Archive for October, 2008

World stocks higher ahead of Fed rate decision (AP)

Wednesday, October 29th, 2008 | Finance News

LONDON – European stock markets closed mostly higher Wednesday on expectations of interest rate cuts around the world starting with the U.S. Federal Reserve, while U.S. stocks were up for the second day running.

The Dow Jones industrial average was 96.45 points, or 1.1 percent, higher at 9,161.57 after Tuesday's 11 percent jump, the second biggest daily gain ever.

That rally, which started after European exchanges closed on Tuesday, helped stocks rise across Europe all day.

Britain's FTSE 100 index of leading British shares closed 316.16 points, or 8.1 percent, higher at 4,242.54 and France's CAC-40 was up 287.65 points, or 9.2 percent, at 3,402.57.

Germany's DAX was slightly lower though after a 40 percent slump in Volkswagen AG shares. VW's biggest shareholder Porsche AG said it will offer some stock to ease liquidity constraints that had pushed up VW shares fivefold in the preceding two days.

The DAX closed 14.76 points, or 0.3 percent, down at 4,808.69.

Earlier, Japan's Nikkei index closed 589.98 points, or 7.7 percent, higher at 8,211.90 in the wake of the Dow Jones' 889 point rally Tuesday.

The renewed buying has been stoked by expectations that both the U.S. Federal Reserve and the Bank of Japan will cut interest rates this week and provide a further stimulus to the world economy, which should foster some renewed buying appetite in markets.

The Fed is expected to cut its target fed funds rate by half a percentage point to 1 percent later Wednesday. Markets are also holding out the hope the Bank of Japan would trim its interest rate a quarter percentage point from the already low 0.5 percent.

The European Central Bank and Bank of England are also expected to follow suit and cut borrowing costs at their next scheduled rate-setting meetings next Thursday. There's even some talk that the two banks may bring forward their expected rate cuts to Thursday.

"Bringing the already anticipated rate cut forward by a week would actually make sense and avoid unnecessary confusion in currency markets," said Howard Wheeldon, senior strategist at BGC Partners, who puts the odds of this happening at 50-50.

Despite signs that some investors are looking for bargains after the turmoil of the last month, a sense of unease still prevails with the world economy and financial system fragile, evidenced overnight by the $25 billion package to help Hungary.

"We would continue to warn that the stabilization in equity still fragile," said Hans Redeker, an analyst at BNP Paribas.

Elsewhere in Asia, the regional rally fizzled by the afternoon as traders cashed in profits amid fresh worries about company earnings.

Hong Kong's Hang Seng Index, up nearly 5 percent in early trading, trimmed its gain to just under 0.9 percent in volatile trade after a spectacular 14.4 percent rise the day before. Australia's S&P/ASX200 climbed 1.3 percent, helped by higher commodity prices.

South Korea's index pared its morning gains and dropped 3 percent as bank stocks pulled back on fears they may cut dividends after the government guaranteed their foreign currency loans.

Japan's stocks were helped by another fall in the value of the yen, which prompted investors to buy exporters like Toyota Motor Corp., which shot up 10.4 percent. Honda Motor Co. jumped 18 percent even though on Tuesday it reported a 41 percent drop in quarterly profit and lowered its forecast for the full year.

The yen has softened since jumping to about 91 to the dollar Friday. On Wednesday, the dollar was trading at about 97 yen after surging above 98 yen Tuesday, but up sharply from 94 yen late Monday.

Oil prices have also risen on the back of the rebound in global stock markets. Light, sweet crude for December delivery up $4.05 to $66.78 a barrel in London trade on the New York Mercantile Exchange. The contract slid 49 cents overnight to settle at $62.73, the lowest closing price since May 15, 2007.

On the currency front, the euro was higher at $1.2883, while the pound was up at $1.6187.


AP Business Writers Carlo Piovano in London, Jeremiah Marquez in Hong Kong and Kelly Olsen in Seoul contributed to this report.


London’s largest mall to open despite downturn (AP)

Wednesday, October 29th, 2008 | Finance News

LONDON – With marble floors, crystal chandeliers and a champagne bar, the Westfield London mall is glitzy and big. But when the doors open Thursday, the retail temple faces the most daunting retail environment in recent memory.

When the project started more than a decade ago, no one envisioned the deluxe mall — with a staggering 1.6 billion pound ($2.5 billion) price tag — would be ready just as British consumers face biting inflation, job losses, and fears of a deep recession.

Not the perfect time to be opening, concedes Michael Gutman, managing director of the British and Europe branch of Westfield Group, the Australian company developing the maxi-mall.

"You wouldn't choose this time," said Gutman. "But we've been operating for 50 years and from time to time you open in a boom and from time to time you open in a recession. We are planning for the long term."

Other developers are also bucking the financial trend, going forward with plans to open malls from Dubai to New York despite cutbacks in consumer spending.

Westfield has 118 shopping malls throughout the world, but Westfield London represents its largest in terms of overall investment. As part of the deal, the company and its German partner have spent more than 170 million pounds ($272 million) building new public transportation facilities, including a new Tube station and a new overground train connection.

The opening means that for the first time in Britain, some 300 shops — including fashion giants like Prada, Chanel and Valentino — will be available under one undulating, energy-efficient roof. No more fighting the crowds on Oxford Street, long London's main shopping thoroughfare, and no more braving the wind and rain to go from store to store.

The transportation improvements, and 7,000 jobs at the mall, are the main benefits for West Londoners, said Gutman.

"We will see a positive influence in the neighborhood," he said. "You drop a pebble in a pond and the ripples will spread. You'll see jobs and an increase in property values."

The 43-acre mall sits in the heart of Shepherd's Bush, a neighborhood that has some affluent sections but is also home to a low-income immigrant population hit hard by joblessness.

Inside the mall, visitors see no signs of the hard times gripping Britain and much of the rest of the world. Thousands of workers in bright yellow vests, hard hats and clunky boots are connecting wires, sanding surfaces, polishing everything in sight, and rolling in racks of clothes, shoes and lingerie to stock the shops.

Many familiar American brands are here — Apple, Nike, and The Gap among them.

When the project started, the goal was simple: bring a U.S.-style shopping experience to central London, and make it possible for Britons to experience the seductive pleasures that have turned a generation (or several) of Americans into mall rats.

Shopkeepers in a rundown commercial area a block away from Westfield say they are optimistic the shiny new mall will help everyone in the neighborhood.

"More people will come," said Suminda Singh, who runs a bargain shop selling household goods. "We are hoping for a big improvement. Everybody is excited. We can't wait. Thursday is a big day."

People used to pricey malls in cities like Dallas, Fort Lauderdale and St. Louis should feel right at home in Westfield. Eventually there will be 50 restaurants, 14 movie screens, and valet parking.

But the very American-ness of it all has turned off some British commentators and legislators who have trashed Westfield even before the first pair of designer jeans is sold.

Sarah Mower, writing in the Telegraph newspaper, said the giant mall was a "1.6 billion pound monstrosity." She said it would likely hurt Shepherd's Bush, not revive it.

"Westfield's Australian owners argue that this center will generate 7,000 jobs, but all I see is its power to close small businesses, choke the area with cars and all-night deliveries and even pull crowds and money away from the West End," she said.

The project has also been questioned by Andrew Slaughter, who represents the area in Parliament. He said many of the commitments made when the project was first proposed have not been met and that many of the jobs had gone to outsiders, not locals. He also said the new bus system bypasses local shops.

"We thought they would try to integrate the development into Shepherd's Bush," he said. "Instead they've literally turned their back on it. It will have a huge impact on local stores, the small independents, and I'm afraid a lot of stores may close. I think there's a real risk there could be a ghost town effect."

Still, many residents seem pleased.

"The area will improve and appreciate," said Sean Sandell, 30, who lives one block from the mall. "The negative is that it will increase the already heavy, heavy traffic. But I think the positives outweigh the negatives."


BorgWarner, Tenneco hit by auto market slump (Reuters)

Wednesday, October 29th, 2008 | Finance News

DETROIT (Reuters) –
Two of the largest U.S. auto parts makers said on Wednesday that the global credit crisis and economic slowdown hammered their business in the just-completed quarter and would lead to more job cuts and plant closings.

The weak conditions caused BorgWarner Inc (BWA.N) to post a quarterly loss and Tenneco Inc (TEN.N) to announce future job cuts and plant closings, sending shares of both companies lower.

Shares of BorgWarner tumbled as much as 14 percent after the supplier lowered its full-year financial outlook in the wake of the results that missed Wall Street estimates, while Tenneco shares were down 8 percent.

Both suppliers expected market conditions to deteriorate further in 2009, saying the credit crisis and a worsening global economy are dampening already-weak appetite for vehicles.

"The crisis in the financial sector and deteriorating global economic conditions has caused significant turmoil and uncertainty," BorgWarner Chief Executive Tim Manganello said on a conference call with analysts.

"Much has changed in the past three months. The crash of the U.S. financial sector has basically frozen liquidity and our U.S. economy. The economic issues of the US have spread to other regions around the world," Manganello said.

In response to the abrupt downturn in global demand, BorgWarner said it will reduce 500 jobs in Europe, or 6 percent of its workforce in the region. The supplier has also increased the number of cuts in North America by 200 to 1,200 positions, or 16 percent of its workforce.

Auto parts suppliers, already pressured by U.S. auto sales at decade lows, have been forced to launch more aggressive cost-cutting actions over the past weeks in the wake of the escalating credit crisis.

Industrywide U.S. auto sales plunged 24 percent in September, as an escalating credit crisis hit the slumping industry and raised new doubts about when the world's largest auto market would stabilize.

"As difficult as this market is, this may be one of the best quarters from an industry production perspective that we'll see in a while," Manganello said.


Tenneco Inc (TEN.N) said it is cutting 1,100 jobs worldwide and closing four North American manufacturing facilities as part of a restructuring, which it estimates will save $64 million annually.

"We must act quickly by better aligning our operations with the new realities of the market." Tenneco Chief Executive Gregg Sherrill said in a statement.

Tenneco expects to record up to $60 million in charges -- about $44 million in cash -- related to the restructuring steps it aims to complete by the end of 2009.

The latest job cuts -- 500 salaried and 600 hourly positions -- represent more than 5 percent of Tenneco's global workforce. The company has already slashed 1,150 jobs worldwide so far this year, including 760 in North America.

In addition to the four manufacturing facilities in North America, Tenneco said it will close its engineering operation in Dunsborough, Australia.

BorgWarner, which makes turbochargers and transmission components, posted a third-quarter loss of $130.4 million, or $1.12 per share, compared with earnings of $83.2 million, or 70 cents per share, a year earlier. The company had posted earnings growth in the first and second quarters as overseas sales offset the slump in the U.S. auto market.

Excluding charges for restructuring, a write-down on the value of a past acquisition and other one-time charges, BorgWarner had adjusted earnings of 44 cents per share.

That was below the average forecast of analysts surveyed by Reuters Estimates at 54 cents per share.

Given the slowdown in auto production, BorgWarner said it now expected to earn between $2.25 and $2.35 per share, excluding one-time items, down from its own previous forecast of $2.80 to $2.95.

Sales for the July-September period were $1.32 billion, flat from a year earlier.

Shares of BorgWarner were down $2.26 or 9.46 percent at $21.63 on the New York Stock Exchange near midday, off an earlier low at $20.44. Tenneco shares were down 7.8 percent at $2.85, off an earlier low at $2.81.

(Editing by Patrick Fitzgibbons and Matthew Lewis)