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Interview: Patrick Corp.

>> down to the wire in australia. 7:00 p.m. tonight is the deadline, patrick corges’s takeover offer for low-cost carrier virgin blue. at last tally, patrick is 3% from taking majority control. what are people banging on -- banking on for an outcome?

>> patrick corp. has bid $1.90 a share for virgin corporation. virgin blue, i should say. virgin blue shares rose to as high as $2.20 but -- $2.10 but yesterday closed at $1.93, indicating that no one thinks there will be another bid or that patrick corporation will increase its bid for virgin blue. patrick corporation, the c.e.o. there, has indicated that what he’s interested in doing is taking control of virgin blue. he doesn’t need 100% of it to control virgin blue. so they have increased their stake by 1.7%, just less than 3% from taking control. and even if the offer does lapse today, they will still be able to, under the provisions of australian takeoverrules, be able to increase their share by 3% by the end of the year so they could end up with the control of virgin blue by the end of the year anyway. so it’s anyone’s guess as who what will happen today and we’ll have to wait and see.

>> in the brawrt market -- broader market , futures traders are banking on a higher opening after breaking three days of losses. we might be on the upside today. in terms of the industry and individual stories, what. will occupy attention?

>> with the oil price at 22 cents off a record, watch out for b.h.p. billiton, biggest oil producer in australia. watch out for woodside petroleum. yesterday, csfb increased its forecast for crude oil and said that could lead to a 20% increase in earnings per share for 2006 for woodside petroleum. watch out for bluescope steel. there was good news in the u.s. on friday when nucor increased its profit forecast. we also see the chinese steelmaker increasing its fourth-quarter profit by 36%. remember, bluescope steel is australia’s biggest investor in china with 28% of its sales from asia. there is another industry worth watching out for, that’s the banks. we’ve seen the australian 10-year bond yield dropping in the last―in early trading today and that seems to have followed a decline in bond yields in the u.s. which drove some of the big banking stocks higher and pulled the dow jones and s&p 500 higher in the last hour of trading there. back to you, bernie.

>> we’ll check with you later, david. the marlboro man is galloping into indonesia. $5.1 billion offer by altria, the owner of philip morris, to buy p.t. samp sampoerna. haslinda amin has more on the story. good morning. how big of a deal is this for samporna?

>> it’s not just the amount. investors say it’s significant for sampoerna and indonesia, as well, the purchase being the biggest in the country by an overseas investor. philip morris is offering to buy the remaining shares at the same price of $1.13 a share after -- 40%. michael kurtz says there’s possibleity of an upleg in the business and employment cycle. some investors say the potential for the indonesian market is huge. sampoerna controls 19% of the local cigarette market . philip morris’ marlboro brand accounts for 50% of indonesia’s conventional cigarette market .

>> what are the particulars on when the deal may close?

>> it’s expected the purchase will be done within 90 days, an all-cash transaction financed by a bank credit facility. investors say philip morris paid a premium for sampoerna. the valuation is not cheap, still, timothy ghriskey of solars asset management is optimistic, saying that a 20% premium is not excessive. indonesia is a high-growth region in the world, an area where an acquisition will increase philip morris’ growth rate. philip morris itself says it plans to take advantage of sampoerna’s strong branding and build on it. that’s the news for the moment, bernie.

>> thank you, haslinda. the world health organization says indonesia has no age restrictions on the sales of cigarettes and estimates 70% of indonesian men older than 20 smoke regularly. south koreay picked the top trade minister to take the top job at the finance ministry.
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Listen Interview: The shake-out in the airlines
thank you for tuning in for breakfast. obviously, there are more and more discount carriers snowballing in asia and can the region handle them all? how are the incumbents dealing with it? if you go back to row 66-c, sometimes they can’t compete with budget airlines. we’ll speak about the notion of too many airlines with the head of the center of asia-pac avenueiation.  aviation. the headlines―oil hits $55 a barrel and falls back. a.i.g. down on reports its chairman, hank greenberg plans to step down. the stock down ..33%. u.s. stocks rise as oil falls back below $55 a barrel. and genentech rises after positive reports on its lung cancer drug. asian-pacific airlines may go bankrupt or come under government control because of international controls on airline ownership. the center for asia-pac aviation joins us. i thought that the shake-out in the airlines happened already. yet warning bell right now?

>> it’s happening in the united states, big-time. but it seems paradoxical, too, when we’re making such large profits in this region at the moment but the issue is we’re liberalizing quickly. there are two aspects to to deregulation, one is national ownership of airlines and the other is giving new access to routes and new entry. we’re giving new access to new carriers but not granting changing to the ownership rules in the airlines so they can’t merge, leaving them between a rock and hard place. they can’t get bigger or reduce competition by merging and they end up in a difficult situation, going downhill after.

>> that realistically, we’ve seen the the saga play out and we need look no further than where you are, australia and new zealand. new zealand is not going to let australia take majority control of its flag carrier just as singapore airlines won’t let the british take control of 66% of s.q.

>> there are two issues, one is the idea of nationalism and cross-border ownership which the governments don’t like. the other is it’s extremely hard with competition laws to permit mergers because we’re effectively reducing competition and to get over that hurdle is a very large issue. we’re watching carriers in the united states dying of strangulation because they can’t combine, even in a domestic environment.% 

>> many of the l.c.c.’s proliferating around asia today were the brainchild of the one-time incumbent monopoly flag carriers so the fact that they’ve introduced the low-cost model while not cannibalizing their own main carriers, but they have introduced the budget airlines, so in a sense, even though there’s a nationalistic sense of ownership, they are introducing competition and making it a more playing field, are they not?

>> one of the interesting things with that, and particularly in singapore, is singapore’s subsidiary, tiger, low-cost airline subsidiary, is not owned entirely by singapore airlines. it’s only got a 49% share in that carrier so it becomes almost a different entity. the reason they are doing it is because they have to be in the low-cost end of the market to compete with the mushrooms sprouting up independently.

>> what is the future going to look like? you take china and the u.s., and several month ago they struck a renewed services pact and we have major airlines flying to china, achieving more landing rights in the future, probably leading to more freedom rights. are we leading to the market leading governments, forcing them to open up? will we see doltion?  consolidation, will we see 2/3 of the airlines in existence in this port of the world today?

>> it is the market that has to lead governments at this stage. the governments are largely removing controls on entry and the market is responding to it, growing rapidly with strong economies. but in terms of changing some of these fundamental national ownership issues, it’s only going to be when carriers get to the brink and pushed over, like new zealand did a few years back, essentially going bankrupt because of the unwillingness to combine with singapore airlines, the government renationalized them. we’re saying you have the option of going bankrupt or being nationalized―government ownership.

>> what’s the state of route openings right now? s.q. has been pushing australia to open up the skies. dixon at qantas, chief executive, says it will cost him $40 million a year by liberalizing so you have a c.e.o. saying we can’t be more competitive because it will cost money so don’t open up routes. it sounds like no-go zone for a c.e.o. to speak like that.

>> it is. this is one of the pervasive things about the aviation business is that governments are involved in everything and when an airline wants to protect itself, it runs to the government to use nationalistic issues but singapore is in a battle with the indonesian government to get the indonesian government to open up more routes to allow low-cost carriers to operate there so we’re seeing the machinations escalate.

>> the last time i checked, i could fly to singapore for $50 u.s. on value air. i may do it, i have to go there this week to interview the prime minister. if what you say is true, if we go back to your original prognostication, if we see airlines go bankrupt because of structural problems, will the consumer suffer in years to come, peter?

>> i don’t think so, necessarily, especially not on the short-haul intra-anroutes because this is -- intra-asian routes. the result of the liberalization is we’re getting the carriers coming in. it’s the longer-haul network carriers as in the united states that are threatened. in the states, southwest is going to strength-strength as a point-to-point carrier.

>> peter harbison, head of the center for asia-pac aviation.

Interview: J P Morgan

>> the u.s. economy growing at a 3.8% annual rate in the final three months of 2004, up .7 of a point from the original calculation a month ago. bruce kasman is head of economic research at j.p. morgan and joins us from their offices in new york with his reaction to the numbers. the number was expected to be higher. any surprises in why, though?

>> not really. i think we had broad based improvement in just about every component in activity. it was a surprise that consumer spending was weaker and business investment was stronger but most of that was a sense that some of the car sales and trucks in the fourth quarter were really investment by companies, less than by consumers. it was broad based, healthy and more or less as expected.

>> one of the things people were looking for in the report was whether or not we would see a big jump in business investment that you mentioned because there were expiring tax credits. we did get the business investment. what have you seen since then? will this fall off into this quarter?

>> it doesn’t look like it. woo had an important are durable goods number this week suggesting orders and shipments continue to run strong and all of the business surveys, both on spending and hiring, continue to stay strong so i think there’s a possibility of a little pullback but the strong, basic message is that the corporate sector is in gear in providing fuel for economic expansion at this stage? >> any concerns about consumer spending?

>> some of it was just recall clation of whether it was businesses or consumers spent on cars. the basic message is consumer spending is strong and i think an important underlying message in the report was that we got wage and salary income actually revised up, now running over the last two quarters. it tells us the consumer is strong and there’s fuel coming from the corporate sector in terms of labor and income to keep the consumer moving ahead.

>> we get a big report next friday on jobs. we were talking with tom keene about how people are revising their forecasts higher. where are you and what do you think contributes this month to the jobs report?

>> we’re being a little bit cautious here, looking for what i think is a healthy 200,000 gain but we’re not putting all that much emphasis on the high frequency indicators, which have been quite positive. we think they’re more an indication the trend is improving rather than you’ll get a big increase in the february gain relative to the last two or three months.

>> we do see at 225, though, a big jump from where we have been. is it going to be a secular or just a short-term move?

>> i think the basic message, when you look at all of the labor market indications, is that things have been reasonably healthy. the underlying trend in payrolls has been about 175,000 per month and it looks like it’s stepping up so we’re declined to think the―inclined to think the trend may be moving up to a 200,000 pace with healthy labor income generated alongside the job gains.

>> alan greenspan said the economy had gotten through the period of high oil prices and oil prices have gone up. are we in danger of oil being a restraining factor?

>> i think oil will be a restraining factor and as we go through the end of the first quarter, we will see consumers moderate a bit here. but i think it’s a very big difference, keeping energy prices between $45 and low 50’s and moving from 30 to 50 was a big spike in gasoline prices which is what we saw last year. it’s a restraining force but less of a restraining force than what we saw last year at this time.

>> the big question then, of course, is whether the fed, if the economy is picking up and it looks like there’s strength throughout the economy, do they keep going and if they do, how far do they go?

>> it’s been our view that the fed will complete the normalization process this year. we think fed funds rates are going up above 4% by the end of the year. however, i don’t think there’s a rush here or that we should expect the fed to pick the pace up any time soon and i think the steady course of 25 basis point rate hikes for a while coming from the fed.

>> do they keep the language?

>> i don’t think there’s concess on the committee to change the language but at some point they’ll have to make a decision that they’re close enough towards the end of the process to take out the notion of measured and also the message that policy rates are accommodative. we think we’re at least two or three meetings away from that decision coming.

>> we have 30 seconds left. we have had a strong performance in the markets this week, good economic data. let me leave everybody nervous and ask you what your one fear is?

>> is that as we continue to have good economic news and continue to see the fed move, whether the interest rate environment will remain quite as benign as it has been. it’s clearly been a big support for the economy but it runs the risk, if it begins to move on the longer end higher, that we could see negative feedback.

>> thank you very much, bruce kasman, head of economic research at j.p. morgan. the international olympic committee sized up the big apple for the 2012 olympics this week. mike buteau joins us from atlanta with the reaction and the next steps. “money & sports” is next.
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Listen Market briefing - Mike (medium)
Chart of the day -- Tom (fast)
Taking stock ---Ari (slow)
>> welcome back to “world financial report,” michael mckee. green means go home on a good note. the dow jones industrials finishing up by 93 points on the day, 10,842. the s&p 500, about 11 points higher, 1211, the close there, at a high for 2005 but not for the year yet. the nasdaq also up on the day, by 14 points, 2065. a week from today, we’ll get february’s labor report and recently, some economists have sharply raised their forecasts. time for our regular look at the “chart of the day” with bloomberg news editor-at-large, tom keene.

>> we talked about this yesterday. and i really rarely repeat a story but this bears repeating. we saw that help-wanted index, tea leaves of a surprise yesterday, and all the economists in the last hours bringing up estimates as they prepare for next friday’s report is is a well known chart, carol massar runs this at 8:30 in the morning on the friday when the data comes out. the change in non-farm payrolls, the zero count line and the slow-motion recovery up to the blue circle which is credit suisse first boston’s big jump up yesterday. we’re starting to see lots of big numbers. even merrill lynch, david rosenburg, who’s more cautious, 240,000. that’s a big number.

>> what does csfb call for?

>> 275,000. and deutsche bank, 275,000. i think as we go through monday and tuesday into next week, we’ll see the bloomberg survey flush out and pick up a little as we see many different tea leaves indicating a buoyant labor market .

>> why do you think they think things are turning around now in the labor market ?

>> so many months of guessing wrong. the number one thing they’re seeing from the reports we get in is finally time has moved. time has healed a lot of the wounds of overinvestment in the 1990’s, rationalizations out of the shock of september 11 and shock of recession and the one message that’s consistent is you hear time has moved on, we’re farther out. it is 2005, a long way from 2001.

>> you mentioned them being wrong, i’m going to put up another “chart of the day,” my turn here. the white line is the bloomberg estimate and the red and yellow lines are the numbers that have come through, the revision in the actual number and you can see how far off they are.

>> it’s a tough number to pick. the number i can remember in my head, the number can be 100,000 off each way and yet you can still say you were right. so the numbers to remember, as we look towards that important repeat, 225,000, plus or minus 50,000 or 100,000 and the tendency is up going into next week.

>> bloomberg news editor-at-large, tom keene, thank you very much. we want to find out what’s going on with oil prices. in 2004, surging oil tapped the market ‘s gains. now that oil is revisiting $50 a barrel, some investors say it’s deja vu for the market . that’s the subject of “taking stock.” what’s the significance of the $50 oil in the stock market we’ve seen?

>> it’s a meaningful level looking at the trends. tuesday, oil surpassed $50 for the first time this year, the s&p and dow had their biggest drops of the year. last year, when oil was at $50 or higher, there was a strong correlation with down days in stocks. a negative one correlation means that oil and stocks move in complete opposite directions. last year, when oil was at $50 or higher, it was negative .82, when it was below $50, it was negative .65 so there’s a much higher correlation when oil is above $50 than when it’s below.

>>ised good news for energy stocks, but what about for other companies? how concerned are investors that oil will start to show up on the bottom line.

>> wal-mart and fedex have said they are blatantly concerned and that’s obvious, because for wal-mart, the more customers spend on gasoline, the less they spend at their stores and fedex’s concern is due to increased fuel prices, companies like delta obviously would be concerned with increased fuel prices. you also have economists that are looking at economic growth and they’re forecasting $40 to $45 oil. with oil in the $50 range, they’ll have to bring down the economic forecasts and bring down our expectations for consumer spending.

>> exxon-mobil today raised by prudential. what other stocks are people buying with oil at these levels and which ones will they avoid?

>> again, people are already expecting slowing profit growth in retailers. so as long as oil is staying higher than levels previously expected, you would expect them to decrease their weighting more in retailers. energy stocks, the obvious play, as stocks like exxon and conoco keep hitting record highs. other places people may be considering they’re going into may be consumer staples where profits should stay at relatively normal levels even with higher oil.

>> any other factors overshadowing energy or is that the story right now?

>> that seems to be the story and people are looking ahead to the jobs report next week and that’s always significant and can always overshadow higher oil and any time you get a strong earnings number, people may say, we can get through this.

>> thank you very much, bloomberg news energy reporter, ari levy. investors got good news on the american economy today. does the g.d.p. data suggest stronger economic growth in 2005? we’ll ask head of economic research at j.p. morgan.

Interview: NYSE

>> it’s 12 past 9:00 in the morning in sydney. mostly sunny today in the city with high temperatures reaching 25 degrees celsius. b.h.p. billiton is planning to make a cash offer for w.m.c. resources of the b.h.p., the world’s biggest mining company, is competing with a $6.5 billion offer u.s. offer bid from xstrata. b.h.p. hired deutsche bank to look into the deal. xstrata is listed in london. b.e.a. systems agreed to buy united defense industries for $3.97 billion. europe’s biggest defense company says the move will help it meet demand for utility and armor, including the bradley fighting vehicle used by the u.s. in iraq. b.e.a. will pay $75 a share for united defense, 29% premium to friday’s closing price. this would be the biggest defense industry acquisition in more than four years as well as the biggest ever by a foreigner in the u.s. b.e.a. also owns 20% of airbus. the s&p benchmark index rises for the third day while the dow fell. deborah kostroun reports from the new york stock exchange.

>> the dow jones industrial average ending lower and today the topic was followthrough. we did not see the followthrough in the market . i was talking with peter henderson with bank of america specialists and he said today with the dow stay 3 1/2 year high on a friday and the transports also hitting a three 1/2 year high on the same day, this goes to the dow theory that says when you have 30 dow stocks at a high and also the transports at a 3 1/2 year high, that is a major buy signal for the market , but we did not see the followthrough in today’s session and the utility index also at a multiyear high so he says very significant and something that the market will be looking at over the next few days to see if we can see a little bit of followthrough. look at what has been helping out the market . first-quarter earnings estimates for s&p 500 companies. today we are looking at a 7.2% increase. on february 1, it was 6.3%. we have seen an increase in earnings estimates, that’s helping out the market today. looking at some of the aerospace and defense stocks and their performance today. aerospace and defense stocks performing well. u.d.i., united defense, purchased by b.e.a. systems and so that is europe’s largest defense contractor. that stock, united defense, coming in today at a record high. looking at semiconductor stocks, the biggest gainers in the s&p 500 after qualcomm raised its second-quarter profit forecast and so we did see many of the semiconductors performing well in the session. auto-related stocks, general motors, of course, we heard about them last week saying that february sales were lower. but now they’re saying first-quarter profit will be reduced by $79 million because they’re shutting down a plant that―in lansing, michigan. i’m deborah kostroun at the new york stock exchange.

>> sony’s incoming president vows to revise the company’s electronics unit.

>> the reconstruction of our consumer electronics business is essential for sony’s overall revival. we must make the right decisions in a timely manner.

>> the company monday replaced chief executive nobuyuki idei with the head of sony’s u.s. division, howard stringer.

>> i think the target of 10% is a worthy goal. i don’t believe we’ll achieve it this year but i think it’s worth leaving out there for all of us to fight to reach improved margins and greater shareholder value.

>> sony shares rose 2% in new york, their biggest gain in nearly four month. honda motors says it may offer more incentives to boost falling u.s. sales. japan’s number three automaker is considering cheaper loans and leases and may raise dealer incentives to lift u.s. sales of accords and civics. malaysia’s industrial production growth probably accelerated in january. manufacturers raced output ahead of february’s lunar new year holidays. economists we surveyed expect out put rose 7.4% in january. malaysia reports the numbers this afternoon in kuala lumpur. expect hong kong retail sales for january at 4:00 p.m -- 4:15 p.m. local time and national australia bank releases the survey of business confidence today. my next guest says the yen’s weakness won’t last. he’ll tell you what’s behind that belief.
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Listen Market briefing - Cathy (medium)
Boeing -- James (fast)
Tokyo market --- Ron (slow)
welcome to “ live” from hong kong, i’m catherine yang. texas instruments says earnings and sales will come in on the low end of earlier estimates in the first quarter. the world’s largest chipmaker for cell phones forecasts it will earn 22 to 26 cents a share -- 22 to 24 cents a share compared to the estimates of 22 to 26 cents. analysts surveyed by thomson financial were looking for 24 cents. they see first-quarter revenue at $2.91 to $3.04 billion. texas instruments shares in after-hours trade down more than 3.3%. we’ll have a live report from the u.s. on texas instruments later in the show. coming up this hour, the anyone falls against the dollar as the latest japanese economic report fails to measure up to investors’ expectations. we’ll speak with a currency strategist in 20 minutes. australia targets china for tourism dollars. we’ll speak with the general manager of australia’s tourism board to find out why he’s counting on chinese visitors to boost the australian hospitality industry. u.s. stocks gained after texas instruments’ mid quarter update. the s&p 500 rose .25% and semiconductor shares lifted the nasdaq higher by almost 1%. still, the dow finished slightly lower. qualcomm raised its second-quarter profit forecast to 28 cents a share, a penny above its january estimate. qualcomm is the world’s number two maker of mobile phone semiconductors after texas instruments. intel, world’s biggest maker of computer processor, will be giving its mid quarter update march 10. the philadelphia semiconductor index gained nearly 2% with xilinx among the winners. boeing shares fell after it ousted chief executive officer harry stonecipher for having an affair with an employee. boeing snammed chief financial officer, james bell, interim c.e.o. bell told bloomberg his job is to maintain the performance.

>> i want to keep the focus that we’ve had in the last 15 months to make sure we meet our commitments to customers and maintain our relentless focus on executing on our programs and i’ll have to maintain the outstanding financial performance we’ve had over the last several months and stay focused on taking us to a new level in that area.

>> boeing is the second biggest defense contractor in america. chairman lewis plat ordered a review after receiving an anonymous tip about stonecipher’s affair.

>> we certainly want somebody with a track record. boeing is not a place that you throw in a c.e.o. on training wheels. we want somebody who has success neled large organizations, industry experience is always a plus. but we will look beyond that and if we find somebody who comes up very high on our scale on all the other attributes but lacks industry experience, we certainly would consider that individual.

>> stonecipher’s ouster comes 15 months after he took the job. he returned from retirement after boeing was ensnared in a defense contracting scandal. stonecipher got employees to sign a code of conduct to restore the company’s reputation boeing was barred from issuing bids for the air force after a scandal involving the hiring of of a pentagon official. the yen crossed the 105 level to the dollar and approached 139 per euro. the dollar is worth 105.18 per yen. the yen’s drop began in asia after japan reported first-quarter capital spending rose a smaller-than-expected 3.5% from the year earlier and fell compared to the third quarter. investors had been buying yen on expectations stronger economic data would indicate the end to recession. the dollar rose against the euro and british pound but slipped against the dollar. in the bond market , the 10-year note traded near a one-week high as concerns about inflation eased. crude oil slipped in extended trading after closing at a four-month high during the regular session. oil finished the new york session at $53.89 a barrel, the high close to october’s record. investors pushed oil prices higher on expectations opec has no plan to increase production. opec pumps about 40% of the world’s oil. the group is scheduled to meet on march 16 to discuss production targets. our survey of analysts show oil prices are expected to rise this week. 48% of those surveyed say oil prices will gain and 37% say they will fall, 15% predict no change. asian stocks rise in u.s. trading. technology stocks including taiwan semiconductor, chartered semiconductor and wipro rose. the bank of new york indexes tracking asian stocks gained and nikkei futures point to a lower start for japanese stocks the day after the nikkei 225 completed its longest winning streak in more than five years. now with a look at world news, ron madison joins us from tokyo.

>> syrian soldiers in lebanon will retreat to eastern lebanon near the syrian border before the end of march.

>> they’re waiting for the go-ahead from syrian and lebanese leaders for a full pullout. they will decide within a month how many syrian troops will remain and for how long. the development follows a meeting of the presidents of syria and deb none in damascus. the bush administration named state department arms control official, james bolton, as next u.s. ambassador to the united nations to replace john danforth. danforth left the post in january. u.s. secretary of state condoleezza rice say she and the president have full confidence in bolton.

>> the president and i have asked john do this work because he knows how to get things done. he is a tough minded diplomat, he has a strong record of success and he has a proven track record of effective multisophia latuzkineralism -- multilateralism. bolton has been a vocal critic of the effectiveness of the u.n. italian prime minister silvio berlusconi and other state officials attend a state funeral service in rome for the intelligence officer that was killed in iraq by u.s. forces. 51-year-old nicola calipari was shot while trying to protect guiliana sgrena, the italian reporter who had been freed hours earlier after spending a month in captivity there. calipari was escorting sgrena to the airport for a flight to rome when u.s. forces fired on their convoy approaching a checkpoint. sgrena says it’s possible they were targeted deliberately because the united states opposes italy’s policy of negotiating with kidnappers. in response, white house spokesman scott mcclellan says it is absurd to suggest that u.s. troops would target individual civilians. that’s the latest look at world news.

>> thanks, ron. after the break, the standard & poor’s 500 rises for the third day, reaching a 3 1/2 year high. our reporter at the new york stock exchange looks at what’s behind the gains.

Interview: Crude oil prices

>> crude oil prices rise. the u.s. department of energy projects stronger demand and opec prepares for its next meeting. in the final hour of trading in new york, oil briefly topped $55 a barrel. the rally extends to natural gas futures, gasoline and heating oil. su keenan has the latest on energy from new york. what can you tell us, su? it’s been a rally in the energy products. new york crude futures up 26% so far this year. gasoline futures are 42% higher than this time last year. you mentioned opec. while it is scheduled to meet next week and normally that would be a big focus, analysts such as citigroup’s kyle cooper, say opec is powerless to lower prices at this point. the international energy agency, opec and u.s. department of energy all cited economic growth in the u.s. and china when they boosted their oil demand forecast last month. the u.s. department of energy also raised its forecast for oil prices by 4% in a monthly report out today. bill o’grady says it’s hard to justify this rally on a fundamental basis when supplies of natural gas and oil here in the u.s. are rising above five-year averages.

>> once the market starts behaving like this, you sort of take off your fundamentalist hat and try to become a market psychologist so one of the key things we’ll watch for is as we make a run at old october highs, how does the market behave once it touches them. does it go through them with conviction? if it does, that’s telling me we’re probably heading to the next great round number, which is 60.

>> o’knady says it’s difficult to predict how much higher than $60 a barrel oil could go. friedman friedman billings ramsey’s analyst says the rally is unlikely to last.

>> you could see prices move up further because of momentum in the states, positive earnings revisions. but there is one negative you have to keep in mind and that’s u.s. gasoline inventories. they’re 10% higher now than they were a year ago. so if this trend continues, there will be excess supply in the spring and that could help bring prices back.

>> he has $44 a barrel as the target price for oil in 2005. stay tuned.

>> we will be. thank you. with a look at world news, here’s ron madison in tokyo. good morning.

>> good morning. russian forces have killed the top separatist leader in chechnya. president vladimir putin says rebel leader maskhadov was killed in an assault by russian security forces today. he was found after special forces discovered where he was hiding two days ago. the interfax news agency reports the pro moscow government as saying they will release the body if requested. the death leaves asayev to lead the opposing army, best known for leading the assault on school children. in lebanon, tens of thousands of protestors rally in lebanon, showing support for syria. the rally was called by the shiite muslim hezbollah leader. he spoke out against western meddling in the nation and warned disorder would erupt if syria withdraws soldiers. over the weekend, the president of syria and lebanon said syrian troops will retreat to the eastern border within a month, coming ahead of a full pullout, which has not been specified just yet. the u.s.-led coalition forces in iraq have ordered a follow-up investigation into the shooting death of an italian intelligence officer in iraq. nicola calipari was killed by u.s. troops as he drove with a freed hostage to baghdad’s airport. the hostage, guiliana sgrena, an italian journalist, was also wounded. u.s. officials called the shooting a horrific accident and have pledged a full investigation. a statement from the multinational force says that an american general will lead the probe in addition to the official inquiry into the incident. italian officials have been invited to participate. a statement says the u.s. embassy will be closely involved. the probe is expected to take just about three to four weeks to complete. that is the latest look at world news. back to you.

>> thank you. back to business. fannie mae agrees with the federal regulator to improve corporate governance. the biggest u.s. mortgage buyer will separate the duties of chairman and chief executive officer and make other changes. the move comes after the office of federal housing enterprise oversight found the company violated rules in accounting regarding hedges. fannie mae was blamed for deferring expenses to meet an earnings target that triggered maximum executive bonuses. hong kong names the son of the company’s founder as chief executive, qualcomm. the younger jacobs joined qualcomm in 1990.

>> and still to come, the dollar falls to a two-month low against the euro after an e.c.b. policymaker says the bank may raise rates. we’ll speak with a strategist in sydney about the higher rates.
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Listen Market briefing - Cathy (medium)
Sydney market -- David (fast)

welcome to “ live” from hong kong. i’m catherine yang. it is all about rising commodity prices and splation today. we’ll hear from the managing director of india’s second biggest steelmaker. he’ll tell us how tata steel mans to deal with the rising demand for the metal. microsoft is making new investments in south korea to do research for wireless devices. the company will start selling new versions of videoconferencing and messaging programs. we’ll speak to microsoft’s senior vice president, peter boockvar knook. investors are concerned supplies of raw materials are inadequate to meet growing global demand. the roundtableers c.r.b. index of commodities rose to the highest level since january 1981. commodity prices have risen 15% in the past year. the falling dollar makes commodities priced in the u.s. currency cheaper for international buyers. oil surged within a dollar of an all-time high in new york and to a record in london. traders speculate opec will not do much to lower prices when the group meets in iran march 16. copper touched a 16-year high in new york and reached a record in london. merrill lynch says in a report out today, smelters are not boosting output because some are closed for maintenance. inventory monitored by the london metal exchange has fallen 80% in the past year. the rally in commodities boosted gains of currencies in countries that boosted raw materials. the canadian, australian and south african currencies gained against the u.s. dollar. the dollar falls to a two-month low against the euro after the e.c.b. suggests it may increase rates to fight inflation. e.c.b. policymaker says in an interview with the “financial times,” that euro zone rates are very low and that will boost inflation. the dollar weakened against the yen on optimism japan will pull out of recession. a government report showed the number of japanese full-time workers rose for the first time since 1997. japan’s finance minister says policymakers are ready to act on volatile movements on the yen.

>> if there is abrupt movement or overshooting, in that case we are going to be freely moved in the market but in the last several months, 358 days, we don’t have such kind of situation at this moment.

>> watt nabi said that in response to questions at the foreign correspondents club in tokyo. japan sold more than $3 billion last year to protect the currency. the u.s. commerce department will release its trade report on friday. it’s expected to show the second highest deficit on record. according to economists we surveyed, the gap between imports and exports grew to $56.8 billion in january from $56.4 billion in december. microsoft chairman bill gates has been vocal about concern over america’s growing budget and trade deficit, saying the deficits will drive down the u.s. dollar. brian sullivan sat down for an exclusive interview with gates and asked him if a weaker currency helped microsoft sell more software.

>> the i.t. industry books a lot of sales in foreign currencies, including microsoft, but half our sales are outside the united states. whereas much more of our cost structure, because of our r&d focus is still very, very heavily here in the united states. so the weak dollar tends to increase the profit results of microsoft and other i.t. companies and it gives us a chance to take some of that, put more in r&d, take some of that, producer prices, and be pervasive.

>> you can see more of brian sullivan’s exclusive interview with microsoft’s bill gates on “morning call” on bloomberg television tonight at 6:00 p.m. hong kong, 7:00 p.m. tokyo. new york stocks fell as oil prices surged. texas instruments’ disappointing profit forecast drove down semiconductor stocks. the dow fell .2%, s&p 500 lost .5% and nasdaq fell .8%, wiping out almost all of monday’s gains. intel, nvidia and texas instruments were among the losers in semiconductors. intel releases its mid quarter update thursday in the u.s. google shares were upgraded by u.b.s. google is in a quest for talent as it gets ready to take on microsoft and yahoo. it hired a microsoft engineer who was on the original team that created the windows n.t. operating system. one fund manager says google has potential to achieve market cap of a trillion dollars.

>> at the end of the 1990’s, two stocks achieved market cap of 500 billion―microsoft and cisco. over the balance of this decade, a handful of companies will push that from 500 to a trillion. i would say google is a good candidate to do that.
>> and treasuries, 10-year note fell as rising commodity prices sparked concern about inflation. the decline in the note was the biggest in more than a a week and largest fluctuation of any government debt market in the world. asian stocks rose in new york trading. oil refiners including cnooc and miners like rio tinto gained. the index tracking commodity prices hit a 24-year high. bank of new york indexes tracking asian-pacific stocks rose. nikkei futures point to a lower start for japanese stocks. that currently in commodities is one factor pushing the australian dollar to its highest level in a year. even so, futures on australia’s s&p asx 200 indicate a lower opening for the country’s benchmark index. we’ll go to david tweed for more on that from sydney. good morning, david. what may australian stocks fall today?

>> first of all, you mentioned the rise in commodity prices. you would think that would be good for miners but that has pushed up the australian dollar to its highest in a year and that will have a negative effect on big dollar earnings. news corporation, whose shares dropped in new york overnight, look at rinker. oil prices trading near one dollar off a record. last year, when retail sales fell, one of the reasons was because of higher fuel costs. so watch consumer-related stocks like harvey norman which may fall, as well. the third one, the big story of the day, b.h.p. billiton. the market expects b.h.p. billiton’s price to drop because it’s concerned it could be involved in a bidding war for w.m.c. resources after agreeing to purchase that mining company. cathy?

>> as far as b.h.p. billiton’s bid for w.m.c. resources is concerned, what are the analysts saying―is this the final chapter in the takeover?

>> well, it’s true, some of the newspapers have been reporting this is the final chapter though chip goodyear, chief executive of b.h.p. billiton, was on abc radio this morning and he said that the possibility of another party coming in to play is certainly real. merrill lynch in a report this morning came out and said certainly rio tinto will look at coming out and making an extra offer. if you look at the market , the a.d.r.’s for w.m.c. resources did trade as high as $8.7. b.h.p. will get a better idea of what the market thinks about the bid when trading opens this morning in sydney.

>> thank you, david. china today may say exports and industrial production growth slowed in first two months of the year. falling demand is curbing overseas sales and factory output is slowing after china’s government clamped down on investment. china may report export and industrial production figures for january and february as soon as today. cathay pacific may say second-half profit fell 17% after the airline paid more to buy jet fuel. analysts surveyed by bloomberg expect cathay’s net income fell to $278 million. cathay imposed ticket charges after its fuel bill rose 47% in the first half and cut costs. lifts say lowering expenses further will be difficult. cathay reports financial results today. coming up, oil prices push to close to a record high. will crude keep rising? our new york reporter will tell us what traders and analysts expect.

Interview: The Chinese are the biggest penders whenever they travel

>> australia’s tourism agency starts its campaign to attract more hong kong visitors to australia. australia and hong kong are set to double flights between them to 70 a week within the next 12 months. record numbers of visitors from mainland china head to australia for more, i’m joined by greig mcallan in the hong kong studio, general manager for asia at tourism australia. good to have you with us. the chinese are the biggest penders whenever they travel. how much do they spend their money on when in australia.

>> just under $4,000. the highest yielding traveler we have in the world.

>> what does that mean for tourism receipts?

>> that means the chinese are part of the asian bigger group, around about 25% of all our revenue and passenger numbers into australia. it will grow to 36% by 2013.

>> what do they spend the money on?

>> shopping mainly and in the case of some asians, a little bit of gambling because we have casinos in australia.

>> what are your forecasts for the next five years as to the travel with the increased flights between hong kong and australia?

>> china will emerge by 2013 as australia’s single biggest source of tourists. it will eclipse a million by 2013 in the context of an asian total of over five million by that stage. so china is leading the growth out of asia into australia and the reasons are fairly obvious when you look at the economy and emergence of the middle class.

>> is that included in the seat rates or the rate at which chinese visitors return to australia to visit?

>> it will eventually. hong kong is high repeatership. 35% of hong kong visitors have been there before. mainland china is just starting and reportership will grow as the market grows.

>> you expect growth of 17% per anum over the next 10 years and over a million visitors by 2013. what about the awp dollar and its strength against the u.s. dollar. what risk would that have to your forecasts?

>> the currency has a risk but it’s very difficult for us to forecast where the currency will be next week let alone in 2013. it’s one of those things that i guess we have no control over, we just market around. and historically, at least in the past, australia has had a high dollar that has dropped and gone up again. i’m not particularly worried about the strength of the dollar, but more worried about the strength of the yuan.

>> what if a revaluation comes in within the next, say, 12 months? what effect would that have to your forecast?

>> it would impact the forecast but remember that if there is a revaluation in the china currency, it effects all the other―affects all the other currencies, the u.s. dollar, the pound, what have you.

>> so tell affect the spending power of the chinese that visit australia?

>> it could. on the flipside, it’s going to be cheaper for others to come to australia. if currency goes up, other currencies have to devalue.

>> give us an idea what the typical profile of the chinese visitor is? are they more holiday makers or business travelers?

>> they’re the holiday makers. chinese traditionally haven’t been able to travel outside of their country for holiday purposes until the last few years so the chinese visiting australia are sightseers, they want to look, see, take pictures and get home. over the coming years, that will change and they’ll want to reach out and touch more of what they see in australia. they’ll be self developers that want to explore but not at this stage. very early in the maturation of the market .

>> are you seeing more independent travelers?

>> mostly group but we see independent travelers, a sign of the maturing nature of the market . the japanese market took 20 years to geta to that point and the chips market will take five to get to the point where independent travelers emerge from the market . just starting to see it now.

>> phil mickelson to launch a campaign in mainland china? >> absolutely. within this month we’ll have the campaign for tourism australia in shanghai and beijing and we’ll spend a lot of know moet in china.

>> why those cities?

>> that’s where the air flights come from, where we’re able to market . you need the chinese government’s approval to market your destination in china. they are two of the key regions where we market . the sort of money we’re talking about, the vicinity of $4.5 million australian per anum.

>> is that expected to grow in the fixture five years?

>> i would expect it would, yes.

>> how much?

>> 10%, 12%. i would say it would keep pace with the growth of the market , commensurate.

>> good to talk to you.

>> thank you very much.

>> greig mcallan of tourism australia in hong kong. b.h.p. billiton may make a cash offer for rival r.m.c. resources. our reporter in sydney looks at the possible offer.
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Listen Market briefing - Cathy (medium)
Texas Instruments -- Su (fast)
World news -- Ron (slow)
>> welcome back, this is “ live” in hong kong. i’m catherine yang. texas instruments shares fall in extended trading after narrowing its sales and profit forecast. we’ll have a live report from new york in a moment. here are the headlines―b.h.p. billiton considers making a competing bid for australian nickel miner w.m.c. resources. b.h.p. is considering an all-cash offer to rival xstrata’s bid. boeing ousts chief executive harry stonecipher after he’s caught having an affair with an employee,. he’s the second boeing c.e.o. to lose his job amidst a scandal in the past two years. the s&p 500 gains for the third straight session, closing at a 3 1/2 year high. texas instruments says first-quarter sales and profit will not meet the high end of earlier forecasts as clients work off inventories and demand falls for chips used in large-screen televisions. bloomberg’s su keenan has been monitoring the texas instruments conference call and joins us in new york with details. what’s the latest, su?

>> well, reaction of shares shows some investor disappointment as the world’s largest maker of computer chips used in cell phones narrowed its profit and sales forecast,gating disappointing is the way that rick whittington described it. revenue will be 2.9 billion to 3.03 billion, compared to a range of $2.9 billion to 3.14 billion. net income will be 22 to 24 cents a share, compared to a forecast with the higher end of 26 cents. notice the company says demand for d.l.p. chips used in largescreen tv’s and projectors is falling below earlier predictions. that is the big surprise according to susquehanna financial group’s tainguyn. he says clients continue to work off inventories.

>> entering 2005, there’s a lot of pessimism about high inventory out there. based on our check, i think end demand is seasonally strong. on the supply front, things remain to be very healthy. what we’re seeing inventory-wise, looks pretty lean out there. overall, we look at the handset market , seems to be trending very well so far in 2005. >> investors such as capital management’s say low-chip industry has led many customers to order more chips.

>> nokia seizing market share, selling more phones, getting back on track. we see that as a boost to texas instruments.

>> as for the d.l.p. chips used in televisions, texas instruments says at this hour that tv sales did not meet its expectations and its tv customers have excess chip inventory to work through. credit suisse’s analyst is optimistic in terms of cell phone chips about the company’s leadership with 3g.

>> absolutely. they’re the leader in 3g. they have two types of 3g -- umtf vertion and the cdma 2000 version and we think they’re well positioned in the larger standard of 3g with revenue on the two key areas and as they move to 3g, their a.s.p. doubles and sometimes goes higher than that so they have a positive current going into 3g.

>> and just to bring you up to date on the final comments crossing the conference call, texas instruments says commodity chip prices are stabilizing. as you know, some concern that as inventories remain out there, that prices will fall in order to cut those inventories. texas instruments seems toon assuring investors they are working through those inventories without cutting prices. back to you.

>> we will have to see how asia reacts to texas instruments’ update. some changes in the s&p to tell you about. national oil well, varco is to replace power-one. yellow pages group is buying advertising director solutions holdings from bain capital for $2 billion u.s. in cash. the move will help yellow pages groove expand in western canada. yellow pages is canada’s biggest phone director business while advertising director solutions is the second biggest in the country. yellow pages lost out of bain capital for super pages last year when wane purchased it from verizon communications. yellow pages is pay a premium, 565 million canadian dollars for super pages compared to what bane paid. under bane’s ownership, super pages increased profits. in world news, ron madison is in tokyo. that’s the latest.

>> the bush administration named state department arms control official, john bolton, as u.s. ambassador to the united nations. he will replace john danforth. u.s. secretary of state condoleezza rice says she and the president do have full confidence in bolton. he arrives at the u.n. amid probes into fraud and mismanagement of the oil-for-food program for iraq. bolton has been a vocal critic of the effectiveness of the u.n. insurgents kill 31 and wound doesons in iraq. a military spokesman says militants killed two iraqi shoulders in balad. the associated press reports local police say 12 people were killed in that attack. in baquova, iraqi security forces say 15 died following attacks with roadside bombs and small arms fire n.baghdad, a.p. says a roadside bomb killed two civilians and gunmen killed two policemen. and syrian soldiers in lebanon will retreat to the eastern border before the end of march.

>> military officials from both countries will decide how many troops will remain and for how long of the the development follows a meeting of the presidents of syria and lebanon, meeting in damascus. the vatican says pope john paul ii will probably be out of the hospital in time for holy week. holy week begins with palm sunday march 20 and culminates a week later on easter sunday, the most important date on the christian calendar. a spokesman says the 84-year-old has suffered no complications since his trachiat me last month but doctors have cautioned him not to use his voice too much. good news there. that’s the latest look at world news.

>> thanks for that, ron. after the break, tourist destination says around the world wants to cash in as beijing makes it easier for the citizens to travel abroad.

Interview: The market may have a tough time extending gains

the s&p 500 higher for the year and this may be the best investors can hope for. bloomberg’s “taking stock” story looks at how old this rally is and compares it to other rallies in the past. the comparison, not flattering. edgar ortega is here to explain. how exactly do the history books show the market may have a tough time extending gains?

>> there are two data that analysts point to, first, a study done that points out that, looking at prior recoveries from bear market , the market usually tops out around 27 months after we hit bottom in the market and the other data is from s&p, looking at the market ‘s performance since 1942 and point out that usually in the third year, you get an advance of about 3% on average. but really, the data there is mixed and it does point out basically that on the third year, the market usually starts to peak out.

>> we did finish the week, here, with the s&p 500 hitting its highest since july of 2001. the s&p 600 small cap, 400 midcap, new york stock exchange composite and dow transports all at record levels. doesn’t that suggest still some strength in the market ?

>> some investors we talk to suggest that, sure, the market here may be on its―last phases, perhaps, if you want to call it that, it is the longer rally than an average rally for bear markets but the market is still showing signs of strength, suggesting this means that at the very least we’re likely to bounce around in a range if not even extend our gain. other chart watchers, however, point out other signs that the market might be losing strength. they look at the nasdaq’s decline this year, they look at the fact that some of the best performers last year, such as ebay or biogen, have declined of late. these are some signs suggesting perhaps everything is not going full steam ahead.

>> thank you very much. bloomberg news reporter, edgar ortega. up next, gene sperling, president clinton’s former economic adviser. he puts his spin on the better-than-expected jobs report. stay with us.
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Listen Interview: The Federal Reserve
>> welcome back to the “world financial report,” i’m michael mckee. the dow jones industrials%  finishing up at their highest since august of 2001. friday’s jobs report providing reams of data on the american labor economy. one of the more obscured data series is job leavers. time for our regular look at the “chart of the day,” here’s bloomberg news editor-at-large, tom keene. alan greenspan likes this particular number. you’re not too obscure.

>> i think i probably got it from our distinguished chairman of the federal reserve.%  it’s been an exciting day because it’s a mixed report. from lehman brothers, a mixed report, morgan stanley, a mixed report. there’s a lot of ebb and flow here. bank of montreal says the strong employment gain bodes well for above-trend employment growth. that’s a positive trend. 262,000. what’s exciting is when you dig into the data there are positive signs. here is one of the real positive numbers for the day, 40 years of job leavers, people who want to quit their jobs and find something else, going to the greener grass and you can see it’s spiked up here to 11.9%, not near the 1990’s boom, the green rect angle, the joy of the late 1990’s, but certainly a solid recovery in one of those statistics that finally gets us back to before september of 2001.

>> you mentioned this is a mixed report, that some had some concerns. what were they?

>> i think the major concern that i heard from economists today was still the flat wages. i spoke to ray stone of stone and macarthy and he said it’s deceptive. the data used today is 80% of the public that’s production workers. he points out with force, as i just heard from john ryding on your show, that part of america is seeing positive wage growth of the so in today’s data, not grim news but certainly stagnant news on wages, ray stone optimistic that will improve and catch up with what we’re seeing from a smaller but more productive part of the american demographic.

>> 30 seconds left. are we going to see more gig job gains like this in the months to come.

>> i hear from economists that we will see these numbers, they’re optimistic. i don’t hear anybody saying we’ll get back to the 1990’s job boom.

>> thank you very much, tom. bloomberg news editor-at-large, tom keene.

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 .

Interview: The reserve bank will raise rates

>> emerging market bonds are hovering near their highest% -prices in at least seven years. for the year, the j.p. morgan emerging markets fund index is up almost 10% and many bond strategists believe prices would continue to rise as russia and brazil continue attracting investors. one who is bullish on emerging markets is raphael kassin, head of emerging market fixed income at abn amro asset management in london and visiting hong kong this week. you’re overseeing about $1.3 billion in the flagship global emerging market bond fund, which has outperformed. what are your comments on greenspan’s testimony and expectations for the pace of interest rate increases this year?
>> we think that the market is expecting a little bit too much more than will probably happen. a lot will depend on the pace of increases in the non-farm payrolls but so far this year, the non-farm payrolls in the states have been disappointing. inflationary pressures don’t seem too high so it’s more likely that the market is surprised with weaker numbers and as a result probably the fed doesn’t hike as much as the market expects which would be good for emerging market bonds, catherine.

>> how good goodwill it be this year?

>> we have a few special events happening of the of course, the special situation with u.s. interest rates is positive. we’ll have the argentina restructuring, which is beginning to prove like it’s going to be a big success and that will be very good for our markets , bringing a lot of good energy. most of the other countries have positive ratings so we expect it will be a good year.

>> what sort of returns can investors expect if it’s higher than last year’s?

>> last year we were able to generate in our fund a return. 14% before fees. this year, we think we’d like to be conservative, we could bring somewhere between 10% and 15%. if all goes well. of course, this is assuming that our view on u.s. interest rates is right and assuming, of course, that no unexpected events take place. so even if we’re wrong, a 10% return is not very bad given the overall environment in equities and elsewhere.

>> to pick up on what you bodies countries receiving upgrades this year, which countries are you expecting those upgrades?

>> well, the first country that will stand out will be argentina which, after a prolonged restructuring process, painful for some, profitable for others who have decided to buy bonds after the restructuring, argentina will be rated single b. it’s been announced already by ratings agencies. that’s a success story. the country has positive economic growth. other countries that stand out are russia. russia, since 1998, has changed quite a lot. it has stimulated a lot in dollar reserves. president putin is doing all the right things, despite criticism, as usual, as everyone is criticized. so russia will likely continue to be upgraded and could surpass mexico. brazil will probably get an upgrade if things continue in the right pace and from then on, it’s you pick, it could be anything the ratings agencies choose but the overall trend is positive. 45% of our index, the j.p. morgan global is investment grade.

>> you have a substantial investment in the philippines. are you still optimistic after moody’s downgraded that country’s credit rating?

>> the philippines is a controversial country when it comes to managing finances but surprisingly, they generally come up with good results, quite volatile. i would not take what the rating agencies have been saying very seriously. they generally tend to lag. they tend to be wrong and i think in the case of the philippines they have overreacted. they’ve done it before. the yields on the long end are around 9% to 9.25%, it’s some of the cheapest bonds out there. given the fundamentals and the political backdrop, the strict in the politics, i would say they probably should reconsider.

>> thank you, raphael, raphael kassin from abn amro asset management in hong kong. hynix semiconductor posted record profit last year on demand from makers of personal computers. bernie lo has more and a preview of the next hour. how well did they do?

>> a record but a miss across most of the metrics as what happened. hynix did post record profits on the whole year for 2004 on demand for continued strong demand for personal computers but net income at 1.7 trillion won was 300 million less than our internal survey was forecasting and operating profits at 1.8 trillion won missed by about 100 million won. any way you slice it, it’s a reversal from 1.7 trillion in losses last time around. what’s interesting, this morning, sales were up 62% to 6 trillion won, exactly what our polls expected. so if the operating profits and net profits were less than expected on sales which came in in line with expectations, you wonder what that means for pricing, pricing power for the company, although the company has been increasing their distribution of chips, the diversity of their offerings and within the industry, you can’t sneeze at that, 30% gains in the chip space just over a two-month period. the stock is recommended as a buy by 10 out of 13 analysts that bloomberg surveyed and we’ll catch up with one of them later in the show.

>> see how investors trade the stock when trading starts in seoul. we may have to live with instant coffee, soon.

>> some of us do because we can’t wait for the mr. coffee to brew. what are you, a fan of instant?

>> anything with caffeine.

>> anything? you don’t seem to be bouncing off the walls. believe it or not, these are not grapes, but coffee beans. coffee prices on the london mercantile exchange rose by the greatest threshold in three months on speculation that a dry spell in vietnam will hurt crops there. you may not associate vietnam with coffee but it is the biggest grower of bones used in instant coffee. soil moisture is below normal for this time of year,

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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 .

Interview: The reserve bank will raise rates1:57:21.000 1:57:21.000
>> news out of south korea. consumer prices rose .6% in february following january’s .7% gain. economists we surveyed expected inflation to accelerate .5% from january. consumer prices rose 3.3% year on year, in line with expectations. higher consumer spending is enabling retailers to raise prices. the rising won is lifting costs, making imports more expensive. for a look at news outside the business world, ron madison is in tokyo.

>> u.k. prime minister tony blair and u.s. secretary of state condoleezza rice urge palestinians and israelis to comply with commitments under the roadmap peace plan. blair opened a london conference on palestinian reform tuesday. delegates included rice and the new palestinian president mahmoud abbas and u.n. secretary general kofi annan. about the promise to make judicial and electoral changes to his administration, prime minister blair said more concrete changes were needed to bring about peace and a palestinian state.

>> everybody can talk about the possibility of an independent, viable palestinian state. we can all make speeches about it, we can make declarations in favor of it. what we have today is an agreement, not just on behalf of the palestinian authority that has to usher in such a state, but also on behalf of the whole of the international community as to the practical steps, the foundation stones, necessary to create that viable state in the future.

>> israel was not represented at the conference. iran refuses to let united nations inspectors on to a military base that the united states says is being used in nuclear weapons research. international atomic energy agency officials say it was told by iran that there was no justification for any additional visit to the base. iaea officials toured the base in january. officials had also asked last month to tour another part of the complex. iranian officials insist its nuclear efforts are designed to generate energy and not build arms. the u.s. says iran does not need nuclear power since it has the world’s second largest oil reserves. the top u.s. general in the middle east says withdrawal of syrian troops from lebanon is inevitable. general john abizaid told the senate armed services committee says the mass protests in lebanon are unheard of in the arab world and the demonstrations are a clear indication that the lebanese people feel they’re ready to move forward without syrian troops. the syrian government will reassess their role in the region and abizaid says they will leave. syrian troops entered the country nearly 30 years ago. that’s the latest look at world news. back to you.

>> thank you, ron. and back to business, u.s. stocks rebound after a survey suggests the economy will sustain growth. analysts upgrades of intel and johnson & johnson also helped the market . looking at the benchmarks, the s&p 500 and dow jones closed up more than .5% and the nasdaq gained nearly 1%. deborah kostroun reports from the new york stock exchange.

>> the market rebounded in tuesday’s session and surprisingly, energy stocks did not lead the way. that’s because over the past month, energy stocks had been the high flyers but in today’s session, they were the biggest drags on the s&p 500. exxon-mobil, which has been performing well, that was the biggest laggard in the dow jones industrial average. over the past couple of weeks, financials have actually not been performing all that well but we did see a rebound in many of the financial stocks, actually performing very well in today’s session. helping to lead the market , along with semiconductors. auto stocks in the spotlight as we did see february vehicle sales at least for general motors down 13%. ford down 2.9% and daimlerchrysler sales up 5.5%. the winners were asian automakers―toyota, nissan, hyundai, all reporting promising sales and in fact one of the things that the asian carmakers have been performing quite well with doing, they’re introducing a lot of new vehicles, especially light trucks, helping surpass u.s. automakers. looking at johnson & johnson, one of the biggest gainers in the dow jones industrial average on the day. it was upgraded to buy at merrill lynch. johnson & johnson, of course, makes products ranging from tylenol to hip implants and merrill lynch said that stock may reach $stiff in the -- $75 in the next 12 month. merrill lynch speaking of their acquisition of guidant. looking at steel stocks, slapped on comments from an industry conference. that conference said that u.s. steel prices that reached a record high in 2004 may fall this year because distributors of steel bought more than they needed from producers like nucor and u.s. steel corp. so the price of steel seems to be coming down a little bit but caterpillar saying they will raise their machinery prices mainly because of higher steel prices. i’m deborah kostroun at the new york stock exchange.

>> next, shares of japanese automakers toyota and nissan rise in u.s. trading after reporting higher february u.s. sales. mike firn looks at how asian carmakers manage to keep taking market share from north american rivals.

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Listen Interview: The reserve bank will raise rates
>> welcome back, this is in hong kong. breaking news from australia, the reserve bank of australia lifts its benchmark interest rate by a quarter point to 5.5%. this is the first rate increase in 15 months. australia later today may report its slowest economic growth in more than three years. that suggests today’s rate increase may be the last in this year. let’s go straight to our guest in sydney for the reserve bank’s decision raising the cash rate today to 5.5%. justin smirk joins us from sydney with reaction, a senior economist with westpac banking corporation. you expected a quarter-point increase?

>> yes, we have been. we were expecting an increase since last year, we thought it would happen some time this year. it was brought forward quicker than expected. the r.b.a. clearly heralded it would raise rates and the key issue is lack of capacity in the labor markets . we’ve had 13 years of solid growth in australia, unemployment rate hit generational lows and in the economy you see signs of the tight labor market pushing in wage pressures. it’s not broad spread but the r.b.a. is raising rates at this point to prevent it from spreading.

>> but do you think this is the only increase that will happen this year? what are your reasons?

>> the main reasons we’re thinking there will only be one rate hike this year is we’re very late in a growth cycle here in australia. rates are very close to neutral. as the governor himself pointed out, we have a high level of household debt in australia at the moment, making monetary policy much more effective so as he himself highlighted in the last parliamentary segment, at this point in the cycle, you have to use monetary policy carefully and sparingly. we think they’ll raise rates just this once and sit back for the data in particular, watch what happens with housing and the consumer sentiment numbers as well as what happens with the employment numbers and housing finance numbers. we’re getting a softer business survey and they’ll be watched closely in the months following.

>> reports last tuesday showed company profits rose less than expected in january, inventories fell along with home sales as well as exports declining. what will today’s rate increase mean for the pace of growth in corporate earnings, the housing market and exporters?

>> breaking it into two components, you’ll have two flows, the domestic slowdown in domestic demand coming through here. we see signs of housing already having peaked, housing activity has fallen, easing back a little bit. as the highly leveraged sector of the australian economy, the housing sector, will find restraint around earnings. on the other hand, those who are more the resource, export side, they’ll be boosted by commodity prices, underpinning that side of the economy. for ourselves, we think we’ll be close to seeing the best for the aussie dollar. the export side will be getting an effect from the weaker aussie dollar.

>> the nation’s g.d.p. report comes out in less than two hours and westpac expects growth of .4% growth, lower than our median estimate. what are your reasons for that?

>> there are two factors at play here. the big one will be the net export drag, that is, we’re importing a lot more than we’re exporting. that will shave about .6 or more off g.d.p. floating on top of that we’ve seen softer consumption numbers coming through so the retail side is softer. housing activity numbers are coming off the boil, as well. so we see softer consumption here, reflecting a shift of households from consumption to savings, so that’s that late cycle tightness coming through there but the other factors coming through, as well, a hole between strong public numbers and government spending so overall it’s really a message from today’s g.d.p. numbers, the export side of the australian economy, is the lagging side at this point in time, holding back growth.

>> what is your economic growth outlook over the next 12 months?

>> for the next 12 months, we have one where we think the domestic demand cycle here will continue to slow so we think, like the r.b.a., growth of australia will probably head into the vicinity of a two handle and pick back up to 3% pace by the end of the year. what’s important here is that we are expecting a recovery on the export side, seeing promising signs from the resources, mining and minerals, the exports for q-4 looking positive and growing again. we think that will accelerate through the year, countering the domestic slowdown so we’re really seeing a switch between a domestic demand story to an export-driven story.

>> what about for bond deals, given your growth expectations? what is your outlook?

>> in terms of bond yields, well, we still have a profile where we think interest rates in australia, inflation in australia has upside risk given the buildup in upstream price pressures so you’ll have inflation rising. you’ll still have the impact of rising bond yields around the world being a driver there, as well. so we expect the australian bond yield to continue to rise, that is, the bond market to rally. but the real message here is that we think the short end in terms of interest rates of australia, will remain pegged around 5.5%.

>> the australian dollar now trades 78.69 cents. what will the trend mean for the local dollar?

>> i think you probably hit on one of the key factors being lurking in the background, the current account deficit. a lot of the focus has been on the strong interest rate, the strong growth and in terms of the strong commodity prices and those are the benefits to our resource sector, attracting capital flow into australia, supporting the australian dollar. in the short run, commodity prices probably have upside risk given limited supply response and the strong demand from china, remaining supportive for the aussie but longer term, rates around the world, we think, will rise faster than they are here in australia. we also see that trade position, the current account, weigh on australia and we think the slow domestic demand will also weigh on rates so by the end of this year we think the australian dollar will trade closer to 70 cents than where it is now.

>> thank you, justin, justin smirk from westpac banking in sydney. after the break, gains in caterpillar, i.b.m. and johnson & johnson lifted the dow jones industrial average for the fourth day in five. our reporter at the new york stock exchange looks at the gains

Interview: The reserve bank will raise rates

>> australia’s stock market % -closed out february with its% -seventh straight monthly gain. will higher rates slow market growth? we’ll go straight to david tweed in sydney.it seems everyone is expecting the reserve bank will raise rates. has that been factored into the market ?% 

>> i looked at what happened in november and december of 2003 when the reserve last raised rates, in november and december of that year. the market during those months did absolutely nothing and as we did see, we had a 2.1% increase for the year for february, but looking at the year to date, it looks almost unchanged. now, one of the worst performing groups in the index―in fact, the worst performing group in the index―the index that measures discretionary spending. this is an index that includes retailers like harvey norman as well as companies like david jones, the department store operator. these companies are selling goods which are considered non-essential and are considered to be extremely sensitive to interest rates because of the fact that the indebted australian consumer may rein in spending if interest rates go up. we spoke to jerry harvey from harvey norman yesterday. harvey norman is one of the biggest electronics retailers in australia. he said that in his experience, consumers tend to stop spending or rein in spending in the lead-up to an interest rate increase and then start spending again afterwards. so that will be interesting to see given the fact that we have had three months up until december of declining retail sales. it will be interesting to see whether the consumer actually does start to increase their spending again once the reserve bank takes steps to increase rates. now, looking ahead, also, i’d like to point out that today the asx 200 index is trading around down .2%, that could be because of the oil prices trading around $52 a barrel, which could cause a break in consumer spending, as well.%

>> thank you. malaysia’s economy expands at the slowest pace in more than a year. growth in southeast asia’s third largest economy slowed to 5.6% in the fourth quarter from a revised 6.7% in the third. slumping overseas demands for semiconductors and electronics parts curbed exports. malaysian airline systems said quarterly profit slumped after record jet fuel prices increased cost, posting net income of $15.2 million from the year earlier. haslinda amin has more on the story from singapore. what are investors saying about prospects for the company in the coming quarters?
>> good morning. investors say it all depends on whether surcharges and hedging will help counter fuel costs for m.a.s. the carrier’s fuel costs surged 88% in the third quarter, accounting for about 34% of expenses in that period. one analysts says they can’t easily pass fuel prices to its customers and shares investment been performing. the company passed the charges to limit the impact and was able to hedge fuel costs in the third and fourth quarter. the company is facing increasing competition from budget carriers from tiger airways and value air.

>> which are investors now suggesting that m.a.s. will do to stay competitive?

>> well, they say m.a.s. must improve its premium services to this end. the company says it will spend $184 million to upgrade its business and first-class services on long-distance flights. the move is to attract travelers willing to pay higher fares. tell make a decision by the end of june on its aircraft replacement program. the carrier said last year it may change its 35 both 737 aircraft for newer models or planes from airbus and it wants to replace prop planes. m.a.s. filled 67% of available seats in the third quarter, less than the 68% from the year earlier. back to you.

>> thank you, haslinda. up next, exworldcom chief executive officer bernie ebbers claims ignorance in the fraud case.

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Listen Interview: The reserve bank will raise rates
week. economists in sydney will join us in a moment to talk about what higher interest rates mean for australia. here are the headlines. the yen rises on signs japan is pulling out of recession. the government reports due in an hour will show the latest employment and gating trends. we’ll have the numbers live. another drug recall in the u.s. wipes out $19 billion in market cap in shares of biogen and elan. the dow, s&p and nasdaq lose ground monday. americans buy fewer cars and new homes in january. the data suggests the world’s largest economy will get less of a boost from consumers in the quarter. new home sales unexpectedly declined 9.2%. still, corporate spending may help pick up the slack. a survey from executives in the chicago area found business expanded at an accelerated pace in february. the national association of purchasing management chicago says its business barometer rose to 62.7 this month. any number above 50 means growth. australia’s central bank may raise its benchmark interest rate a quarter percent this week. all but one of the 21 economists we surveyed expect the central bank to increase the the interest rate. michael thomas, head of economics and strategy at icap australia, joins us with more from sydney. why do you think the central bank will raise rates tomorrow despite signs of slowing wages growth in australia’s economy?

>> well, the central bank has based its case around capacity constraints in the economy. a lot of constraints running out of spare capacity, spelling inflation. but what we’ve seen, because there’s little capacity left, we’ve also seen that the economy can’t grow very fast. in fact, the g.d.p. report coming out after the bank’s decision, could show that annual rate growth fell as low as 1.5% over the last year so it’s a tricky decision for the bank but the bank’s rhetoric, its recent media appearances and all the interpretations of of those point strongly to’s rate hike tomorrow.

>> how soon after will policymakers raise rates next and by how much?

>> we think, with the weak g.d.p. report and key sectors of the economy, including retailing and housing, still very weak, and a very weak or underperforming export sector, we think the bank will have to sit back and have a good think about whether it should raise rates again. we think if we get two rate rises this time, the bank will be forced into cutting rates by the end of the year.

>> what influence is the federal reserve’s tightening having on australia’s monetary policy outlook?

>> the most obvious influence is or was closing the interest rate differential and keeping a lid on the aussie dollar. but the aussie dollar has bounced up five cents since the start of the year against the u.s. part of that is u.s. dollar weakness and part of it is commodity prices but it’s also our central bank regating policy tightening bias so that gap with the fed will not narrow as quickly. a stronger dollar is a de facto monetary policy tightening so that’s another factor for the r.b.a. to be cautious about.

>> picking up with the capacity constraints you mentioned earlier, do you expect capacity constraints to trigger inflationary pressures that would call for more aggressive pace of interest rate increases this year?

>> that’s hard to say. the latest wage numbers -- although the r.b.a. has downplayed them―show that wages are moving sideways and the level they’re at the moment are well within the parameters would bank the look at to meet the inflation target. similarly, the c.p.i., inflation numbers themselves, don’t give great cause for alarm so the bank will not have to go aggressively on the latest spread of data we have. if the economy continues to slow and continuesthe poor performance of the last six months, that will ease capacity constraints, another reason for the bank to go easy on rates.

>> what about the nation’s trade deficit unexpectedly widening in january. is there cause for serious concern in the trade balance despite record high commodity prices?

>> the trade performance has been quite poor. trade has been deducted from growth in 12 of the last 13 quarters, an ongoing constraint. today’s data showed things haven’t improved and i think today’s current account deficit, when it comes out, could be the highest in terms of g.d.p. for the last 20 years, worse than when australia was termed a banana republic in the mid 1980’s so clearly that’s an ongoing problem without an easy fix.

>> is the cooling housing market a risk to the nation’s growth?

>> the housing market has come off at a measured pace so it’s not a strong factor in the bank’s cal clations at the moment. we feared we had a housing bubble in 2002, 2003, but that’s clearly no longer the case. prices are falling and the main housing is pretty neutral to perhaps a negative for the economy this year. from the bank’s perspective, the main concern would be if housing got into trouble and divided, meaning a weaker outlook.

>> what are your assumptions in global growth this year and what will it mean for your forecast for australia’s economic growth.

>> we’re reasonably comfortable with the global growth outlook. clearly, the u.s. won’t do as well as it did last year but europe looks like it will do better last year and we saw with japan’s data we shouldn’t write japan off just yet. the asia-pacific countries are running at a slower pace this year but something developed countries would be quite jealous of. so whereas we think the global growth picture won’t b as strong as last year, it’s still strongly above average for the world as a whole which is good for our exports. however, capacity constraints that keep popping up hinder our export performance.

>> how much further do you see the australian dollar rallying on higher interest rate expectations? the local currency is already up more than 1% in the past 12 months.

>> the australia dollar is -- seemed inevitably headed above 80 cents u.s. at these levels, we’re about 15% above our average rat against the u.s. dollar and the trade-weighted index since the currency currency was floated 20-odd years ago so there’s a limited lifespan to how long the aussie would stay above the u.s. we think by the end of the year, the aussie dollar will be closer to 75 than 80 cents.

>> thank you very much, michael. michael thomas of icap australia in sydney. coming up, malaysia’s biggest air carrier.