profitepaper pakistantoday 25th November, 2012

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Sunday, 25 November, 2012

Farmers hail govt decision of increasing wheat support price ISLAMABAD

T

ONLINE

HE Farmers Welfare Association has welcomed the government decision of increasing wheat support price from the existing Rs.1050 per 40 kg to Rs.1200 per 40 kg for next crop

season.

Chairman Farmers Welfare Association Muhammad Nasir Sarver has said that the government decision of increasing the wheat support price will encourage wheat growers.

He said the decision will go a long way to increase wheat cultivation area and wheat production in the country.

On the other hand, Pakistan Flour Mills Association has strongly condemned the government decision of increas-

ing wheat support price by Rs.150 and termed it political move as it will lead to costly flour for the masses.

It is pertinent to mention here that the Economic Coordination Committee (ECC) of the Cabinet on November 22 had decided to approve the summary of Ministry of Food Security for increase in the support price of wheat for next crop to Rs.1200 per 40 kg against the last year’s support price of Rs.1050 per 40 kg. The committee was informed that the international prices of wheat are much higher and this results in smuggling of wheat to neighboring countries.

Moreover, prices of inputs have risen during the last one year. In order to facilitate and encourage wheat growers it is essential to increase the support price.

Euro heads for second week of gains on Greece hope The euro rallied to a three-week high against the dollar, heading for its second straight week of gains, on hopes that Greece’s lenders were nearing an agreement to release further aid to help the debt-stricken country g

NEW YORK AGENCIES

A rise in German business morale also boosted the euro, although analysts said any euro strength should be limited given the bleak economic outlook for the euro zone as a whole and expectations that the European Central Bank will have to ease policy further.

Greece said the International Monetary Fund had relaxed its debt-cutting target for the country, suggesting lenders were closer to a deal for a vital aid tranche to be disbursed. But other sources involved in the talks cautioned the funding gap was far bigger than Greece has suggested. “While we wouldn’t want to understate the challenges of reaching agreement on Greece, news reports have described some of the remaining obstacles as technical and legal, and thus the hurdles to a deal do not seem insurmountable,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

The euro rose as high as $1.2991 on Reuters data, breaking above resistance at $1.2910, its 55-day moving average. It was last trading at $1.2971, up 0.7 percent on the day. For the week, the euro gained 1.8 percent, the best weekly performance since mid-September. The euro also hit a seven-month high of 106.97 yen and was last at 106.92 yen, up 0.6 percent.

Euro zone finance ministers, the IMF and ECB failed earlier this week to agree on how to get Greek debt down to a manageable level and will have a third go at resolving the issue on Monday. Euro zone finance ministers will also hold a teleconference on Saturday to prepare for Monday’s meeting, officials said. The euro has gained 2 percent against the dollar in the past two weeks as yields on Greek bonds fell on expectations that euro zone ministers should be able to sign off on another

tranche of aid for Greece on Monday. German business morale surprised with its first rise in seven months in November. The Munich-based Ifo think tank said its business climate index rose to 101.4 from 100.0 in October, far surpassing even the highest estimate in a Reuters poll.

“The IFO was a bit of surprise, but these are levels which we saw back in October and not really a turn in sentiment,” Stuart Frost, fund manager at RWC Partners. “We expect the euro’s gains to fizzle out.”

YEN CARRY TRADES?: The dollar was little changed at 82.43 yen, pulling away from Thursday’s high of 82.82 yen, its strongest level since early April. On the week, the dollar rose 1.2 percent. The dollar has climbed nearly 4 percent against the yen in the last two weeks, with the yen weakened by expectations that a likely new Japanese government after an election scheduled for December would push the Bank of Japan to implement more drastic monetary stimulus. Shinzo Abe, the leader of Japan’s opposition Liberal Democratic Party, which is tipped to win the election, has called for measures such as having the BOJ buy bonds issued specifically to fund public works projects and pushing short-term interest rates below zero. His party’s policy platform calls for a 2 percent inflation target, and seeks to ensure that the BOJ will pursue it vigorously with a possible revision to legislation that guarantees the central bank’s independence. In an interview with the Wall Street Journal published on Friday, Abe was also quoted as saying that he would consider postponing sales tax increases agreed in August if the economy remained mired in deflation.

Analysts said loose monetary measures along with lax fiscal policies could keep the yen under pressure and could see yenfunded carry trades return. Under these trades, investors sell the low-interest rate yen to buy higher-yielding assets.

Global shares rise on Greek hopes, German data Global stocks gained on signs of progress in talks on releasing aid to Greece and after an influential German survey found business sentiment had improved in Europe’s largest economy g

NEW YORK AGENCIES

US stocks rose for a fifth day, getting a lift from bellwether technology shares such as Intel (INTC.O) and Microsoft (MSFT.O), both up about 2 percent. An index of semiconductor stocks .SOX gained 1.8 percent, while the S&P information technology sector index .GSPT rose 1.6 percent.

Trading on Wall Street ended early after markets were closed Thursday for the Thanksgiving holiday. With many investors still on holiday on Friday, volume was low. About 2.8 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the daily average for the year to date of 6.5 billion.

The light volume exacerbated moves, and shares of big-cap technology companies climbed as investors took advantage of the day’s upward momentum to add to their positions.

“Anyone that was on the sidelines waiting for a pullback like the one we just had in some of the tech names, they’re looking for any glimpse of strong price action for ‘permission’ to enter into those (stocks),” said Todd Salamone, director of research at Schaeffer’s Investment Research in Cincinnati, Ohio Microsoft helped lift the Nasdaq, gaining 2.8 percent to $27.70, while Apple Inc (AAPL.O) rose 1.7 percent to $571.50. From mid-September to midNovember, the S&P tech sector .GSPT shed about 13 percent as the broader market also dropped.

Research In Motion (RIMM.O) surged on optimism about its soon-to-belaunched BlackBerry 10 devices, which will vie against Apple’s (AAPL.O) iPhone and Android-based smartphones. RIM was up 13.6 percent at $11.66.

Friday also marked the start of the holiday shopping season and gave in-

vestors a reason to scoop up retailers’ shares on hopes that consumers will go out to spend en masse.

The Dow Jones industrial average .DJI was up 172.79 points, or 1.35 percent, at 13,009.68. The Standard & Poor’s 500 Index .SPX was up 18.10 points, or 1.30 percent, at 1,409.13. The Nasdaq Composite Index .IXIC was up 40.30 points, or 1.38 percent, at 2,966.85.

For the week, the Dow was up 3.3 percent, the S&P 500 rose 3.6 percent, and the Nasdaq gained 4 percent.

European shares posted their best weekly gain so far this year after rising for a fifth day on Friday. The FTSEurofirst300 index of pan-European shares .FTEU3 rose 0.6 percent to end at 1,110.45.

Germany’s BASF (BASFn.DE) and Bayer (BAYGn.DE) led a rally in chemical stocks after a German business morale index surprised with its first increase in seven months, raising the prospect that Europe’s largest economy can regain some momentum. Also helping the market, confidence in the global economic outlook got a big boost from the HSBC flash Manufacturing Purchasing Managers Index for China, which pointed to an expansion in activity after seven consecutive quarters of slowdown.

The Chinese data followed a report on Wednesday showing U.S. manufacturing grew in November at its quickest pace in five months, indicating strong economic growth in the fourth quarter.

The euro rose as high as $1.2943 on Reuters data, breaking above resistance at $1.2910, its 55-day moving average. It was last trading at $1.2941, up 0.5 percent on the day.

Against the yen, the euro also hit a seven-month high of 106.73 yen and was last at 106.65 yen, up 0.4 percent.

MSCI’s world equity index .MIWD00000PUS was up 1.1 percent on Friday at 329.92 points. Earlier, MSCI’s

broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS rose 0.7 percent for a weekly gain of 2.6 percent, also its best week for two months.

Optimism about a deal to help Greece, hopes that U.S. lawmakers can agree on a solution to avoid a fiscal crisis, and data showing an improving global economic outlook have driven a rally in riskier asset markets this week.

Greece said the International Monetary Fund had relaxed its debt-cutting target for the country, suggesting lenders were closer to a deal for a vital aid tranche to be paid. But other sources involved in the talks cautioned that the funding gap was far bigger than Greece suggested.

“While we wouldn’t want to understate the challenges of reaching agreement on Greece, news reports have described some of the remaining obstacles as technical and legal, and thus the hurdles to a deal do not seem insur-

mountable,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

Euro-zone finance ministers, the IMF and the European Central Bank (ECB) failed earlier this week to agree on how to get the country’s debt down to a sustainable level. They will make a third attempt at resolving the issue on Monday.

U.S. government debt prices mostly dipped on Friday in light post Thanksgiving holiday trading. Bonds’ safe-haven allure faded as investors scooped up stocks.

The benchmark 10-year U.S. Treasury note was down 4/32, with the yield at 1.6917 percent.

GOLD AND OIL GAIN: In commodities, gold rose above $1,750 an ounce for the first time in more than a month on Friday, gaining 1.3 percent as dollar weakness and options-related buying triggered a technical breakout.

Oil rose above $111 a barrel on Friday

as the better-than-expected German business sentiment data helped ease worries about demand in the euro-zone economies, boosting the euro against the dollar, while fresh protests broke out in Egypt and led to supply concerns.

Brent crude futures were up 85 cents at $111.40 a barrel at 1734 GMT. U.S. crude was up 92 cents at $88.32. The U.S. market, which was closed on Thursday for the Thanksgiving holiday, will not issue a formal settlement price until later Friday.

On Thursday, Israel began withdrawing its army, which had been poised to invade the Gaza Strip in pursuit of militants that had fired rockets into Israel.

Although the Gaza ceasefire is holding, violence has emerged in Egypt. In Cairo’s Tahrir Square, thousands of people participated in demonstrations against President Mohamed Mursi. Police fired teargas into the crowd in an attempt to disburse it.

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Business 02 A DEAL BRIEFLY GLIMPSED BEFORE EU BUDGET TALKS FAIL For a few minutes on Friday afternoon, it looked as if the European Union might just get a deal on nearly 1 trillion euros of spending for its next long-term budget g

BRUSSELS

D

AGENCIES

URING a “tour-de-table” among the EU’s 27 leaders, the first time they had discussed the 2014-2020 budget as a group, it seemed for a moment that France, Poland, Italy and others might accept deeper cuts than originally proposed, diplomats said on Friday after the summit broke up without agreement.

Britain, Denmark, the Netherlands, Sweden and crucially Germany, the bloc’s main paymaster, were all pushing for Herman Van Rompuy, the president of the European Council, to offer further spending cuts beyond the 80 billion euros he had already knocked off the original budget plan.

“For about 30 minutes there was a sense around the table that a deal could be struck, that there could be an agreement on going further,” an EU official tracking the talks told Reuters.

“But the mood quickly changed and the door slammed. It became evident that it wasn’t going to be possible.”

Another official said Italy, France and other southern states, changed their tune after hinting they might be willing to discuss deeper adjustments to farm subsidies and drew a line, saying no more reductions.

When the summit ended, after more

than four hours of talks on Friday which followed nearly 12 hours of negotiation on Thursday, EU leaders were careful not to point fingers of blame.

Britain’s David Cameron, seen as a ‘danger man’ after he threatened to veto any deal he didn’t like, was more emollient both at the table and in public, saying it had been a group decision to call off the talks.

German Chancellor Angela Merkel said it was no drama and the chances of a deal in early 2013 were good, while French President Francois Hollande said progress had been made.

Cameron was still full of firm words on EU excess, but said no one nation was to blame for the impasse, a line others echoed.

“Frankly, the deal on the table from the president of the European Council was just not good enough,” he told reporters.

“It wasn’t good enough for Britain and it wasn’t good enough for a number of other countries,” he said, mentioning several northern European states which contribute more to the EU’s budget than they get back in return.

“Together we had a very clear message: We are not going to be tough on budgets at home and then come here and sign up to big increases in European spending.”

MISSED OPPORTUNITY: On the first day of the summit, Van Rompuy held oneon-one meetings with each of the EU’s 27 leaders and Croatia, which is due to join the bloc in the middle of next year.

In his session with Cameron, the first that was held, the British leader made a tough opening bid, saying he wanted 200 billion euros cut from the first budget proposal, bringing the ceiling down to 890 billion euros.

But that, as with all negotiations, was an opening pitch. During Friday’s talks it appeared that Cameron might be willing to settle for cuts closer to 105 billion euros, a similar range to that sought by Germany, the Netherlands, Sweden and others.

That would still have required Van

Rompuy, whose first proposal lopped 80 billion off the original budget framework of around 1 trillion euros drafted by the European Commission, to find another 30 billion in savings.

“With 30 billion euros more in cuts, Cameron would have agreed to a deal. But Van Rompuy didn’t go for it - he wasn’t strong enough,” said an EU diplomat who was in touch with delegates in the 5th floor meeting room during the talks.

“Cameron said ‘give me 30 billion more and we have an agreement’.”

The diplomat, from a southern European country, said the British leader had been a positive surprise in the negotiations, not playing as hard and immovable a role as expected.

“We were all expecting him to be the bad guy, but he played it very well,” he said, adding that Cameron and Merkel had been tightly aligned. By contrast, Hollande seemed more lonely without the traditional Franco-German axis backing his position.

While some officials lamented a halfchance lost, others said there had never been a particularly strong chance of a deal at the first summit since historically it has nearly always taken two summits to reach a deal on the long-term budget.

Merkel and other leaders said as they arrived at the summit on Thursday that it wouldn’t be a disaster if they didn’t get an agreement right away and only returned to negotiations in 2013, and that is now what will happen.

It is unclear when the next round of talks will be held, but officials indicated that February was the most appropriate time.

“When I look at the complete picture of possible compromise, I see readiness on all sides and good possibilities to reach agreement,” Merkel said of talks early next year.

“We must consider what it would mean if we were not to reach agreement. This possibility is extremely unattractive.”

What EU leaders now have is a much clearer sense of where the deep red lines lie

Argentina’s

options shrink after US debt ruling A decade after staging the biggest sovereign default in history, Argentina faces another possible debt crisis after a U.S. court ordered it to pay $1.3 billion to holders of defaulted bonds

BUENOS AIRES AGENCIES

About 93 percent of Argentine bondholders agreed in 2005 and 2010 to swap defaulted debt from the 2002 default for new paper at a steep discount. So-called “holdout” creditors who rejected the swaps continue to battle for full repayment in international courts.

In a ruling late on Wednesday, U.S. District Judge Thomas Griesa told Argentina to deposit funds to pay the holdouts

by December 15, lifting a previous order stalling payments to the bondholders and raising fears of a technical default on the restructured bonds if Argentina does not pay.

Griesa’s ruling is a sharp blow for Argentina’s combative president, Cristina Fernandez, who has refused to pay the holdouts such as Elliot Management Corp’s NML Capital Ltd and Aurelius Capital Management.

Her government’s strategy of isolating the holdouts has come under intense pressure since late last month when a U.S. appeals court upheld Griesa’s decision that Argentina violated equal-treatment provisions for all creditors when it chose to pay exchange bondholders and not holdouts.

An eventual technical default - with U.S. courts seizing payments to holders of re-

structured bonds to compensate the holdouts - would further dent investor confidence in Latin America’s third-biggest economy. That could exacerbate a sharp economic slowdown, but the impact would be less serious than in 2002 due to the country’s relative isolation from global financial markets.

Argentina has stayed out of international credit markets since the 2002 debacle, partly due to fears the holdouts could block a new issue. It relies instead on the central bank’s foreign reserves to pay debt and borrows from state agencies. Here are possible scenarios in the decade-long legal battle: ARGENTINA CHALLENGES RULING IN APPEALS COURT: Griesa’s latest decision must still pass to the 2nd Circuit Court of Appeals, so he ordered that Argentina should deposit the money in an escrow account by December 15 rather than pay the plaintiffs directly.

Argentina swiftly pledged to appeal. If Griesa’s ruling holds — which legal specialists think likely — and Argentina still refuses to pay, U.S. courts could block debt payments to creditors who took part in the debt swaps out of consideration for those holdout investors who rejected Argentina’s terms at the time. That would trigger a technical default on approximately $24 billion

worth of restructured debt. Argentine bond prices were battered on Friday by fears about $3 billion in debt payments due next month could be subject to court. The decision by Griesa came in response to a request from the appeals court for him to detail how the holdout creditors should be paid and clarify the role of third parties.

Late last month, the appeals court backed a February ruling by Griesa that Argentina had discriminated against the holdouts and Argentina has already requested a rehearing before the tribunal’s full panel of 13 judges. However, legal analysts think the so-called en banc rehearing is unlikely to yield a different result and say the 2nd Circuit will probably refer Monday’s planned appeal aimed at getting the payment stay reinstated back to Griesa.

ARGENTINA TURNS TO THE U.S. SUPREME COURT: Economy Minister Hernan Lorenzino said Argentina will exhaust all judicial channels and could take the holdouts case to the U.S. Supreme Court.

The government could contest the appeals court’s equal treatment ruling by arguing it did not discriminate against the holdouts because they could have tendered their defaulted bonds in the two restructurings.

The U.S. Supreme Court gets about 10,000 appeals requests a year but only agrees to hear 75 or 80 cases.

and which lines are more pink.

It is clear that for a deal to be struck, the final budget will need to be around 100 billion euros below the original Commission proposal.

Leaders reached an informal agreement to avoid further cuts to agricultural spending, which is dear to the French, Spanish and Italians, and funds used to help poorer EU member states and cherished by Poland and others.

That means the axe is likely to fall on administration costs - salaries, pensions and benefits for the EU’s 50,000 civil servants, whom Cameron sees as ripe for a dose of austerity.

New funds for scientific research and cross-border transport and energy infrastructure - already cut in the current compromise are also likely t o

emphasized. Net contributors to the budget such as Britain will also have to surrender some territory.

Hollande homed in on Britain’s rebate — the refund it gets on each budget and which is largely funded by France following a deal struck in 1984.

“France will continue to push for a change to the way these rebates are calculated and keep asking for all countries to contribute to their payment,” he said, naming no one but effectively targeting Britain with his words.

Britain has always maintained that the rebate, first negotiated by former Prime Minister Margaret Thatcher, will never be given up and Cameron has underscored that message.

But if a deal is to be struck, and especially one that arrives at around 100105 billion euros worth of cuts, then some form of adjustment on the resources side may be necessary.

shrink further.

At the same time, it is not solely about cuts, officials

Some legal experts think the country’s highest court could choose to weigh in on this case, however, since it has wider implications for debt restructurings.

U.S. government lawyers backed Argentina’s position on pari passu, or with equal treatment. They argued in April that Griesa’s orders “could enable a single creditor to thwart the implementation of an internationally supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises”. If the Supreme Court agreed to take on the case, it would have to consider whether to freeze current proceedings. That might end up buying Argentina more time. The government lawyers said a similar ruling in a Belgian court that disrupted Peru’s debt restructuring in 2000 “was viewed with almost universal consternation by international financial markets”.

The 2nd Circuit downplayed any impact on other countries, noting that many newer bonds, including the ones issued by Argentina in its 2005 and 2010 debt swaps, have collective action clauses that force potential holdouts to accept a restructuring if the vast majority of other creditors do so.

Argentina will probably need to garner more support from Washington and U.S.based banks to get the Supreme Court to intervene. If the court did agree to hear the case, a ruling might not be issued until 2014. If Argentina won the appeal, its troubles could be over. But the uncertainty leading up to the ruling would likely weigh on Argentine bond prices and hurt liquidity regardless. Alternatively, the Supreme Court could either refuse to hear the case, letting the appeals court ruling stand, or it could hear the case and affirm that ruling. This would force Argentina to comply with - or openly violate - the order to pay holdouts every time it services its restructured debt.

ARGENTINA IGNORES COURT RULINGS: If Argentina loses its court battle at any point, the country could flout Griesa’s payment orders to deposit funds for the holdouts. This is seen as a real possibility since Argentina has systematically fought every court decision in favor of the holdouts and has refused to pay them court-awarded damages. Argentine officials, including the economy minister and the president herself, have said the country will not negotiate

with the “vulture funds” and will never pay them.

They say their responsibility to restructured bondholders ends when payment funds are deposited in a Buenos Aires account of the country’s payment agency, Bank of New York Mellon. Argentina will make that transfer at all costs to avoid an outright default and reduce the political cost. The government argues that when those funds are transferred to New York, they are already the property of creditors and therefore cannot be embargoed by U.S. courts. Griesa, however, said all third parties involved in the payment of the bonds are responsible for ensuring his orders are fulfilled.

ARGENTINA PAYS HOLDOUTS: Although it seems unlikely, Argentina could end up paying the holdouts, either by making separate, proportional payments to them to comply with the court order or by agreeing to some kind of settlement. This could potentially prompt lawsuits by the creditors who accepted the swaps, however. To pay the holdouts, it would first have to suspend or scrap the so-called “lock law”, which requires prior congressional authorization for any kind of settlement with creditors who rejected the restructuring. The law also bars the government from reopening the debt swaps without legislative approval.

The government might want to change that law regardless since the appeals court cited it as key evidence that Argentina discriminates against the holdouts. So far, officials have rejected that option, however.

Besides, the terms of the restructured bonds prevent Argentina from making better offers to creditors before December 31, 2014. Even if the lock law were overhauled, this would not put an end to Argentina’s legal woes since the holdouts would almost certainly refuse to agree to the swap terms and continue to sue for full repayment on their defaulted bonds. Lawyers advising the holdouts say Argentina may be approaching a point of no return like the one Peru faced in 2000, when it ended up settling with the holdouts for $58 million to move forward with its debt restructuring.

The price tag for Argentina would be much higher, though, with holdout creditors owning a total of roughly $11 billion in defaulted debt, according to private estimates. That is equivalent to about a quarter of Argentina’s foreign reserves.

Sunday, 25 November, 2012