Interview: J P Morgan
>> australian stocks start trading in about 20 minutes. the futures of the s&p asx 200 stocks index point to another record. to see which stocks may be active, let’s go to david tweed, our australian companies editor in sydney. what are investors expecting to see today, david?
>> first of all, we’ll be looking at rio tinto. its earnings are due at at 5:00 in sydney. they will be released in london an hour after the close of trading in australia. we’re looking for a 56% increase in profit to 1.35 billion and perhaps some dividend increase. now, the stock looks as if it might actually open lower in australia. it’s up 11% already this year. there is some concern out there that was voiced by some traders yesterday, that rio tinto may make some sort of move on w.m.c. resources. now, xstrata yesterday increased its bid for w.m.c. resources to $7.20 from $6.35. w.m.c. resources shares finished yesterday at $7.65, 6% above xstrata’s bid. the speculation was that someone might make another bid there. the company, one of the companies which people are talking about, is rio tinto. we’ll have to wait and see what happens there after the market closes in australia. we’ve also got adelaide bank earnings coming up today and west australian newspaper earnings. we’re expecting to see those earnings rising. west australia is one of the fastest growing australian states at the moment, benefiting from the fact that it’s a location for some of the big mining companies and the mining companies have been helping the company because of chinese-related commodities boom we’re seeing at the moment here, cathy.
>> rupert murdoch’s news corp. says fiscal quarterly profit surged 80%. what’s the reaction and what’s expected in australia?
>> news corporation, although it’s announced its first results since it moved its domicile to the united states, it’s still an important australian stock. it represents 4.2% of the benchmark asx 200 index which makes it the sixth biggest australian company at the moment. so it’s still an important company for australia, although its index weighting will be reduced over time. the earnings were up 80%, although that was due to a restatement due to the accounting changes associated with its move to the u.s. sales rose 18%. and news corporation has increased its forecast for 2005 operating profit to the high teens to 20% from a previous forecast of mid teen growth. shares in the u.s. rose about .3% so probably not a big move here in australia. back to you, cathy.
>> thanks for that, david. we have more breaking news, here. the unit of singapore telecom, optus, has reported, as well. third-quarter net profit rises 34% to 168 million australian dollars and third-quarter sales rise 7.7%. we’ll have more on this with bernie lo in a few minutes. standard & poor’s raises india’s foreign currency rating to its highest non-investment grade, seeing prospects for sustained economic growth, rising foreign currency reserves and falling overseas debt. shobi pereira has more on the story from singapore. good morning, shobi.
>> good morning. s&p is saying that the rating is up one level,, a rating of bb plus from bb. and the long-term local currency rating was unchanged with a stable outlook. the rupee rose to its highest in more than five years. the upgrade may cut credit costs for companies like state bank of india. one fund manager with pen jab national bank based in new delhi, saying that india is a more acceptable risk for global investors as it approaches investment grade and indian companies borrowing overseas will be able to get finer rates. india’s rating from standard & poor’s is lower than the b-aa-3 assign bide moody’s investor service, the lowest investment grade. and standard & poor’s lowered the rating from bb to bb-plus on october 22, 1998. what mooted that was really after the country conducted four nuclear tests in may that year. cathy?
>> what does the ratings rise say about the state of indian banks?
>> let me just cite the rating company’s statement about the banks. s&p says the loan quality of india’s banks have improved since lenders were given greater powers to recover money from defaulters, there by cutting bad loans. standard & poor’s is saying stronger banks would support higher growth and reduce the strain on government finances. the rating companies are also saying―has also upgraded state bank of india and icici bank to the same level as india’s sovereign rating, the other two biggest lenders in india. still, standard & poor’s says india’s fiscal deficit remains a concern. the combined central and state government deficit amounts to 10% of the nation’s gross domestic product. and interest payments are likely to consume 1/3 of government revenue. that’s it for now, cathy, back to you.
>> thank you, shobi. coming up, most of singapore’s drinking water comes from malaysia. the water resources minister explains how it aims to change that.
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>> the fed makes good on its promise to raise interest rates at a measured pace and suggests it will do so in the future. in other headlines, amazon shares tumbled more than 10% in extended trading. the world’s number one online retailer reported fourth-quarter earnings more than quadrupled but that wasn’t enough to please investors who had higher expectations. two u.s. senators call on china to revalue its currency or else. the senate is scheduled to consider a proposal to impose trade sanctions on china’s imports if it doesn’t adjust the yuan within six months. google results propel the nasdaq higher. federal reserve policymakers raised the benchmark u.s. interest rate by a quarter point, as expected. chairman alan greenspan said they would keep inflation in check by adjusting policy at a measured pace. for more reaction, we’ll speak with henry willmore from barclays capital. what do you make of the fed’s statement compared with the last one in december?
>> the statement was virtually identical to the december statement. so it’s basically the same message. they’re going to keep tightening 25 basis points, probably, certainly, almost surely for the next two meetings. beyond that, it will depend on the data but our judgment is the economy will be strong enough so they’ll be tightening pretty much throughout 2005.
>> has today’s statement in any way changed your forecast for the fed funds rate for the full year?
>> no. given that there’s nothing new in the statement, our forecast is exactly the same as it was before.
>> what could possibly cause the fed to speed up its interest rate increases this year?
>> i think there are two possibilities for getting more aggressive fed tightening. one would be inflation rising a bit more than they’re currently anticipating. the other would be further easing in financial markets . that is, very strong performance by the bond and stock markets , weaker dollar, house prices continuing to soar. those developments, i think, would get them to more more aggressively.
>> do you sense a growing need among fed policymakers to consider setting an inflation target, given assumptions on the trend and consumer prices this year?
>> well, it is something that is being discussed at the fed. greenspan historically has opposed setting an inflation target and i think as long as he’s the chairman, that’s not going to happen.
>> the fed has indeed focused on the core rate as its main measure of inflation. do you think the fed should focus more on the trend in inflation, including food and energy prices, rather than the so-called core rate, which excludes those volatile items?
>> i think they look at a very broad array of measures of inflation. some of which include food and energy. but they do give greatest weight to the so-called core measures. i think that probably makes sense given that you can get unusual events that can cause spikes in food or energy prices. so i don’t think that will change any time soon.
>> is there a reason for the fed to be concerned about the bush administration’s proposed budget cuts and what effect might that have on the pace of interest rate increases?
>> well, the bush administration is proposing a nominal freeze on non-defense discretionary spending. if they manage to hold that line on spending for a few years, it would make a noticeable impact on the deficit. and i think this is something the fed would view favorably. but the fed’s decision making on rates really turns on sort of the broad macro economic picture of growth, inflation, financial markets . and the size of the deficit, you know, within the ranges we’re talking about, i don’t think it’s going to be one of the main factors pushing monetary policy.
>> what about for jobs? do you see tomorrow’s january payrolls report reinforcing the fed’s view on labor growth?
>> our forecast is for an increase of 200,000. that’s a bit above what the average was in 2004. there are some signs that we’re seeing modest improvement in the labor market so if we continue to see data like that, then over time, the odds of a more aggressive move would grow but it would take more than one or two strong data releases for job growth.
>> fed officials that have met today have also prepared a semi annual forecast that greenspan will present to congress on february 16. is there a chance greenspan might surprise with a shift? in statement and his testimony?
>> i think the testimony in two weeks is very important. there has been a bit of a shift in fed rhetoric since last november, november 2004, towards indicating more concern that there’s greater risk inflation could pick up, that financial conditions are too easy. so we are seeing the fed start to move in a more hawkish direction and it wouldn’t surprise me if, at the humphrey hawkens testimony, that greenspan came out with a message that is a bit more hawkish than what’s currently priced in the market .
>> thanks for that, henry. breaking news on singapore telecommunications. it says third-quarter profits come in at 760 million singapore dollars. economists we surveyed expected% net income fell to 760 million singapore dollars. singapore telecommunications is southeast asia’s largest phone company and it also said third-quarter sales have come in at 3.2 billion singapore dollars. third-quarter profit has fallen 11%, in line with our analysts’ expectations. we’ll have more on the story as soon as it’s available on the bloomberg. still to come, india may soon pay less when it borrows money after s&p upgrades its rating on the nation.
