U.S. Economy: Inflation Slows, Industrial Production Unchanged

(Bloomberg) -- Consumer prices in the U.S. rose at a slower pace in December and industrial production failed to grow, giving the Federal Reserve the room and reason to cut interest rates at their next meeting on Jan. 30.

The cost of living increased 0.3 percent after a 0.8 percent gain in November, the Labor Department said today in Washington. Output at U.S. factories was unchanged in December as exports helped make up for declines in auto and housing- related production, the Federal Reserve said separately.

Slower growth will make it more difficult for companies to pass on higher costs, suggesting inflation will cool from last year's pace, the fastest in 17 years, economists said. Investors' attention may now shift to Chairman Ben S. Bernanke's testimony on the economy tomorrow at a hearing in Congress.

``With the sluggish growth outlook and rising risk of recession, inflation concerns have receded,'' said Zach Pandl, an economist in New York at Lehman Brothers Holdings Inc., which correctly forecast the increase in prices. ``The Fed is clearly focusing on growth at this point.''

Economists had anticipated a 0.2 percent increase in consumer prices last month, according to the median forecast in a Bloomberg News survey.

Prices excluding food and energy advanced 0.2 percent, after a 0.3 percent increase, matching the median estimate.

Treasury notes were little changed after the consumer price report and later slipped. The yield on the benchmark 10-year note was 3.68 percent at 10:33 a.m. in New York, little changed from late yesterday. Stocks dropped after an Intel Corp. sales forecast spurred concern technology profits will weaken.

Capacity Use

Capacity utilization, which measures the proportion of plants in use, fell to 81.4 percent from 81.6 percent in November, indicating greater slack in the economy, the Fed's report showed. Economists had predicted a 0.2 percent drop in output and a capacity-in-use rate of 81.2 percent.

``There is nothing that would keep the Fed from cutting 50 to 75 basis points later this month,'' based on today's data, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp. in New York.

Traders anticipate the Fed will cut its benchmark rate to 3.75 percent, from 4.25 percent, this month, futures prices show. The chance of a 75 basis-point cut was 42 percent. Policy makers are next scheduled to gather Jan. 29-30. A basis point is 0.01 percentage point.

For all of last year, consumer prices rose 4.1 percent, the most since 1990. The core rate climbed 2.4 percent after a 2.6 percent increase in 2006.

Energy Costs

Energy prices last month rose 0.9 percent, after gaining 5.7 percent the previous month. Fuel costs were up 18 percent in 2007, also the most in 17 years.

Food prices, which account for about one-fifth of the CPI, increased 0.1 percent, the smallest gain of any month in 2007.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

The government yesterday said producer prices unexpectedly eased 0.1 percent at the end of a year that saw the biggest annual jump in more than a quarter century. The cost of imported goods was unchanged in December, a report last week showed.

PPI and CPI have some differences in timing that may cause discrepancies. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.

Rents, which make up almost 40 percent of the core CPI, rose 0.3 percent.

 

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ECB's Mersch Urges Caution as Growth Risks Increase

(Bloomberg) -- European Central Bank council member Yves Mersch said the bank should exercise caution as risks to economic growth increase.

``We have certainly downside risks to economic activity,'' Mersch, 58, said in an interview at his office in Luxembourg yesterday. While inflation risks have also risen, ``we're not unaware of mitigation to price developments,'' he said, citing a stronger euro, near-record oil prices, the slowing U.S. economy and higher credit costs.

The ECB has threatened to raise interest rates as unions demand wage increases to compensate for the fastest inflation in six years. At the same time, the U.S. Federal Reserve is cutting borrowing costs to stave off recession in the world's largest economy after its housing market slumped.

``I don't like assumptions that what's happening in one part of the world is also true for another part,'' Mersch said. The ECB should nevertheless ``be cautious, look at the figures and take the appropriate decisions. There's still widespread uncertainty, and that's affecting confidence.''

The euro fell more than a cent on the comments, to $1.4652 at 5.06 p.m. in Frankfurt, and bonds rallied.

Mersch is the fifth policy maker this week to note either downside risks to the economic outlook or the temporary nature of the jump in inflation.

`Look Through'

The ECB can afford to ignore an oil-driven surge in inflation if it doesn't inflate wage settlements, Mersch said. ``If there's no pass-through of these temporary factors to the general price level, we're able to look through if need be.''

Inflation, which held at 3.1 percent in December, may return to the ECB's 2 percent limit next year if oil prices ease and wages don't rise excessively, ECB council members Michael Bonello, Lorenzo Bini Smaghi and Axel Weber all said this week.

Mersch said while rising oil and food costs have increased the likelihood of so-called second-round effects materializing, they ``haven't materialized so far.'' Financial-market uncertainty and ``other international developments'' may ``weigh on the inflation development,'' he said.

The ECB shelved a planned rate increase in September and has since kept its benchmark at 4 percent to assess the economic impact of the U.S. subprime mortgage collapse, which made banks reluctant to lend and drove up the cost of credit globally. Oil prices near $100 a barrel and the euro's appreciation may also damp European growth.

 

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Oil Falls Below $90 for First Time in 4 Weeks as Supplies Rise

(Bloomberg) -- Crude oil fell below $90 a barrel for the first time in four weeks after a U.S. Energy Department report showed that supplies rose more than expected.

Inventories surged 4.29 million barrels to 287.1 million in the week ended Jan. 11, the first increase in nine weeks, the report showed. Supplies were expected to rise 1.25 million barrels, according to the median of 15 responses in a Bloomberg News survey.

``This confirms that the seasonal period of crude-oil inventory builds has begun and gotten off to a good start with a larger-than-expected build,'' said Eric Wittenauer, an analyst at A.G. Edwards & Sons Inc. in St. Louis.

Crude oil for February delivery fell $2.47, or 2.7 percent, to $89.43 a barrel at 10:56 a.m. on the New York Mercantile Exchange. Prices touched $89.35 today, the lowest since Dec. 18. Futures reached a record $100.09 a barrel on Jan. 3. Prices are up 75 percent from a year ago.

Brent crude for February settlement declined $2.09, or 2.3 percent, to $88.89 a barrel on London's ICE Futures Europe exchange. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.

Refineries operated at 87.1 percent of capacity, down 4.2 percentage points from the week before, the report showed. It was the biggest one-week drop since September 2005 when Hurricane Rita shut refineries in Texas and Louisiana after roaring in from the Gulf of Mexico.

``The big drop in refinery runs is the most shocking number inside the report,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``It could be that we are seeing an early start to the next round of refinery maintenance.''

 

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U.S. Stocks Fall on Intel Forecast, Extending Global Tumble

(Bloomberg) -- U.S. stocks declined after Intel Corp.'s sales forecast stoked concern over technology profits and deepened a decline in global markets that's wiped out $2.58 trillion in value this year.

Intel, the world's largest computer-chip maker, dropped the most in five years in Nasdaq Stock Market trading after saying first-quarter sales will be as much as 6.9 percent below analysts' estimates. Exxon Mobil Corp. and Chevron Corp. led energy shares lower on the New York Stock Exchange as oil prices retreated below $90 a barrel for the first time in four weeks.

The Standard & Poor's 500 Index lost 12.7, or 0.9 percent, to 1,368.25 at 11:04 a.m. in New York, below its Aug. 16 trading low. The Dow Jones Industrial Average slipped 75.43, or 0.6 percent, to 12,425.68. The Nasdaq Composite Index sank 47.9, or 2 percent, to 2,369.69. Asia's regional benchmark fell to its lowest since August, while European shares slid to a 16-month low. Indexes in Russia, Japan and Hong Kong all dropped by more than 3 percent.

``It's obviously treacherous out there, and Intel did no favors with their earnings announcement,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``There's not a whole lot of places to hide, and the consumer looks weak right now.''

The S&P 500 has dropped 6.8 percent so far this year, while the Dow average is down 6.3 percent and the Nasdaq Composite has lost 11 percent. Technology shares, which helped lead the market higher last year, have retreated 12 percent as a group in 2008 for the worst performance among 10 industries.

Losses were limited today as JPMorgan Chase & Co. and Wells Fargo & Co. posted results that topped analysts' estimates and Oracle Corp. agreed to buy BEA Systems. Four stocks retreated for every three that rose on the NYSE.

Consumer prices rose at a slower pace in December, signaling inflation may decelerate after rising in 2007 by the most in 17 years.

Intel Forecast

Intel tumbled $2.86, or 13 percent, to $19.83. First- quarter sales will rise to as little as $9.4 billion, the chipmaker said yesterday after the close of trading, less than the $10.1 billion estimate of analysts surveyed by Bloomberg. Lehman Brothers slashed its price estimate on the stock by 23 percent to $23.

Advanced Micro Devices Inc., the second-largest maker of computer processors, lost 16 cents to $5.96.

Apple Inc. dropped $10.23 to $158.81. The shares slumped for a second day after new products failed to impress investors yesterday.

Oil fell below $90 a barrel for the first time in four weeks in New York after a Energy Department report showed supplies rose more than expected.

Oil Drops

Exxon, the largest U.S. oil company, declined $2.79 to $86.23. Chevron Corp., the second-biggest, lost $2.74 to $85.53. ConocoPhillips, the second-largest U.S. refiner, retreated $2.66 to $77.95.

Ambac Financial Group Inc. plunged $6.05, or 29 percent, to $15.09. The second-largest bond insurer will slash its dividend 67 percent and raise more than $1 billion in new capital to preserve its AAA credit rating. Ambac and rival MBIA Inc. are under scrutiny by ratings companies and regulators after their guarantees on collateralized debt obligations and bonds linked to subprime mortgages began plunging in value.

Oracle Corp., the world's third-biggest software maker, slid 4 cents to $21.27 after agreeing to buy BEA Systems Inc. for $8.5 billion. Oracle will buy the San Jose, California-based software maker for $19.38 a share in cash, 24 percent above yesterday's closing price. Oracle capitulated to BEA's board's demands for a higher price after BEA rejected a $17 bid in October. BEA added $2.97 to $18.55.

 

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Ambac Will Cut Dividend, Raise $1 Billion in Capital

(Bloomberg) -- Ambac Financial Group Inc. ousted its chief executive officer, slashed the dividend 67 percent and will raise more than $1 billion to preserve its AAA credit rating after announcing the biggest-ever writedowns by a bond insurer.

The New York-based company fell as much as 28 percent on the New York Stock Exchange, extending a 76 percent decline in the past 12 months. Ambac will report a loss after reducing the value of securities it guarantees by $3.5 billion, according to a statement today.

Chairman and CEO Robert Genader, 60, will leave after presiding over the company's first ever losses and a decline in shares that wiped out $7.8 billion in market value. Ambac's writedowns, which exceeded those announced last week by larger rival MBIA Inc., failed to convince investors that the worst is over. Ambac and MBIA remain under scrutiny by ratings companies and regulators after their guarantees of bonds linked to subprime mortgages began plunging in value.

``The perception is that their underwriting standards were insufficient and they weren't on top of their business,'' Janet Tavakoli, president of Tavakoli Structured Finance in Chicago, said in an interview. ``This announcement still just says `We're a black box. Deal with it'.''

Ambac, which put its AAA stamp on $556 billion of securities, probably will end up needing more capital because the credit quality of the debt it guarantees will decline, Tavakoli said. Standard & Poor's yesterday changed the way it reviews subprime securities to increase its assumptions for losses, indicating it may further lower credit ratings.

Shares Fall

Board member and former Citigroup Inc. executive Michael Callen, 67, will become chairman and interim CEO, Ambac said.

The reduction in the quarterly dividend to 7 cents from 21 cents reverses a commitment made just three weeks ago to retain the payout. Ambac said it will report a net loss of $32.83 a share for the quarter, equating to more than $3 billion based on the company's 101 million shares outstanding.

Ambac declined $5.79 to $15.35 at 10:35 a.m. in New York after earlier falling as low as $15.12. MBIA dropped $1.91, or 12 percent, to $14.14.

``It's one thing to have a plan and another to have a plan that is credible and will be a long-term fix,'' said Donald Light, an analyst with Boston-based consulting firm Celent. ``Is this just a down payment in what's going to be a series of payments of uncertain length?''

`Clock Ticking'

Ambac is under pressure to come up with enough capital to satisfy Fitch Ratings, which threatened to cut the company's AAA rating unless it raised $1 billion. The bond insurers are under scrutiny from Fitch, Moody's Investors Service and S&P to increase their capital after a slide in credit ratings of the debt they guarantee.

The loss of the AAA stamp of Ambac, MBIA, FGIC Corp. and other insurers would throw into doubt the ratings of $2.4 trillion of municipal and structured finance debt that the companies guarantee. It would also cripple their ability to keep underwriting new bonds.

``The clock is ticking for all these companies,'' Robert Haines, an analyst with New York-based bond research firm CreditSights Inc., said in an interview before the announcement.

The infusion of capital, which may include the sale of shares and convertible stock, will satisfy Fitch, Ambac said in the statement today. Ambac said it may also reinsure more of its bonds or sell debt securities to shore up capital.

 

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JPMorgan Fourth-Quarter Earnings Fall, Miss Estimates

(Bloomberg) -- JPMorgan Chase & Co., the third- biggest U.S. bank, said profit dropped 34 percent on subprime- mortgage writedowns and higher provisions for future loan defaults.

Fourth-quarter net income declined to $2.97 billion, or 86 cents a share, from $4.53 billion, or $1.26, a year earlier, the New York-based bank said today in a statement. JPMorgan rose as much as 6.8 percent in New York trading as the $1.3 billion writedown was smaller than analysts estimated.

The profit decline, the first since Jamie Dimon became chief executive officer in 2005, came as trading revenue fell and JPMorgan prepared for what it said may be a substantial weakening in the U.S. economy. The company added $2.3 billion to credit reserves, bringing the total to $10 billion. Citigroup Inc., the biggest U.S. bank, said yesterday it added $5.2 billion to cover U.S. loan losses and took an $18.1 billion writedown.

``We remain extremely cautious as we enter 2008,'' Dimon, 51, said in the statement. ``If the economy weakens substantially from here -- for which, as a company, we need to be prepared --it will negatively affect business volumes and drive credit costs higher.''

JPMorgan gained $1.68, or 4.3 percent, to $40.85 in composite trading on the New York Stock Exchange at 10:28 a.m.

``Their diversified business model really continues to separate JPMorgan from a lot of their peers,'' said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees $1.7 billion including JPMorgan shares.

Revenue Increase

Revenue climbed 7 percent to $17.4 billion, compared with the average estimate of $17.2 billion in the Bloomberg survey. Profit fell short of the 92-cent average estimate of 17 analysts surveyed by Bloomberg. Last year's fourth-quarter earnings included a one-time gain of $622 million.

Net income at the investment-banking division tumbled 88 percent to $124 million in the fourth quarter, as credit-market turmoil reduced revenue from debt underwriting 39 percent, to $467 million. Fixed-income revenue tumbled 70 percent because of the writedown, to $615 million, and ``weaker trading results'' contributed to a 40 percent drop in equity market revenue, which fell to $578 million.

The retail bank's profit climbed 5 percent to $752 million, driven by increases in mortgage banking. Those gains were tempered by declines in the home-equity and auto-loan businesses. Charge-offs on home-equity loans totaled $248 million. Profit from auto loans was $49 million, a 25 percent drop from a year earlier.

Credit Costs

Dimon said on a conference call with analysts that he isn't predicting a U.S. recession, though credit costs will increase as the economy weakens.

JPMorgan earned 15 percent less from its card services business, as its provision for future losses rose 40 percent to $1.79 billion.

Return on equity from continuing operations, a gauge of how effectively the company reinvests earnings, was 10 percent, compared with 14 percent a year earlier.

JPMorgan lost 18 percent of its market value in the past 12 months, compared with 50 percent at New York-based Citigroup and 29 percent at Charlotte, North Carolina-based Bank of America Corp.

JPMorgan's Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, remained unchanged from the third quarter at 8.4 percent.

 

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BEA accepts $8.5 billion Oracle offer

(Reuters) - Oracle Corp (ORCL.O: Quote, Profile, Research) on Wednesday won a three-month-long campaign to buy BEA Systems Inc (BEAS.O: Quote, Profile, Research) by raising its bid for the business software maker by 14 percent to $8.5 billion.

Activist investor Carl Icahn, BEA's largest shareholder with a nearly 13 percent stake, said he supported the deal, one of last year's highest profile corporate takeover battles.

Icahn and BEA's board initially rejected Oracle, saying it undervalued the company, but no other buyers emerged even as BEA's investment bank, Goldman Sachs, solicited bids from other software makers.

The price that BEA finally agreed to, $19.375 per share in cash, represents a compromise between the $17 that Oracle offered in October and the $21 that BEA had demanded.

"It's a fair price. It's a good deal for Oracle. It's a good deal for BEA," said Trip Chowdhry, analyst at Global Equities Research.

Shares of BEA rose 19 percent to $18.59 in morning Nasdaq trade, while Oracle shares were down 2 cents to $21.29.

BEA is a maker of "middleware," which helps business computer systems interact with each other. Oracle could sell its technology alongside its own middleware, database products and business-management software.

 

Read more at Reuters

Airbus posts record 2007 orders

(Reuters) - Airbus confirmed 2007 as a record year for planemakers on Wednesday by posting orders for 1,341 aircraft while boosting cost savings aimed at catching archrival Boeing Co.

Boeing took top spot with 1,413 orders and has suffered less from a weakened dollar than Airbus, which has launched its Power8 cost-savings drive in response.

"These are enormous numbers; it was a staggering year. Now it becomes a question of how we manage the backlog," Airbus chief Tom Enders told journalists.

"Power8 delivered cost savings very considerably ahead of schedule in 2007. The official version is more than 300 million euros; I can tell you it is close to 500 million," he said.

The planemaker aims to cut 10,000 jobs and sell plants to lower its costs. It said it had achieved 30 percent of its planned reduction in overhead positions in 2007, or 3,000 jobs, equally split between Airbus and its suppliers.

Yet despite the reductions achieved mainly through attrition, Airbus still needs to hire production workers and skilled engineers to deliver ambitious new projects.

The overall Airbus headcount of around 55,000 fell slightly in 2007, Chief Operating Officer Fabice Bregier said.

 

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Wells Fargo profit falls

(Reuters) - Wells Fargo & Co (WFC.N: Quote, Profile, Research) on Wednesday said its fourth-quarter profit fell 38 percent, the first decline in more than six years, hurt by rising losses from home equity loans.

However, the decline was smaller than expected, and shares of the financial company were up 41 cents, or 1.5 percent, to $26.90 in early trading on the New York Stock Exchange after climbing to a session high of $28.11.

The weaker results reflect how the housing slump and tight credit markets have affected even mortgage providers such as Wells Fargo, whose lending practices are considered conservative.

"Except for the admitted slip of getting involved in third-party home equity loans, they've done a fine job in a challenging market in avoiding credit missteps," said Thomas Russo, who helps invest more than $3 billion at Gardner, Russo & Gardner in Lancaster, Pennsylvania, including 4 percent in Wells Fargo. "They're not immune, but have less exposure."

Net income for the San Francisco-based bank, which is the nation's fifth-largest bank and second-largest mortgage lender, fell to $1.36 billion, or 41 cents per share, from $2.18 billion, or 64 cents, a year earlier. Revenue increased 8 percent to $10.21 billion.

Analysts on average expected a profit of 39 cents per share on revenue of $10 billion, according to Reuters Estimates.

Wells Fargo said it tripled the amount set aside for loan losses to $2.6 billion, including $1.4 billion tied to home equity loans. The latter reduced after-tax profit by 27 cents per share. In November, the bank significantly scaled back offering home equity loans through brokers.

 

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Boeing delays 787 by three more months

(Reuters) - Boeing Co (BA.N: Quote, Profile, Research) said on Wednesday it would push back first test flight and deliveries of its 787 Dreamliner by about three months, as it struggles with production of the new, carbon-fiber airplane.

The delay is the second major setback for the program in three months, after announcing a six-month delay in October.

Only a month ago Boeing's commercial airplane chief assured Wall Street that the plane was on track to meet its revised schedule.

Boeing said on Wednesday the first test flight of the plane would now take place around the end of the second quarter, compared with its previous target of near the end of March.

First deliveries of the plane are now scheduled for early 2009, rather than its previous estimate of late November or December this year.

Chicago-based Boeing said the new delay would not have a significant effect on 2008 results, but it would update its financial forecasts for this year when it reports quarterly earnings on January 30.

It plans to provide financial forecasts for 2009 when it reports first-quarter earnings at the end of April. The new delay is likely to have a greater impact on 2009, as that is when deliveries of the 787 are now scheduled to start.

 

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Consumer prices data open door to rate cut

(Reuters) - Consumer prices rose modestly in December while industrial production was flat, leaving the door open for the Federal Reserve to slash interest rates later this month to shore up an economy that some fear is on the verge of a recession.

The reports released on Wednesday also showed consumer prices shot up last year at the fastest rate in 17 years, driven by soaring energy costs, while manufacturing growth was the weakest since 2003.

The data "underlines our view that we're on the razor's edge here, that we could be headed into recession," said Mike Schenk, senior economist with Credit Union National Association in Madison, Wisconsin.

Stock markets were mixed, with technology shares hurting after a disappointing earnings report from sector bellwether Intel Corp. Bond prices weakened while the dollar's value declined against other major currencies.

The Consumer Price Index, the most broadly used gauge of inflation, rose 0.3 percent in December, slightly ahead of economists' forecasts for a 0.2 percent rise, the Labor Department report showed.

Still, core prices that strip out volatile food and energy items rose 0.2 percent last month - in line with forecasts - following a 0.3 percent November increase.

For the full year, CPI jumped 4.1 percent, well ahead of the 2.5 percent increase posted in 2006 and the largest 12-month rise since a 6.1 percent increase in 1990. Core prices were up 2.4 percent for the full year, following a 2.6 percent pickup in 2006. That was the smallest 12-month rise in core prices since a 2.2 percent increase in 2005.

 

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JPMorgan takes $1.3 billion writedown

(Reuters) - JPMorgan Chase & Co said on Wednesday quarterly profit fell a worse-than-expected 24 percent as the No. 3 U.S. bank lost $1.3 billion on risky mortgages and set aside more money for rising losses on home-equity loans.

The bank quadrupled to $1.1 billion the provision it needs to cover continued problems on home equity and subprime mortgage loans. It also said credit card spending slowed in December, a sign the U.S. economy could suffer as cash-strapped consumers face rising food and heating costs while the value of their homes slide.

"We remain extremely cautious as we enter 2008," JPMorgan Chief Executive Jamie Dimon said in a statement. He said a worsening U.S. economy would boost consumer credit losses beyond current levels.

 

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Load shedding inquiry looms

(Fin24) - The public protector is considering whether or not to mount an investigation into the load shedding currently being experienced by South Africans, which, he says "is having a devastating effect ... on service delivery by government, is causing serious prejudice to the private sector and negatively affects the lives of many of the people."

In a letter to the chief executive of Eskom, Jacob Maroga, the public protector, Lawrence Mushwana, on Wednesday said that he is mandated to investigate on his own initiative or on receipt of a complaint, conduct by public entities that causes unlawful or improper prejudice to any person.

He poses a series of questions to the Eskom chief to help him decide whether to proceed.

He asks Maroga to explain the reasons for the load shedding, the measures that were put in place by Eskom to prevent what is causing the load shedding and the expected duration of the load shedding practice.

He also asks for detailed information "as a matter of urgency" on steps that have been taken by Eskom to address the reasons for the load shedding and the time frames within which the problems will be resolved.

 

Read more at Fin24

Shoprite pockets rise in sales

(Fin24) - Pan-African food retailer Shoprite said sales for December 2007 rose by 16.1% when compared with 2006, which analysts have billed as "pleasing".

The 16.1% increase accounted for both inflation and volume
growth; for the same month, same-store sales grew by 11.7%.

Shoprite says that for the six months to end-December, sales rose by 21.8% to R23.3bn, but notes that the increase should be seen against the three-month strike which took place from August to October 2006, as earnings in thatperiod were affected.

It says like-for-like business in the six-month period
grew by 16.5%.

Nedcor Securities retail analyst Syd Vianello says that
while the numbers were good, the market may be a little disappointed and may have expected more growth given increased social grants, higher food inflation and the perception that Shoprite is taking market share away from Pick n Pay.

Room to fall further

Coronation Fund Managers' food retail analyst Quinton Ivan
says high food inflation - especially in staple foods, which comprise a large part of the Shoprite basket - was beneficial for food retailers' numbers because, despite higher prices, sales volumes do not drop as food is a basic commodity.

Ivan says that while Shoprite is on a heavier rating
(trading on an earnings multiple of 19.3) when compared with Spar (17.6) and Pick n Pay (19.2), its earnings have grown at a faster rate.

Ivan's preference in the food-retail space remains Spar.

Ivan was particularly impressed with the 32.5% growth (20.2% on a like-for-like bases) in Shoprite's African operations. As at end-June 2007 (the most recent figures available), Shoprite had 120 stores in 16 African countries.

Negative overall market sentiment, which saw the all-share index down 3.4% by 13:00 - overshadowed the positive trading update, with Shoprite shares falling 5.4% to 3 700c.

Shoprite's fall was in line with that of fellow food
retailers Pick n Pay (down ) and Spar Group (down 3.6% to 5 300c).

Nedcor Securities retail analyst Syd Vianello says that food retail stocks have, until now, held up well due to them being defensive plays.

Vianello says that while the sell-off presented a buying opportunity, there was room for food retailers to fall further relative to apparel retailers, which have been trading at low price levels.
 

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Rand on back foot

(Fin24) - The rand remained on the back foot in late trade on Wednesday amid continuing turmoil in global stock markets with a raft of recent US economic data adding to fears of a
recession in the world's biggest economy.

Dealers added that local data indicating a slowdown in retail sales which supports the argument against another South African rate hike later this month had also contributed to the rand's weakness.

By 15:55 the rand was bid at R6.9210 to the dollar from its previous close of R6.8050. It was bid at R10.2638 to the euro from a previous R10.1070 and at R13.6167 against sterling from R13.1853 before.

The euro was bid at $1.4805 from $1.4780 overnight, while gold was quoted at $890.75 a troy ounce from its previous close of $889.10/oz.

 

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Metorex guns for CRC control

(Fin24) - Metorex, the JSE-listed diversified mining group, said it was confident it would vacuum up the remaining 5% it needed to complete the takeover of Copper Resources Corporation (CRC), an AIM-traded company with mining prospects in the Congo.

"We already own 45% of the company," said Charles Needham, CEO of Metorex at the group's annual general meeting held in Johannesburg suburb, Rosebank. "We have approached between 7% to 8% of CRC shareholders who are outside the offer to sell us the shares on the same terms and conditions."

"What if something goes wrong?" a shareholder asked Needham.

Said Needham: "We are pretty certain about getting at least 5% of those."

Metorex bought 38.7% of CRC in July last year plus a 5% stake in its 75% held subsidiary MMK from the Forrest group for R600m. The Metorex share price stood around R24 at the time and it subsequently rose to an all-time high of 2 950c.

But by mid-January, Metorex's share price was 38% off its 12-month high and was last trading at 1 902c, another 5% decline on the day.

 Read more at Fin24

Tiger: 'Blatant profiteering'

(Fin24) - The Competition Commission - on Wednesday slammed the bread price increases, saying the "blatant profiteering is an insult to the nation".

Bread maker Tiger Brands (TBS) on Monday implemented price increases on its Albany bread brand - soon after the Competition Commission hit it with a R99m fine for admitting a role in bread price-fixing cartel.

"This blatant profiteering is an insult to the nation, particularly the poor. It demonstrates that either the collusion is continuing or the cartel members are acting to maintain the artificially high margins they achieved by acting unlawfully," said Shan Ramburuth, Competition Commissioner.

The Commission has requested an explanation.

Tiger Brands is the only company that has implemented price hikes. Its peers Pioneer Foods, Premier Foods and Foodcorp, which are also implicated in the bread cartel scandal, are expected to follow suit.

"Should evidence show that the collusive behaviour is continuing we are able to withdraw the immunity we've granted to other players. We are also prosecuting the remaining cartel members, Pioneer and Foodcorp. Perhaps most shockingly, we have received new allegations of other anti-competitive behaviour by these parties, which we are vigorously pursuing," said Ramburuth.

Tiger Brands has denied that prices increases were implemented to plug the gap on the R99m, but has cited higher wheat prices.

Wheat prices - which make about 20% of bread input - nearly doubled in the past year to trade around 3 000 rand per ton as the world's wheat inventories shrunk due to threats of crop failure in the world's top wheat exporters.
 

Read more at Fin24