Wall Street Week ahead

Monday, 20 August, 2012

TOKYO

AGENCIES

Japan’s Nikkei share average struck athree-month closing high on Friday asrisk appetite increased after commentsfrom German Chancellor Angela Merkelsuggested she supports the EuropeanCentral Bank’s efforts to tackle the eurozone debt crisis.

Expectations of impending actionfrom the ECB to fight the region’s fiscalproblems and recent stronger-than-ex-pected U.S. economic data have helpedthe benchmark index rally after itplumbed a seven-week trough on July 25.

The Nikkei index advanced 0.8 per-cent to 9,162.50, its highest close sinceMay 8, stopping just short of its 26-weekmoving average of 9,167.88.

The benchmark closed 3 percent upon the week after surging 3.9 percent lastweek to log its best weekly gain in sixmonths, helped by Merkel’s commentsthat ECB chief Mario Draghi’s vow to do

all that is necessary to defend the euro isin line with what European leaders havebeen saying. “This rally is being drivenby hedge funds getting out of the veryshort positions they got into last monthwhen Europe wasn’t coming up with anypolicy decisions,” said Takashi Oba, sen-ior strategist at Okasan Securities.

“On the surface the gains may lookimpressive, but they’re empty. There’s nonew money in the market, it’s just beingpulled out of bonds.”

Some analysts are wary of low vol-umes, customary in the summer holidays,distorting the market and setting it up fora sharp fall in September when moreplayers return to trade amid a flurry ofsignificant events in the euro zone.

The value of shares traded onthe first section of the Tokyo Stock Exchange, which mostlyincludes the large caps,failed to rise above 1 tril-lion yen on four days outof five this week, includ-ing Friday.

Nevertheless, in-vestors scrambling tocover their short betstriggered a risk-on atmos-phere, with economically-sensitive sectors such as ironand steel striding ahead 3.8percent while defensivefood and phar-maceuticalcompaniesu n d e r -p e r -formed,

dropping 1.2 and 0.5 percent respectively.“Over the past couple of days, I raised theweighting of cyclical stocks, such as elec-tronics parts, semiconductors and autoparts,” said Yasuo Sakuma, portfolio man-ager at Bayview Asset Management.

Sakuma added that the Nikkei couldtest 9,500 by early September but addedit was unlikely to go higher as doubts re-main about a slowdown in the globaleconomy. Japan Tobacco Inc dropped 3.7percent after China’s health ministry saidit plans to ban cigarette advertising andpromotions and to hike taxes, a doubleblow for the tobacco industry after Aus-tralia’s High Court ruled on Wednesdaythat cigarettes will be stripped of brand-ing and sold in plain packs.

Japan Tobacco’s share price fell4.8 percent on that day, but re-

bounded 5.5 percent onThursday as investors re-

alised the company’s ex-posure to Australia

was relatively low,according to a trader.However, China’s de-

cision cements awidening international

clampdown that couldhurt sales, he added.

Beleaguered con-sumer electronic company

Sharp Corp enjoyed ab r i e f

b o u n c e ,rising asmuch as1 3 . 1p e r -

cent after the Nikkei business daily saidthat Taiwan’s Hon Hai Precision Indus-try was seeking to more than double itsstake in Sharp to 20 percent, a reportthat Sharp denied.

Hon Hai reportedly said it would pay200 yen per share, down from the 550yen initially agreed in March when a 9.9percent share was set. Sharp was up 5.1percent at 184 yen at the bell, after whichJiji news agency said the company wasseeking a 50 billion yen capital increasefrom companies including Toshiba Corpand Kyocera Corp. SOFTER YEN SOOTHES SALES

WORRIES FOR EXPORTERS:

Japanese exporters were the beneficiariesof a softer yen, which traded at 79.36 yento the dollar, near a one-month low of79.40 touched on Thursday.

Honda Motor Co, Nissan Motor Co,TDK Corp and industrial robot makerFanuc Corp were up between 1.5 and 2.4percent.

The broader Topix index put on 0.9percent to 765.81, marking a one-monthclosing high, still 2.1 percent off July 4’stwo-month high of 781.94.

However, the price-to-earning ratioof Topix shares were lifted to 11.1 fromlast week’s four-year low of 10.42 by therecent rally, data from Thomson ReutersDatastream showed. Domestic retail in-vestors were net sellers of Japanesestocks last week for the first time in fiveweeks. Jun Yunoki, equity analyst at No-mura Securities, said he expected theywould continue to offload their positionsinto September as they had been buyingon dips for some time.

NEW YORK

AGENCIES

IN the absence of data or policy catalysts andwith the S&P 500 near four-year highs, marketparticipants are hoping technical indicatorshold the clues on whether stocks will sell offinto September following a slow-speed rally.

The S&P 500 is a scant 0.06 percent away fromclosing at highs last seen in the pre-crisis days of June2008, even as an unimpressive earnings season drawsto a close. The looming U.S. presidential election addsto the uncertainty, and inconclusive economic datamakes any bet on further economic stimulus from theFederal Reserve a risky gamble.

“I’m not laying out any new shorting strategies onfear the Fed could come in,” said Brian Amidei, amanaging director at HighTower Advisors based inPalm Desert, California. True to form, market vol-umes have dried up in August. To some, the lack ofvolume is a clear signal of the relative weakness of therecent rally. Wall Street this week posted its two low-est volume days of the year, not counting half-days.

What has some other strategists nervous is whatthey see as relative complacency among investors.Volatility levels as implied by the CBOE Volatilityindex .VIX, or VIX, are at their lowest since June2007. “We implore you to raise cash into strengthahead of a sharp and swift late summer squall,”Richard Ross, global technical strategist at AuerbachGrayson in New York, said in his latest note. “Withboth volume and volatility absent from the advance

... conditions are ripe for a rapid risk reversion to themean.” The VIX closed Friday at its lowest level inmore than five years, a time when the S&P 500 washovering near 1,500 - a level it has failed to approachsince the 2007-2009 selloff.

The S&P 500 chart is slightly more bullish thanthe VIX. After a steep rise to break through 1,400, theindex seesawed around that level for about seven ses-sions in a pattern known as a flag formation. (Why?It kind of looks like a flag.) Thursday’s advance tofour-month highs and Friday’s confirmation of thenew highs indicate 1,400 could become technical sup-port. Frank Cappelleri, U.S. market technician at In-stinet in New York, said the sideways move after the1,400 break up indicated consolidation and the lowvolume was typical of such a move in late August.FED MINUTES AND BEYOND: The minutes ofthe latest Federal Reserve policy committee meeting,due Wednesday, could be the week’s highlight interms of calendar events as bets on intervention insupport of the economy are partly to blame for the re-cent melt-up. But with the Fed’s annual economicsymposium starting the following week at JacksonHole, Wyoming, the Fed minutes could prove to be aninsufficient market driver.

“The minutes are useful because they reveal someof the granularity of the discussions,” said LawrenceCreatura, portfolio manager at Federated Clover In-vestment Advisors in Rochester, New York.

“If the Fed had some sort of magic elixir to fix oureconomy woes,” he said, “you would have alreadyseen it.”

g Exporters buoyedby a softer yeng Sharp soars: HonHai reportedly wantsto double stake to20 pctg Japanese stocks’ 12-month forwardP/E rebounds from 4-yr lowg Japan Tobacco hurt by spreadingregulatoryclampdown

Nikkei shootsto 3-month high onMerkel’s ECB backing

Waiting fortechnical signals

The S&P 500 tortoise continues to beat the skeptics

NEW YORK/BANGALORE

AGENCIES

Most forecasters have turned more pessimistic onthe economy, despite recent, modestly betternews on retail sales, payrolls and the batteredhousing market. The trimmed quarterly growthforecasts for a third straight month.

The latest findings are based on a survey of 17of the Wall Street primary dealers who deal di-rectly with the Fed, as well as an additional 44economists in the monthly Reuters Poll.

It was the first time this wide sample of econ-omists put the probability of more quantitativeeasing, or QE3, at greater than 50 percent, withone economist saying there was a 95 percentchance the Fed will act.

The latest consensus was for $500 billion inadditional government bond purchases, on top ofthe $2.3 trillion the Fed has already bought. Thehighest forecast was for $750 billion.

The majority of economists polled thought theFed’s next policy meeting in September was themost likely time for any announcement on QE3.

These increased chances of more moneyprinting come despite recent speculation in finan-cial markets that the Fed will wait and see how theeconomy performs instead of further inflating itsswollen balance sheet.

Fed Chairman Ben Bernanke’s highly antici-pated speech at a gathering in Jackson Hole,Wyoming, later this month is likely to shed somelight - but perhaps not as much as many now ex-pect - on the central bank’s plans. “While the Fedis drifting ever closer to QE3, we thinkthe chairman will offer only alukewarm signal atJackson Hole. Hedoes not like tofront-run his com-mittee,” said EthanHarris, NorthAmerican econo-mist at Bank ofAmerica MerrillLynch.

“With indecisivedata and a Fed meeting justtwo weeks ahead, he will likely repeatthe last directive, underscoring thatthe Fed is ‘closely monitoring’ the

economy,” he wrote in a note.MODEST HIRING: Economists lowered theirexpectations for gross domestic product to 1.8percent in the current quarter from 2.0 percentfollowing a disappointing 1.5 percent annualizedpace in the April-June period.

Fourth-quarter growth is now seen at 2.0 per-cent, down from 2.2 percent, and the consensusfor next year as a whole fell to 2 percent, the sur-vey’s lowest prediction for 2013 so far. Inflationexpectations remained tame.

“The economy is growing but (is) barely at itspotential,” said Mark Zandi, chief economist atMoody’s Analytics. “I’d say it’s muddling along.”The outlook for the job market also remains mod-

est at best. Economists ratcheted up theirexpectations for average

non-farm payrollsgrowth in the currentquarter and others,but appeared to do somostly because of amodest improvementin the latest data. Theoutlook was better inpolls earlier thisyear.

Payrolls are ex-pected to average 135,000

per month in the third quar-ter, up from 123,000 pre-dicted in the July poll.

Chance of Fed printingmore money rises to60 percent: poll

Chances that the FederalReserve will launch a third

round of money printinghave risen slightly over the

past month to 60 percent,according to a poll that

also showed economistslowering economic growth

expectations for this yearand next

PRO 20-08-2012_Layout 1 8/19/2012 10:28 PM Page 1

02

Monday, 20 August, 2012

Business

Karkey distributes food hampersamongst 3,000 families

ISLAMABAD: Turkey based ship mounted power plants com-pany, Karkey Karadeniz Elektrik, continued its tradition ofhelping the under-privileged strata of the society by distribut-ing more than 3000 food cartons in different areas of Karachi.

PSO Launches Biker’sPriority LaneKARAcHI: Pakistan State Oil, the largest energy sector com-pany in Pakistan has introduced another novel concept ‘BikersPriority Lane’ at its retail outlet “AB Ghazi” in Karachi. TheCompany also plans to extend this concept to other retail fore-courts in the near future.

Grandeur exhibition openedKARAcHI: The Grandeur Exhibition of Exclusive Eid Collec-tion by the leading Fashion Designers Noreen Baig, ShaziaNadeem, Madiha Gohar, Anees Unus, Sabina Ashfaq and Fa-tima Lodhi at affordable prices will be open from 16th August2012 to Chand Rat from 12:00 PM to 12:00.

Insignia - One Year Celebration!LAHORE: This Eid season Insignia, a luxury brand specializ-ing in exclusive women’s footwear and handbags, celebratedits first anniversary.

CORPORATE CORNER

LONdON

AGENCIES

FEW emerge unscathedfrom the Treasury Se-lect Committee's 300-page report and

annexes, based on a string ofhigh-profile hearings after Bar-clays was fined a record $453 mil-lion on June 27 for manipulatingthe London Interbank OfferedRate or Libor.

"Such behaviour would onlybe possible if the management ofthe bank turned a blind eye to theculture of the trading floor," thereport said.

"The standards and culture ofBarclays, and banking morewidely, are in a poor state," it said,adding it was unlikely the bankacted alone.

Barclays is the first of severalbanks expected to be fined for rig-ging a rate which forms a refer-ence point for home loans, creditcards and other financial transac-tions worth over $350 trillionglobally.

The report slammed the UK'sFinancial Services Authority(FSA) watchdog for being behindthe curve, giving ammunition toLondon's critics by starting itsown formal probe into Libor set-ting two years after U.S. authori-ties had kicked off theirs.

It said the delay contributedto the perceived weakness of Lon-don in regulating financial mar-kets and recommended manyreforms, several of which are al-ready being looked at elsewhere,such as criminal penalties and di-rect oversight. The FSA respondedthat its managing director MartinWheatley will consider the re-port's findings in his government-commissioned review of Libor dueto be published in September.

The government also wel-comed the report and would con-sider any necessary legislativechanges called for by Wheatley.

Barclays said it does not ex-pect to agree with all the reportbut "we recognize that change isrequired, not least to restorestakeholder trust".FAIT AccOMPLI

The FSA and U.S. authoritiesare still probing HSBC (HSBA.L),Royal Bank of Scotland (RBS.L),Lloyds (LLOY.L) and several non-UK banks in connection with pos-sible manipulation.

Diamond, Barclays' ChairmanMarcus Agius and Chief OperatingOfficer Jerry del Missier all quit in

July. Bank of England GovernorMervyn King and FSA ChairmanAdair Turner told lawmakers theydid not demand that Diamondstep down, but the report con-cluded that their interventionmeant it was a "fait accompli".

King and Turner stepped infollowing public outrage over Bar-clays after the rigging was dis-closed in June.

"The Governor's involvementis difficult to justify," the reportsaid, dismissing King's defencethe Bank would be regulatinglenders anyway from 2013 whenthe FSA is scrapped.

The central bank must bemade accountable to avoid suchpotential abuses of power, the re-port said.

The Bank of England said in astatement it did not have any reg-ulatory responsibility for Libor atthe time and that King's meetingwith Agius on the day he resignedwas "fully justified"

The report criticised Barclays'board for several failings and Di-amond himself, saying his testi-mony to parliament wasunforthcoming and selective inparts, and fell well short of thecandour and frankness expected.

Diamond said in a statementhe had responded to questionsfrom lawmakers "truthfully, can-

didly and based on informationavailable to me. I categorically re-fute any suggestion to the con-trary." A focus of the hearings wasa conversation between Diamondand Bank of England Deputy Gov-ernor Paul Tucker in October2008 when markets were in melt-down after the collapse of U.S.bank Lehman Brothers the previ-ous month.LOW BALL

They agreed that the conver-sation did not amount to directingBarclays to "low ball" its Liborrate submission in a bid to show ithad no problem borrowing fromother banks.

The heavy public emphasis byBarclays on this conversation mayhave been a "smokescreen" to dis-tract from more serious failings atthe lender and made no funda-mental difference to the bank'sbehaviour, the report said.

"Barclays did not need a nod,a wink or any signal from theBank of England to lower artifi-cially their Libor submissions.The bank was already well prac-ticed in doing this," it said.

Tucker told the lawmakersthat possible clues to dishonestydid not ring alarm bells at thetime, suggesting "naivety" on thepart of the BoE, the report added.

Tucker has long been seen as

a leading candidate to replace BoEGovernor Mervyn King, whostands down next year, and whilehis grilling in the hearings wasseen as setting back his chances,he escapes the trenchant criticismlevied at other players.

Turner, another candidate forthe deputy governorship, also es-capes uniformly bad criticism, thereport saying the FSA was on thecase in questioning Barclays' cul-ture of risk taking.

But the FSA's probe left unan-swered whether senior figuresfrom Whitehall, a reference togovernment, instructed Tucker toask Barclays to low ball its Liborsubmissions.

Evidence received by lawmak-ers suggested Whitehall simplywanted to know if government ef-forts to prop up the financial sys-tem were working and Barclayswas safe, the report said.

"This was understandablegiven the fragility of the UK andinternational financial system inOctober 2008," it added.

Libor is overseen by theBritish Bankers' Association(BBA), whose review in 2008 ap-pears to have been "an opportu-nity missed to stop the attemptedmanipulation that was occurring"and the report questions whetherthe BBA should keep its role.

UK lawmakers say Liborcase shows Barclays flawedCompany culture at Barclays (BARC.L) was "deeply flawed" and theBank of England's hand in removing its chief executive Bob Diamondwas hard to justify, a UK parliamentary report into the "disgraceful"rigging of Libor interest rates said

Prime Minister Raja Pervez Ashraf and Federal Minister & Benazir

Income Support Programme (BISP) Chairperson Farzana Raja

addressing at distribution ceremony of Waseela-e-Haq Cheques, Life

Insurance Certificates, Benazir Cards and Monthly Cash Grants to

BISP beneficiaries at BISP Secretariat.

6th meeting of AHAN (Aik Hunar Aik Nagar) Board of Directors was

held on August 15, 2012 at PC Hotel Lahore under the

Chairpersonship of Ms Samina Khawar Hayat.

NEWsdEsK

Deutsche Bank AG is among four Euro-pean banks being investigated by US au-thorities for alleged violations involving oiltrading and Iran, according to an attorneywith knowledge of the matter.

Regulators including the US Treasury’sOffice of Foreign Assets Control, the Fed-eral Reserve, the Justice Department andthe Manhattan district attorney’s office areall involved in the probe of Deutsche Bankand three other European banks, said theattorney, who asked not to be identifiedbecause the investigations are confidential.

“Deutsche Bank had decided by 2007to reject any new business with Iran, Syria,Sudan and North Korea and to end existingrelationships to the extent it was legallypossible,” Deutsche Bank spokeswomanFriederika Borgmann said, declining tocomment on the US investigation.

The regulators were in advanced stagesof an investigation into banking violationsat Standard Chartered Plc when the super-

intendent of New York’s banks, BenjaminLawsky, moved first in that matter with anAugust 6 order accusing the London-basedlender of multiple violations of state bank-ing laws.

Once the federal authorities resolvetheir probe of Standard Chartered, theywill proceed against the four Europeanbanks they have been investigating, includ-ing Frankfurt-based Deutsche Bank, ac-cording to the attorney.

Erin Duggan, a spokeswoman in theManhattan district attorney’s office, didn’timmediately return an e-mail sent outsideof regular business hours seeking com-ment on the probe. Dean Boyd of the Jus-tice Department, John Sullivan, a Treasuryspokesman, and Barbara Hagenbaugh, aFederal Reserve spokeswoman, declined tocomment.U-TURN TRANSAcTIONS: Lawsky’s

order accused Standard Chartered of help-ing Iran launder about $250 billion(Dh918 billion) in violation of federal laws.He accused the bank of a decade of decep-tion, including keeping false records, inhandling lucrative wire transfers for Iran-ian clients. The bank sent them through itsNew York unit in so-called U-turn transac-tions with client names omitted to hidetheir provenance, Lawsky said.

Lawsky reached a settlement withStandard Chartered on August 14, in whichthe bank agreed to pay $340 million to set-tle the claims. The New York regulator saidthat day in a statement that “the partieshave agreed that the conduct at issue in-volved transactions of at least $250 bil-lion.” The $340 million fine will go toLawsky’s agency, New York’s Departmentof Financial Services, or DFS, and the state.

As part of the settlement, New York

said the bank agreed to install an inde-pendent on-site monitor for at least twoyears who will report directly to regulators.Examiners from the DFS will also beplaced at the bank.

Lawsky’s agency, according to the Aug.6 order, is investigating wire transfers ex-ecuted by Standard Chartered’s New Yorkbranch on behalf of other US-sanctionedcountries, including Myanmar and Sudanand Libya, before the ouster of MuammarQaddafi.ENGAGE cONSTRUcTIvELY: Thesum may be the largest ever paid to an in-dividual regulator as part of a money-laun-dering accord. In June, ING Bank NVagreed to pay $619 million to settle similarallegations. That was split into equal pay-ments of $309.5 million to the federal gov-ernment and the Manhattan DistrictAttorney. A person familiar with the New

York probe of Standard Chartered said thatLawsky had sought as much as $700 mil-lion to settle his investigation.

Standard Chartered said in an Aug. 14statement that it “continues to engage con-structively with the other relevant US au-thorities.” From 2004 through 2007,Standard Chartered was subject to formalaction over other regulatory compliancefailures related to the Bank Secrecy Act,anti-money laundering policies and proce-dures and regulations of the US Office ofForeign Assets Control, the main overseerof Iran transactions.

In a 2004 agreement with regulators,the bank promised to monitor and improvemoney-laundering controls. The restric-tions of the agreement were lifted in 2007because the bank provided a “watered-down” report of compliance, according toLawsky’s order. Bank statements “misled”the department into lifting the restrictionsof the 2004 agreement, the order stated.

Courtesy Gulf News

Deutsche Bank in US Iran oil probe

PRO 20-08-2012_Layout 1 8/19/2012 10:28 PM Page 2