profitepaper pakistantoday 20th august, 2012

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

Monday, 20 August, 2012

Chance of Fed printing more money rises to 60 percent: poll

Wall Street Week ahead

Waiting for technical signals

NEW YORK/BANGALORE AGENCIES

The S&P 500 tortoise continues to beat the skeptics NEW YORK

I

AGENCIES

N the absence of data or policy catalysts and with the S&P 500 near four-year highs, market participants are hoping technical indicators hold the clues on whether stocks will sell off into September following a slow-speed rally.

The S&P 500 is a scant 0.06 percent away from closing at highs last seen in the pre-crisis days of June 2008, even as an unimpressive earnings season draws to a close. The looming U.S. presidential election adds to the uncertainty, and inconclusive economic data makes any bet on further economic stimulus from the Federal Reserve a risky gamble.

“I’m not laying out any new shorting strategies on fear the Fed could come in,” said Brian Amidei, a managing director at HighTower Advisors based in Palm Desert, California. True to form, market volumes have dried up in August. To some, the lack of volume is a clear signal of the relative weakness of the recent rally. Wall Street this week posted its two lowest volume days of the year, not counting half-days.

What has some other strategists nervous is what they see as relative complacency among investors.

Volatility levels as implied by the CBOE Volatility index .VIX, or VIX, are at their lowest since June 2007. “We implore you to raise cash into strength ahead of a sharp and swift late summer squall,” Richard Ross, global technical strategist at Auerbach Grayson in New York, said in his latest note. “With both volume and volatility absent from the advance

... conditions are ripe for a rapid risk reversion to the mean.” The VIX closed Friday at its lowest level in more than five years, a time when the S&P 500 was hovering near 1,500 - a level it has failed to approach since the 2007-2009 selloff.

The S&P 500 chart is slightly more bullish than the VIX. After a steep rise to break through 1,400, the index seesawed around that level for about seven sessions in a pattern known as a flag formation. (Why? It kind of looks like a flag.) Thursday’s advance to four-month highs and Friday’s confirmation of the new highs indicate 1,400 could become technical support. Frank Cappelleri, U.S. market technician at Instinet in New York, said the sideways move after the 1,400 break up indicated consolidation and the low volume was typical of such a move in late August.

FED MINUTES AND BEYOND: The minutes of the latest Federal Reserve policy committee meeting, due Wednesday, could be the week’s highlight in terms of calendar events as bets on intervention in support of the economy are partly to blame for the recent melt-up. But with the Fed’s annual economic symposium starting the following week at Jackson Hole, Wyoming, the Fed minutes could prove to be an insufficient market driver.

“The minutes are useful because they reveal some of the granularity of the discussions,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York.

“If the Fed had some sort of magic elixir to fix our economy woes,” he said, “you would have already seen it.”

Nikkei shoots to 3-month high on Merkel’s ECB backing Exporters buoyed by a softer yen g Sharp soars: Hon Hai reportedly wants to double stake to 20 pct g Japanese stocks’ 12-month forward P/E rebounds from 4-yr low g Japan Tobacco hurt by spreading regulatory clampdown g

TOKYO AGENCIES

Japan’s Nikkei share average struck a three-month closing high on Friday as risk appetite increased after comments from German Chancellor Angela Merkel suggested she supports the European Central Bank’s efforts to tackle the euro zone debt crisis.

Expectations of impending action from the ECB to fight the region’s fiscal problems and recent stronger-than-expected U.S. economic data have helped the benchmark index rally after it plumbed a seven-week trough on July 25.

The Nikkei index advanced 0.8 percent to 9,162.50, its highest close since May 8, stopping just short of its 26-week moving average of 9,167.88.

The benchmark closed 3 percent up on the week after surging 3.9 percent last week to log its best weekly gain in six months, helped by Merkel’s comments that ECB chief Mario Draghi’s vow to do

Most forecasters have turned more pessimistic on the economy, despite recent, modestly better news on retail sales, payrolls and the battered housing market. The trimmed quarterly growth forecasts for a third straight month.

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

It was the first time this wide sample of economists put the probability of more quantitative easing, or QE3, at greater than 50 percent, with one economist saying there was a 95 percent chance the Fed will act.

The latest consensus was for $500 billion in additional government bond purchases, on top of the $2.3 trillion the Fed has already bought. The highest forecast was for $750 billion.

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

These increased chances of more money printing come despite recent speculation in financial markets that the Fed will wait and see how the economy performs instead of further inflating its swollen balance sheet.

Fed Chairman Ben Bernanke’s highly anticipated speech at a gathering in Jackson Hole, Wyoming, later this month is likely to shed some light - but perhaps not as much as many now expect - on the central bank’s plans. “While the Fed is drifting ever closer to QE3, we think the chairman will offer only a lukewarm signal at Jackson Hole. He does not like to front-run his committee,” said Ethan Harris, North American economist at Bank of America Merrill Lynch.

“With indecisive data and a Fed meeting just two weeks ahead, he will likely repeat the last directive, underscoring that the Fed is ‘closely monitoring’ the

all that is necessary to defend the euro is in line with what European leaders have been saying. “This rally is being driven by hedge funds getting out of the very short positions they got into last month when Europe wasn’t coming up with any policy decisions,” said Takashi Oba, senior strategist at Okasan Securities.

“On the surface the gains may look impressive, but they’re empty. There’s no new money in the market, it’s just being pulled out of bonds.”

Some analysts are wary of low volumes, customary in the summer holidays, distorting the market and setting it up for a sharp fall in September when more players return to trade amid a flurry of significant events in the euro zone.

The value of shares traded on the first section of the Tokyo S tock Exchange, which mostly includes the large caps, failed to rise above 1 trillion yen on four days out of five this week, including Friday.

Nevertheless, investors scrambling to cover their short bets triggered a risk-on atmosphere, with economicallysensitive sectors such as iron and steel striding ahead 3.8 percent while defensive food and pharmaceutical companies underp e r formed,

Chances that the Federal Reserve will launch a third round of money printing have risen slightly over the past month to 60 percent, according to a poll that also showed economists lowering economic growth expectations for this year and next economy,” he wrote in a note.

MODEST HIRING: Economists lowered their expectations for gross domestic product to 1.8 percent in the current quarter from 2.0 percent following a disappointing 1.5 percent annualized pace in the April-June period.

Fourth-quarter growth is now seen at 2.0 percent, down from 2.2 percent, and the consensus for next year as a whole fell to 2 percent, the survey’s lowest prediction for 2013 so far. Inflation expectations remained tame.

“The economy is growing but (is) barely at its potential,” said Mark Zandi, chief economist at Moody’s Analytics. “I’d say it’s muddling along.”

The outlook for the job market also remains modest at best. Economists ratcheted up their expectations for average non-farm payrolls growth in the current quarter and others, but appeared to do so mostly because of a modest improvement in the latest data. The outlook was better in polls earlier this year.

Payrolls are expected to average 135,000 per month in the third quarter, up from 123,000 predicted in the July poll.

dropping 1.2 and 0.5 percent respectively.

“Over the past couple of days, I raised the weighting of cyclical stocks, such as electronics parts, semiconductors and auto parts,” said Yasuo Sakuma, portfolio manager at Bayview Asset Management.

Sakuma added that the Nikkei could test 9,500 by early September but added it was unlikely to go higher as doubts remain about a slowdown in the global economy. Japan Tobacco Inc dropped 3.7 percent after China’s health ministry said it plans to ban cigarette advertising and promotions and to hike taxes, a double blow for the tobacco industry after Australia’s High Court ruled on Wednesday that cigarettes will be stripped of branding and sold in plain packs.

Japan Tobacco’s share price fell 4.8 percent on that day, but rebounded 5.5 percent on Thursday as investors realised the company’s exposure to Australia was relatively low, according to a trader.

However, China’s decision cements a widening international clampdown that could hurt sales, he added.

Beleaguered consumer electronic company Sharp Corp enjoyed a b r i e f bounce, rising as much as 1 3 . 1 p e r -

cent after the Nikkei business daily said that Taiwan’s Hon Hai Precision Industry was seeking to more than double its stake in Sharp to 20 percent, a report that Sharp denied.

Hon Hai reportedly said it would pay 200 yen per share, down from the 550 yen initially agreed in March when a 9.9 percent share was set. Sharp was up 5.1 percent at 184 yen at the bell, after which Jiji news agency said the company was seeking a 50 billion yen capital increase from companies including Toshiba Corp and Kyocera Corp.

SOFTER YEN SOOTHES SALES WORRIES FOR EXPORTERS: Japanese exporters were the beneficiaries of a softer yen, which traded at 79.36 yen to the dollar, near a one-month low of 79.40 touched on Thursday.

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

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

However, the price-to-earning ratio of Topix shares were lifted to 11.1 from last week’s four-year low of 10.42 by the recent rally, data from Thomson Reuters Datastream showed. Domestic retail investors were net sellers of Japanese stocks last week for the first time in five weeks. Jun Yunoki, equity analyst at Nomura Securities, said he expected they would continue to offload their positions into September as they had been buying on dips for some time.

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

Business 02 UK lawmakers say Libor case shows Barclays flawed

CORPORATE CORNER Karkey distributes food hampers amongst 3,000 families

Company culture at Barclays (BARC.L) was "deeply flawed" and the Bank of England's hand in removing its chief executive Bob Diamond was hard to justify, a UK parliamentary report into the "disgraceful" rigging of Libor interest rates said LONdON AGENCIES

F

EW emerge unscathed from the Treasury Select Committee's 300page report and annexes, based on a string of high-profile hearings after Barclays was fined a record $453 million on June 27 for manipulating the London Interbank Offered Rate or Libor.

"Such behaviour would only be possible if the management of the bank turned a blind eye to the culture of the trading floor," the report said.

"The standards and culture of Barclays, and banking more widely, are in a poor state," it said, adding it was unlikely the bank acted alone.

Barclays is the first of several banks expected to be fined for rigging a rate which forms a reference point for home loans, credit cards and other financial transactions worth over $350 trillion globally.

The report slammed the UK's Financial Services Authority (FSA) watchdog for being behind the curve, giving ammunition to London's critics by starting its own formal probe into Libor setting two years after U.S. authorities had kicked off theirs.

It said the delay contributed to the perceived weakness of London in regulating financial markets and recommended many reforms, several of which are already being looked at elsewhere, such as criminal penalties and direct oversight. The FSA responded that its managing director Martin Wheatley will consider the report's findings in his governmentcommissioned review of Libor due to be published in September.

The government also welcomed the report and would consider any necessary legislative changes called for by Wheatley.

Barclays said it does not expect to agree with all the report but "we recognize that change is required, not least to restore stakeholder trust".

FAIT AccOMPLI The FSA and U.S. authorities are still probing HSBC (HSBA.L), Royal Bank of Scotland (RBS.L), Lloyds (LLOY.L) and several nonUK banks in connection with possible manipulation.

Diamond, Barclays' Chairman Marcus Agius and Chief Operating Officer Jerry del Missier all quit in

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

PSO Launches Biker’s Priority Lane KARAcHI: Pakistan State Oil, the largest energy sector company in Pakistan has introduced another novel concept ‘Bikers Priority Lane’ at its retail outlet “AB Ghazi” in Karachi. The Company also plans to extend this concept to other retail forecourts in the near future.

Grandeur exhibition opened KARAcHI: The Grandeur Exhibition of Exclusive Eid Collection by the leading Fashion Designers Noreen Baig, Shazia Nadeem, Madiha Gohar, Anees Unus, Sabina Ashfaq and Fatima Lodhi at affordable prices will be open from 16th August 2012 to Chand Rat from 12:00 PM to 12:00.

July. Bank of England Governor Mervyn King and FSA Chairman Adair Turner told lawmakers they did not demand that Diamond step down, but the report concluded that their intervention meant it was a "fait accompli".

King and Turner stepped in following public outrage over Barclays after the rigging was disclosed in June.

"The Governor's involvement is difficult to justify," the report said, dismissing King's defence the Bank would be regulating lenders anyway from 2013 when the FSA is scrapped.

The central bank must be made accountable to avoid such potential abuses of power, the report said.

The Bank of England said in a statement it did not have any regulatory responsibility for Libor at the time and that King's meeting with Agius on the day he resigned was "fully justified" The report criticised Barclays' board for several failings and Diamond himself, saying his testimony to parliament was unforthcoming and selective in parts, and fell well short of the candour and frankness expected.

Diamond said in a statement he had responded to questions from lawmakers "truthfully, can-

NEWsdEsK Deutsche Bank AG is among four European banks being investigated by US authorities for alleged violations involving oil trading and Iran, according to an attorney with knowledge of the matter.

Regulators including the US Treasury’s Office of Foreign Assets Control, the Federal Reserve, the Justice Department and the Manhattan district attorney’s office are all involved in the probe of Deutsche Bank and three other European banks, said the attorney, who asked not to be identified because the investigations are confidential.

“Deutsche Bank had decided by 2007 to reject any new business with Iran, Syria, Sudan and North Korea and to end existing relationships to the extent it was legally possible,” Deutsche Bank spokeswoman Friederika Borgmann said, declining to comment on the US investigation.

The regulators were in advanced stages of an investigation into banking violations at Standard Chartered Plc when the super-

didly and based on information available to me. I categorically refute any suggestion to the contrary." A focus of the hearings was a conversation between Diamond and Bank of England Deputy Governor Paul Tucker in October 2008 when markets were in meltdown after the collapse of U.S. bank Lehman Brothers the previous month.

LOW BALL They agreed that the conversation did not amount to directing Barclays to "low ball" its Libor rate submission in a bid to show it had no problem borrowing from other banks.

The heavy public emphasis by Barclays on this conversation may have been a "smokescreen" to distract from more serious failings at the lender and made no fundamental difference to the bank's behaviour, the report said.

"Barclays did not need a nod, a wink or any signal from the Bank of England to lower artificially their Libor submissions.

The bank was already well practiced in doing this," it said.

Tucker told the lawmakers that possible clues to dishonesty did not ring alarm bells at the time, suggesting "naivety" on the part of the BoE, the report added.

Tucker has long been seen as

a leading candidate to replace BoE Governor Mervyn King, who stands down next year, and while his grilling in the hearings was seen as setting back his chances, he escapes the trenchant criticism levied at other players.

Turner, another candidate for the deputy governorship, also escapes uniformly bad criticism, the report saying the FSA was on the case in questioning Barclays' culture of risk taking.

But the FSA's probe left unanswered whether senior figures from Whitehall, a reference to government, instructed Tucker to ask Barclays to low ball its Libor submissions.

Evidence received by lawmakers suggested Whitehall simply wanted to know if government efforts to prop up the financial system were working and Barclays was safe, the report said.

"This was understandable given the fragility of the UK and international financial system in October 2008," it added.

Libor is overseen by the British Bankers' Association (BBA), whose review in 2008 appears to have been "an opportunity missed to stop the attempted manipulation that was occurring" and the report questions whether the BBA should keep its role.

Insignia - One Year Celebration!

LAHORE: This Eid season Insignia, a luxury brand specializing in exclusive women’s footwear and handbags, celebrated its first anniversary.

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.

Deutsche Bank in US Iran oil probe intendent of New York’s banks, Benjamin Lawsky, moved first in that matter with an August 6 order accusing the London-based lender of multiple violations of state banking laws.

Once the federal authorities resolve their probe of Standard Chartered, they will proceed against the four European banks they have been investigating, including Frankfurt-based Deutsche Bank, according to the attorney.

Erin Duggan, a spokeswoman in the Manhattan district attorney’s office, didn’t immediately return an e-mail sent outside of regular business hours seeking comment on the probe. Dean Boyd of the Justice Department, John Sullivan, a Treasury spokesman, and Barbara Hagenbaugh, a Federal Reserve spokeswoman, declined to comment.

U-TURN TRANSAcTIONS: Lawsky’s

order accused Standard Chartered of helping Iran launder about $250 billion (Dh918 billion) in violation of federal laws.

He accused the bank of a decade of deception, including keeping false records, in handling lucrative wire transfers for Iranian clients. The bank sent them through its New York unit in so-called U-turn transactions with client names omitted to hide their provenance, Lawsky said.

Lawsky reached a settlement with Standard Chartered on August 14, in which the bank agreed to pay $340 million to settle the claims. The New York regulator said that day in a statement that “the parties have agreed that the conduct at issue involved transactions of at least $250 billion.” The $340 million fine will go to Lawsky’s agency, New York’s Department of Financial Services, or DFS, and the state.

As part of the settlement, New York

said the bank agreed to install an independent on-site monitor for at least two years who will report directly to regulators.

Examiners from the DFS will also be placed at the bank.

Lawsky’s agency, according to the Aug. 6 order, is investigating wire transfers executed by Standard Chartered’s New York branch on behalf of other US-sanctioned countries, including Myanmar and Sudan and Libya, before the ouster of Muammar Qaddafi.

ENGAGE cONSTRUcTIvELY: The sum may be the largest ever paid to an individual regulator as part of a money-laundering accord. In June, ING Bank NV agreed to pay $619 million to settle similar allegations. That was split into equal payments of $309.5 million to the federal government and the Manhattan District Attorney. A person familiar with the New

York probe of Standard Chartered said that Lawsky had sought as much as $700 million to settle his investigation.

Standard Chartered said in an Aug. 14 statement that it “continues to engage constructively with the other relevant US authorities.” From 2004 through 2007, Standard Chartered was subject to formal action over other regulatory compliance failures related to the Bank Secrecy Act, anti-money laundering policies and procedures and regulations of the US Office of Foreign Assets Control, the main overseer of Iran transactions.

In a 2004 agreement with regulators, the bank promised to monitor and improve money-laundering controls. The restrictions of the agreement were lifted in 2007 because the bank provided a “watereddown” report of compliance, according to Lawsky’s order. Bank statements “misled” the department into lifting the restrictions of the 2004 agreement, the order stated.

Courtesy Gulf News

Monday, 20 August, 2012