Interview: J P Morgan
>> xstrata increases its offer for w.m.c. resources. david, are investors expecting a counter bid for the world’s fifth largest nickel producer, then?
>> that’s one of the questions people are asking and we’ll get a pretty good view about that when the market opens. the point is that xstrata increased its bid from $6.35 to $7.20. $7.20 is where the price for w.m.c. resources finished yesterday. exstraight -- - xstrata said the new offer takes into the views of the w.m.c. board and discussions with shareholders. we’ve spoken to tim barker with b.t. financial, he says he doesn’t see any reason at this stage why w.m.c. shouldn’t accept the offer, although there could always be a last-minute bid from someone else. the market has been waiting for rio tinto to report results tomorrow. the question there is, is rio tinto likely to come out with a bid for w.m.c. resources themselves or will they follow what b.h.p. billiton has been doing, returning money to shareholders. there is talk that they could have a capital return up to $2 billion australian. we’ll wait to see what happens there and how w.m.c. resources shares open in less than 20 minutes. citigroup has come out with a general report on the commodity prices and the mining companies. they’ve said they see a super cycle of prices, meaning they expect iron ore prices, thunderstormal coal, coke and coal prices to remain higher for longer and as such have increased their price forecasts for b.h.p. billiton. they see the share price rising 10% from now, and rio tinto, they see that share price rising 15%. cathy?
>> and apart from those stocks, what else will investors be looking at in australia?
>> could be a busy day coming up in australia. we’re expecting alumina to come out with its quarterly results. we expect to see a 42% increase there. that could come just before the market opens, certainly before the press conference at 11:00 in australia. we’re also looking at banks. banks should be fairly active today with the central bank deciding to keep interest rates unchanged, which always good news for banks. watch out for companies like westpac banking corporation. the flipside of higher metals and resource prices, we see that in companies like fisher and paykel appliances, new zealand appliance maker, lowering its profit forecast for 2005 because of the increased price for steel. back to you, cathy.
>> thank you. singapore telecommunications may say fiscal third-quarter profit fell 11%. earnings from investments and currency movements declined. southeast asia’s largest phone company is due to release earnings tomorrow. shobi pereira has more on that story from singapore. good morning.
>> good morning, cathy. singtel is counting on investments in india and southeast asia to counter a saturated domestic market . one concern is a slowdown in growth at the company’s australian unit, optus, which is cutting prices to compete with vodafone. brenda lee, analyst with daiwa institute of research in singapore, and she says in the second quarter, competition in australia was keen and they’ll look at how singtel plans to retain its margins this quarter. she points out that mobile one in singapore also said they see growth domestically and that they impact singtel’s domestic operations. last year’s results were lifted by a gain of 223 million singapore dollars related to loans to optus. singtel benefited from a stronger australian dollar, increasing the value of income repatriated to singapore. optus, australia’s second largest phone company, contributes about 25% of the parent’s profits. the unit accounted for 68% of sales in the second quarter. cathy?
>> singtel has also made investments in various asian countries. how are they doing so far?
>> singapore telecommunications has invested in mobile operators in india, indonesia, thailand and the philippines to tap rising demand for phone connections. profit from these accounted for 20% of operating earnings and the company raised its stake in global telecom, the second largest philippine mobile phone operator, to 45% in november. now, globe this week reported profit in the fourth quarter rising 9%. india’s second biggest mobile phone company, bharti tele, 16% owned by singapore telecommunications and it reported that fiscal third-quarter profit more than doubled. as for domestic demand, singapore telecommunications has forecast domestic sales will be little changed from last fiscal year. according to singapore government statistics, the number of cell phone subscriptions exceeds 90% of the population here in singapore. that’s all for now. back to you, cathy.
>> thank you, shobi. up next, g.m., ford, toyota and honda say u.s. sales fell last month. we’ll ask a fund manager who oversees $65 billion whether she expects further sales declines from these automakers.
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the reserve bank keeps its benchmark interest rate unchanged at 5.25%. 18 of the 19 economists we surveyed expected no change. australia last raised rates in 2003. australia’s economy has slowed since then. government reports last month showed retail sales rose less than expected and building approvals fell to a three-year low. we’ll discuss the r.b.a. rate decision in a bit. first, headlines with google shares setting new records with almost every trade in extended market action. shares of the world’s most popular search engine soared after reporting fourth-quarter profit surged more than sevenfold. u.s. auto sales slumped in january. nissan and chrysler managed sales gains. u.s. stocks rise for a second straight session with american express leading the dow higher. the financial company’s decision to spin off its brokerage unit sent amex shares 6% higher, their biggest gain in two years. our next guest expected no change in rates from the reserve bank of australia. stephen halmarick joins us from sydney, co-head of economics, citigroup global markets australia. what do you think led the central bank to keep rates steady today?
>> i think as you mentioned, there has been softness in retail spending numbers late last year but i think the case for a rate hike is building probably quickly given the higher-than-expected inflation reading last week so we expect that the reserve bank will retain its tightening bias at the statement regarding the policy on monday and perhaps harden that bias and over the next few months we should expect a rate rise.
>> december building approvals are out tomorrow and retail sales on thursday. do you expect the the data to reinforce the central bank’s outlook on inflation or do you expect surprises in the outcome?
>> on retail sales, we expect a strong number, up 1.5% on the month. the most recent monthly retail sales numbers have been disappointing. the anecdotal evidence for the end of last year and early this year is quite strong so we expect good rebound in retail sales and in the housing market , there is evidence that activity is stabilizing with the decline in the housing market perhaps ending and the reserve bank may be concerned about that. but the real focus, i think, for the bank, is on wage and price pressures coming through the system.
>> what about for exports? the trade deficit narrowed to $1.8 billion in december. what is your outlook for exports given the rally in the australian dollar and china’s efforts to cool economic growth?
>> i have to say that the export performance has been pretty disappointing through 2004 given the solid fundamentals with a strong china and big increases in australia’s trade. we expect improvement through 2005. china’s economy we don’t think will slow that much this year and the u.s. economy should remain robust and some of the capacity bottlenecks occurring in the retail sector should be alleviated.
>> unemployment is at its lowest in 28 years. is there any evidence of skill shortages and wage pressures that might force the central bank to raise rates earlier than your own forecasts?
>> there is evidence of wage and skill shortages in surveys and anecdotal evidence. it has yet to show up in the official wages data. it seemed to raise its head in the official inflation numbers recently. if it shows up in the official wages data, i think that will cause the r.b.a. to act quickly. there was evidence yesterday of a large increase in wages in the electricity sector because of labor shortages so i think that will begin to flow into the official data and we’ll see the r.b.a. act on the back of that.
>> how many rate increases do you expect from the reserve bank of australia this year?
>> we expect two 25-basis point moves so 50 basis points in total. when they act, they tend to move in more than one step at a time so we expect two steps quickly. at this stage, we expect around midyear but it could be earlier, taking the cash rate to 5.75%, which we think would be neutral for the economy.
>> what will be the effect on the australian dollar as well as bonds?
>> i think the changing interest rate expectations in australia has been supporting the aussie dollar recently and will likely see the aussie dollar move a little higher. we think the aussie dollar will trade up through 78 and 80 cents over the next few months against the u.s. although it could underperform on the cross rate against the euro and yen so bond markets , we continue to see bond yields move higher as they adjust from low yields last year which we were in fact pricing in rate cuts to pricing in rate increases this year so we expect to see 10-year bond yields trade up to the 5.5% to 6% range later this year.
>> stephen, thank you for your views, stephen halmarick with citigroup global markets . american express plans to spin off its brokerage unit to better compete against mastercard and visa. amex says divesting the unit will boost profits. american express gained nearly 6.5%, the biggest gain in two years. amex is the second financial services company to refocus its strategy this week. citigroup yesterday agreed to sell its insurance unit to metlife for $11.5 billion. s.b.c. communications says it will cut 13,000 jobs after buying at&t. s.b.c. says it will eliminate jobs in its sales, engineering and administrative divisions. they will take effect as soon as the at&t purchase closes and continue over three years. s.b.c. is buying its former parent for $16 billion and expects the purchase to close in the first half of next year, making s.b.c. the biggest u.s. phone company. singapore telecom will probably say third-quarter profit fell 11%. shobi pereira explains.
