Interview: NYSE
>> the asx 200 index indicates a higher opening and could be related to developments concerning news corporation. let’s go to david tweed in sydney. tell us more.
>> the story is that about three billion, just over $3 billion australian is expected to be associated with selling of news corporation shares as it exits the asx 200 index in the second of its four-stage exit. that means that the money could be or probably will be pumped back into big australian stocks and to give you an idea of what $3 billion of money means in terms of trading in australia, it’s about six days when you consider that yesterday we had around about $545 million worth of trading in australia. it’s actually significant in terms of trading turnover and could have a big effect on the big stocks like b.h.p. billiton, whose weighting will increase and another to look for is publishing and broadcasting, it will be the biggest media company in australia after the exit of news corporation. this is the second stage of its exit. news corporation has moved to the united states. that’s really where it gets most of its revenues now. news corporation is entering the s&p 500 and s&p, because it runs a world series, doesn’t want to double count that stock in the indices, so it’s removing it from the asx 200. looking at the trading this morning, looks as if we might have a higher open.
>> you mentioned steel earlier, chorus group said steel demand is weakening in north america and europe. is that likely to affect bluescope steel?
>> we did see bluescope steel drop 1.9% yesterday after a u.s. rival, steel dynamics, said its profit for this quarter would lag analysts’ estimates. that was because of weaker demand. bluescope―chorus steel, which sells steel in europe and united states, said weaker demand is coming about because customers are eating into stockpiles because of the increasing steel prices in the past year. they’ve doubled in the past year. the other thing to look for, chorus says it expects steel prices to maintain or increase this year and that is because they need to cover their costs. remember, of course, companies like b.h.p. and rio tinto are -- are getting something like 71.5% increase in the price of iron ore they’re getting. another to watch for, given the fact that we have the energy costs at such a a high level, zinifex. zinc prices fell on the l.m.e., london metals exchange overnight by 4.5%. people are concerned that oil prices higher, higher fuel costs and fewer sales of automobiles and zinc is used to galvanize steel sheeting carmakers uses in production.
>> and the singapore exchange is looking for new ways to build business on electronic system trading regional stock index futures may be an answer. the exchange’s floor-traded euro dollar contract comes to an end. haslinda amin has more. what’s the strategy for the s.g.x. now?
>> well, the s.g.x. plans to phase out its floor trading. chief executive says having lost the euro dollar, the rationale for floor trading is really diminishing. he says electronic trading is where the market wants to go. singapore will shut its trading floor and switch to an electronic trading system. often futures tied to japanese, taiwanese and asian stock indexes, about 2/3 of the traders on the floor already trade electronically. the s.g.x. runs the island state’s derivatives and securities market . trading in futures evaporated after the chicago mercantile exchange moved most of its trading to its electronic trading system. the two exchanges had allowed traders to use the singapore’s floor to trade the contracts when the merck was closed. the advent of 23-hour electronic trading in chicago cut the need to use singapore overnight.
>> less noise in your background when you visit the s.g.x. what is the loss of the euro dollar contract, what does it mean for the exchange’s margin?
>> the s.g.x says the loss hasn’t hurt the exchange financially because the nikkei 225 index, a higher margin business. sales are down―futures trading is down 30% to 100,000 contracts a day and sales are down less than 10%. the s.g.x. plans to seek out a space where it can dominate while other markets offer derivatives tied to assets based in their own countries and want to dominate the regional market . they will convert the floor to an electronic arcade and the market will pay part of the setup costs for any electronic firms that want to open an office in singapore as they shift to an electronic system.
>> haslinda amin in singapore. coming up, what is the biggest risk for the chinese economy this year? stephen engle has the answer as he speaks with credit suisse first boston’s chief regional economist.
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we’ll hear from csfb’s chief regional economist huw mckay -- regarding why he thinks futures could crash this year. oil prices rise. traders speculate organization of petroleum exporting countries can’t produce enough to meet rising demand. oil’s gains boost petroleum stocks, including exxon-mobil, sending the standard & poor’s 500 index higher for the first day in three. goldman sachs posts record first-quarter net income of 1.5 billion dollars. morgan stanley quarterly profit rose to a five-year high. rising revenue from trading and selling bonds boosted results. toys ‘r’ us is going private. the toy retailer agreed to be purchased by an investment group for $6.6 billion. in new york, copper prices fall from a 16-year high, closing a day earlier. a gain in the value of the u.s. currency boosted the cost for buyers holding euros and yen. copper is priced in dollar. copper climbed 11% in the past year as the dollar fell 8.5% against the euro. joining us to talk about the commodity market is huw mckay, senior international economist at westpac banking, joining us from sydney. the latest copper story seems to be in terms of the rising value of the dollar. how long do you expect this scenario to continue where the rising dollar is lowering copper prices?
>> i think we’ll see real volatility in the u.s. dollar against the g-3 crosses for months to come. i think we’ll see u.s. dollar consolidation in the second half of the year and we’ll see if the f.x. trends will have less effect in the aggregate and we’ll be back to the supply-demand story which has been around for some time now. 2004, that was in favor of higher prices and second half of 2005, it will push prices lower.
>> chinese demand for copper, how will it grow this year, do you expect?
>> chinese demand for copper and other raw industrial materials will remain resilient this year despite the general slowdown in the economy. one of the reasons to be relatively bullish on chinese consumption of copper is that power generation equipment, one of the major consumers, roughly 40% of china’s copper use. that particular sector will continue to grow quickly if 2005 -- in 2005. we’ve had power shortages in china strongly through 2004 and capacity is coming online but we still have a really, really large increase in capacity coming in 2005. so we think that the underlying demand from china remains exceptionally strong even though we don’t think it will be quite as rapid as in 2004.
>> when you say exceptionally strong, when we are―what are we talking about in terms of demand? 20% more?
>> looking at the global numbers, last year, the world economy’s consumption of copper was up 6%. that was with global growth at a real high, 4.9% in purchasing power parity terms. we expect global growth to slow to around 4.25% this year and china will be slowing in the aggregate as part of that movement. it will be really, really surprising if copper consumption across the globe grew more than that 6% and even if it achieves 6% again. if you look at the supply side, though, the australian bureau of agricultural and resource economics, one of the most credible forecasters out there, they have a 7% rise in copper production coming through 2005. that should mean that inventories rise through the second half of this year and that should push prices down from current records.
>> let me turn my attention to gold for a while. is china a factor in the gold market ?
>> traditionally, china has been a large consumer of gold both in the non-monetary sense and as an importer of monetary gold but i think the gold price is one where you can talk about the u.s. dollar trend and forget about the rest. gold prices rallied for three years based upon the weak trend in the u.s. dollar index. it’s very much a currency-sensitive metal and i think the trends i talked about earlier, the u.s. dollar consolidation second half of the year, will be the key driver for the gold market .
>> looking at the australian dollar and how it’s rising, how much has this rise in the australian dollar hurt australian mining companies?
>> the rise in the dollar has certainly affected mining profit at the margin. when we look at the aggregate figures, the big resources companies have done superbly well from the movement in underlying prices and translation back to aussie dollars hasn’t effected the big resources companies also that adversely. the other thing to note about the big miners such as rio tinto and b.h.p. billiton, is that these are essentially u.s. dollar companies, taking revenue in u.s. dollars, their costs are in u.s. dollars so there is little translation effect those companies really have to deal with. we’ve seen major boost in the share prices of those two majors and the resources index, in general, on the asx s&p 200 here, i don’t think the aussie dollar has been too much an issue for those guys. they haven’t been hedging for? some time now. they basically leave in u.s. dollars.
>> huw mckay, thank you for your time today. looking at world news, afghan president hamid karzai is postponing parliamentary elections scheduled for may. karzai made the comments at a news conference in kabul with u.s. secretary of state condoleezza rice. karzai said a variety of technical issues would delay the vote until september. those issues include the lack of an accurate consensus. rice didn’t seem too worried about the delay.
>> this is a large and complicated country. it takes a while to do these things. but i’m quite confident that these elections will be yet another example of the afghan people’s commitment to democracy and being with the electoral commission only reinforced my sense of that.
>> rice was in afghanistan as part of a tour of asian nations. she’s set to arrive in japan today and will stop in south korea and china. the singapore exchange strikes a new approach to boost profit. our singapore reporter will have all the details on the shifting strategy.
