman greenspan is trying to address this. his view is that so far―we would agree with this assessment―so far, the selloff in the dollar has been fairly orderly and will probably likely continue going forward and i think part of the reason why is because i keep expecting the current account deficit to continue to worsen but at some point over the course of this year, probably towards the second half of this year, we should get some type of stabilization in that deficit as the economies around the globe pick up. so that’s the bet here and i think the markets are taking the slightly more favorable stance on it in supporting the dollar.
>> what about for consumer prices? did greenspan sound any more concerned about inflation this time around?
>> no. chairman greenspan basically didn’t touch the subject of inflation and it’s, i think, really there’s an issue here and i think that the subtle point about inflation is that it’s clearly bottomed, it’s clearly rising and what we have now going on is that unit labor costs are coming very close to matching the rate of growth in core inflation so we look at the u.s. economy as being in an upcycle in labor costs and we expect that over the course of the next couple of years that labor costs will actually be rising faster than core inflation and thereby pulling core inflation higher and we think this is a legitimate concern and underpins our view that chairman greenspan will do more tightening this year than what the market expects.
>> could higher oil prices worsen price pressures and what levels in crude oil prices would stoke the fed to speed up rate increases?
>> so far, chairman greenspan has gone on record as saying that $50 oil, he thinks, is manageable with the economy. and with the efficiencies in the economy. so we tend to agree with that. we think that basically oil prices over the next 2, 2 1/2 years, are headed towards $65 a barrel and we have the view that the u.s. economy and emerging economies, in particular, china, are very much in a global, synchronized recovery here. it’s a reflationary recovery. so we just look for oil prices to continue to grind higher. capacity, more or less, has been stagnant over the last seven years so we just―and capacity takes so long on come on line, we think there will be supply constraints in the face of very solid demand growth so we’re looking for prices to grind higher from here, not threateningly leaping forward, but steadily grinding higher.
>> the potential benefits of moving to an inflation-targeting regime to help guide interest rate policy, which greenspan has opposed, are there any merits at this point to draw up an inflation target?
>> i think the inflation target―the fed has dual responsibilities to achieve full employment, full trend growth and keep in a regime of price stability so for the fed to focus on just one objective is kind of an unusual thing and the economy itself is a very dynamic organism so bakley we just think that targeting just simply inflation misses most of the characteristics of the economy and the linkages between inflation and overall view of the economy are also time sensitive and time dependent and can’t necessarily be pinned down by a simple rule. we would agree with chairman greenspan that to manage monetary policy efficiently in the global economy, really it requires a lot of discretion and it requires a lot of skill.
>> john, we have about half a minute. greenspan’s speech comes two days before the labor department’s report and economists we surveyed say the economy added the most jobs to payrolls.
>> for friday, we’re looking for a payroll gain of 237,000. we expected a number similar to that for january and we’re obviously disappointed in january but we thought the economy is getting off to a sod start and we continue to see lots of signals suggesting a top-down basis, employers are adding jobs.
>> got to leave it there, thank you very much, john. john herrmann of cantor fitzgerald in new york. up next, we’ll talk about bonds and emerging markets .
