June 24, 2017

Goldman Named in Suit Over Aluminum Supply

Goldman on Wednesday tried to defuse complaints about waiting times and high prices at its metals warehouses across the world by offering immediate access to aluminum for end users holding metal at its Metro International Trade Services unit.

Banks that own commodity assets and trade raw materials have drawn increasing criticism in recent weeks, with federal regulators in the United States taking a look at the metals warehousing industry. Britain’s financial watchdog is also investigating the London Metal Exchange’s warehousing system.

The lawsuit outlines “anticompetitive and monopolistic behavior in the warehousing market in connection with aluminum prices,” Hong Kong Exchanges said in a statement on Sunday.

The lead plaintiff in the lawsuit, filed on Thursday in Federal District Court in Michigan, is Superior Extrusion, an end user of aluminum.

“L.M.E. management’s initial assessment is that the suit is without merit and L.M.E. will contest it vigorously,” Hong Kong Exchanges said in a statement.

Customers and American lawmakers have accused Goldman and other warehouse owners of artificially inflating waiting times to increase rents for warehouse owners and lift metal prices.

“We believe this suit is without merit and we intend to vigorously contest it,” a Goldman Sachs spokesman said. “I would also note that aluminum prices are down 40 percent from their peak in 2006,” he said.

London Metal Exchange aluminum for three-month delivery settled on Friday at $1,809 a ton.

Warehouse owners and the departing chief executive of the London market, Martin Abbott, have contended that complaints over long lines are unjustified, arguing there is no shortage of metal.

Article source: http://www.nytimes.com/2013/08/05/business/global/goldman-named-in-suit-over-aluminum-supply.html?partner=rss&emc=rss

Dilma Rousseff and Brazil Face Stiff Economic Test

Coming off a year in which it recorded its highest growth in a quarter century, Brazil is faced with rising inflation, an overvalued currency and an industrial sector losing competitiveness to cheap Chinese imports.

But Ms. Rousseff’s promising efforts to fix those problems could be undermined in the coming months as the government embarks on one of its biggest spending sprees in decades.

The leaders of the United States and Europe, struggling to right their listing economies, would count themselves lucky to have problems like Brazil’s. Its economy — driven by soaring prices for commodities, robust Chinese demand for raw materials and a domestic consumption boom spurred on by expanding credit — grew 7.5 percent last year, its highest rate since 1986.

“Like other emerging countries, Brazil has thus far been less affected by the global crisis,” Ms. Rousseff, an economist, said at the United Nations last month. “But we know that our capacity to resist is not unlimited.”

Her strategy so far has been bold. Predicting that the global economy will not improve this year, Brazil’s Central Bank has slashed interest rates, making a risky bet that already high inflation would not soar further. That move, aimed at encouraging growth and reducing the value of the currency, was paired with measures to protect Brazil’s industries from a flood of Asian imports.

That approach has shown early signs of success. The stubbornly high Brazilian real began losing value to the dollar last month, reaching its lowest point since 2008 two weeks ago before recovering somewhat last week.

The shift has been front-page news in Brazil, dampening a buoyancy among Brazilians who felt richer than ever. Even as the overvalued currency slowed industrial production, it fueled consumer spending at home and abroad at a blistering pace.

The average per capita purchases by Brazilians in the United States grew 250 percent between 2003 and 2010. Only the Japanese and the British spend more in the United States than Brazilians, figures from the United States Commerce Department show. The foreign spending, which diverts money that could support Brazilian industry, has alarmed government officials here, who have tried to slow the pace of consumption by imposing restrictions on credit card purchases.

But government spending represents the bigger threat.

Next year, the government will be obligated to meet tens of billions of dollars in promised payments for social welfare programs, minimum wage increases and infrastructure projects for its twin billing on the global stage, the 2014 World Cup and 2016 Olympic Games in Rio de Janeiro.

A 14.7 percent increase in the minimum wage is scheduled to take effect in 2012 at a cost of $13 billion, new low-income housing subsidies will cost $6 billion, and investments for the sporting events are expected to cost at least $4.5 billion, said Luiz Schymura, director of the Brazilian Economic Institute at the Getulio Vargas Foundation in Rio de Janeiro.

Since her inauguration in January, Ms. Rousseff has shown a willingness to take a red pen to fiscal spending. Her government approved $28 billion in budget cuts, privatized airports — a move considered long overdue by economists and many policy makers — and stood up to unions demanding even higher wage increases.

But standing up to the minimum wage or the World Cup may be politically impossible.

“For all her good intentions, the political pressures on her will be enormous,” Dr. Schymura said.

The surge in spending, accompanied by lower interest rates, could produce a cycle of higher inflation, economists fear. Whether the new policies will be enough to revitalize Brazil’s industrial sector remains to be seen. The economy’s growth has slowed this year to about 3.5 percent, economists say, about half that of last year. And the consumption boom is slowing. Housing, grocery and retail stores are all reporting reduced sales, said Alfredo Coutiño, director for Latin America at Moody’s Analytics.

Article source: http://www.nytimes.com/2011/10/09/world/americas/dilma-rousseff-and-brazil-face-stiff-economic-test.html?partner=rss&emc=rss

Fundamentally: Emerging-Market Funds Tweak Their Strategy

IN a global slowdown, it’s only natural for investors to focus on parts of the world where economic growth remains strong — for instance, the rapidly expanding emerging markets.

Yet so far this year, bets on stocks in developing nations like China, India and Brazil have produced far greater losses than those in the domestic market. The Morgan Stanley Capital International Emerging Markets index has plummeted more than 10 percent, versus a 6.7 percent decline for the Standard Poor’s 500 index of domestic stocks.

So have investors thrown in the towel on the emerging markets? Not in the least. In fact, between January and July, they plowed more than $12 billion in net new money into mutual funds that focus on developing-market stocks.

As investors stuck with this asset class, though, they also tweaked their strategies.

Throughout much of the last decade, the way to win in emerging markets was to bet on producers. For instance, industrial companies throughout the developing world experienced a huge wave of growth as manufacturing left mature economies in the West.

So investors focused on parts of the industrial sector that benefited from the manufacturing boom. They bet on energy companies that powered factories and on commodity producers that met the rising demand for the raw materials needed to supply those factories and construction.

This year, though, the market has shifted. Industrial-oriented stocks have fallen 17 percent, or about seven percentage points more than the broad emerging markets.

Consumer-oriented companies, meanwhile, many of which are catering to the fast-growing middle class in places like China, have held up remarkably well. Shares of companies in emerging markets that make nonessential, or discretionary, consumer products are up around 3 percent this year.

“An overarching theme that’s occurring across the emerging markets is that the consumer base is blossoming into an income level that allows them to spend money on things beyond the necessities,” said Mark D. Luschini, chief investment strategist at Janney Montgomery Scott.

China, for example, is on track this year to overtake Japan in the number of vehicles it has on the road, putting it second behind the United States.

Arjun Jayaraman, a portfolio manager for emerging markets at Causeway Capital Management, said it was not surprising that some consumer companies had held up better than industrial ones.

“Let’s face it: this slowdown is based in the developed world,” Mr. Jayaraman said. While companies that make and export goods to Europe and the United States will be hurt by slowing demand in the West, he said, “a consumer company in India or China that’s more dependent on the local markets will be more insulated from the global slowdown.”

To be sure, consumer companies aren’t a huge segment of the emerging markets. Combined, consumer discretionary stocks and shares of consumer staples companies — which make essential goods like food or toothpaste — make up just 16.5 percent of the Standard Poor’s Emerging Broad Market index.

But Alec Young, international equity strategist at S. P. Equity Research, said that these consumer-oriented companies could serve “as a port in the storm for investors who want exposure to the emerging markets but want to achieve it in a more conservative way.”

Investors must still be careful, though, with this group of stocks.

“Stocks that are less sensitive to the global economy and that target local consumer demand have performed better, but as a result they’ve gotten more expensive,” said Jeffrey A. Urbina, co-portfolio manager of the William Blair Emerging Markets Growth fund.

The average price-to-earnings ratio for consumer discretionary stocks in the MSCI Emerging Markets index, for instance, is 13.4, based on the last 12 months of earnings. By comparison, the ratio for the broad emerging markets stands at 10.9.

As a result, many strategists say a cheaper — and less volatile — way to gain exposure to emerging-market consumers is through shares of large domestic and European multinational companies that generate a sizable portion of their revenue from those regions.

As examples, Simon Hallett, chief investment officer at Harding Loevner, an asset management firm, points to McDonald’s, whose shares are up 19 percent this year, and Colgate-Palmolive, up 12 percent.

These stocks have performed so well in this volatile market “not just because they’re defensive stocks,” he said. “It also has to do with their long-term growth opportunities in emerging economies.”

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

Article source: http://feeds.nytimes.com/click.phdo?i=da5b061b10acc6fcf6b4be7f4bde034b

Energy Costs Lift Retail Sales and Producer Prices

Retail sales rose 0.5 percent in April, after a 0.9 percent increase in March. Excluding a 2.7 percent jump in gasoline sales reflecting higher prices, the increase in retail sales was a much smaller 0.2 percent.

Gasoline pump prices have been surging in recent months, with the nationwide average hovering near $4 a gallon. Economists are worried that higher fuel costs will leave motorists with less money to spend on other items, and that will slow the overall economy.

Sales at gasoline stations, which made up about 10.5 percent of total sales in April, increased 2.7 percent after rising 4.1 percent in March.

Higher energy costs helped push up prices paid by companies for raw materials and factory goods in April.

The Labor Department said that the Producer Price Index, which measures price changes before they reach the consumer, rose 0.8 percent last month. That was slightly above the 0.7 percent gain in March. Excluding the volatile food and energy categories, the core index increased 0.3 percent, the same as in March.

Over the last 12 months, the index has increased 6.8 percent, the biggest gain in nearly three years. Outside of food and energy, prices rose 2.1 percent, up from a 1.9 percent gain in March.

Turmoil in the Middle East and rising demand from fast-growing developing countries have pushed up the price of oil and gas since last summer. The prices of corn, wheat, cotton and other commodities have also increased because of strong global demand. That has raised worries among some economists that consumer prices could also rise and inflation could surge.

But some signs in recent days suggest that inflation pressures could cool in the coming months. Oil prices dropped on Thursday to nearly $96 a barrel on expectations that global demand would slow this year. The price was about $114 a barrel last week. Prices of corn and other grains fell on Wednesday.

Paul Dales, an economist at Capital Economics, said higher energy and agricultural commodity prices could push the 12-month increase in the Producer Price Index to 8 percent in the coming months. But he said it would be a temporary spike.

“With commodity prices now falling, both producer and consumer price inflation are likely to drop sharply in the second half of the year,” Mr. Dales said.

A separate report from the Labor Department showed that the number of people applying for unemployment benefits dropped last week, reversing nearly all the sharp rise reported the previous week.

The number of laid-off workers seeking benefits dropped 44,000, to a seasonally adjusted 434,000. That was the steepest weekly fall since February 2010.

The drop suggests that the increase of 47,000 reported last week was mostly because of temporary factors. Still, the latest applications figure is far above the 375,000 level typically consistent with sustainable job growth. Weekly applications peaked during the recession at 659,000.

The four-week average of claims, a less volatile measure, rose to 436,750, its fifth consecutive increase. The average has increased 46,500, or nearly 12 percent, since early April.

Many economists say a brighter outlook for hiring should blunt the impact of inflation. Companies have added 250,000 jobs each month, on average, in the last three months, the biggest hiring spree in five years. The unemployment rate has dropped nearly a full percentage point in the last five months.

More jobs are critical to increasing consumer spending, which accounts for about 70 percent of the economy.

Article source: http://feeds.nytimes.com/click.phdo?i=83bf4bd9a26eb84feaea13afaae24ab3