The Oliver Twist takeover defence: The board of Brisbane-based Macarthur Coal told its would-be suitor Peabody Energy of the US to go away this morning and return with an offer higher than the $14 a share produced yesterday, which was $1 a share higher than the $13 offered before Easter. Macarthur directors told the market that the offer undervalued Macarthur and was skinny. Macarthur shares fell 52c to $14.58 after the statement was released to the market just after trading started at 10am. Macarthur says the meeting due to be held next Monday to approve a series of deal with Noble Group, the Hong-Kong trading house, remains on course. 46% of Macarthur’s shares are owned by Citic of China, Posco of South Korea and the world’s biggest steel group, Arcelor Mittal. In other words, more money please, Mr Peabody. Macarthur shares hit $20 in mid-2008 when Citic, Arcelor and Posco battled for big stakes in the group.
A tale of two economies, again: The Reserve Bank lifts interest rates for a fifth time since last October, with more to come in the US, the minutes of the last Fed meeting were released and contained the news that the central bank believes the US economy is recovering, but not very strongly. In fact the minutes reveal there are fears the recovery may run out of steam later in the year.
Read the Fed’s own words: The minutes made it clear that the Fed’s current record low interest rate of 0% to 0.25% will remain at that level for a more “extended period” than the market thinks. “The duration of the extended period prior to policy firming might last for quite some time and could even increase if the economic outlook worsened appreciably or if trend inflation appeared to be declining further. Such forward guidance would not limit the (policy setting) committee’s ability to commence monetary policy tightening promptly.” The minutes say the length of time for the extended period will be based on the evolution of the economy rather than on the passage of any fixed amount of calendar time. That’s a big message to the market to stop thinking in terms of time and concentrate on the data flow. That will require many in the US markets to start thinking, which will be a big ask.
It is not the 2008 commodity bubble, again: Yes, commodity prices are rising and no, its not the bubble we saw two years ago. Major indices that measure commodity price movements are still substantially under the record levels of 2008 (especially the middle months of that year), despite record prices being paid for iron ore. Coal prices are up, but nowhere near the $US300-plus for hard coking coal. Oil is about $US87 a barrel, a 17-month high, but nowhere near the $US147-plus all-time high of July 2008. Copper climbed above $US8000 a tonne in London overnight, still under the all-time high of more than $US8800 a tonne in May 2008. Nickel is at two-year highs, but they are less than the $US49,000 a tonne or more of three years ago. Spot iron ore prices hit a reported $US160.5 a tonne overnight, the highest in 18 months and up 170% over the past year.
Watch China: Remember China’s economy will start slowing this year (if it doesn’t, then we are all headed for another crunch) and there’s no other economy in a position to mop up the surge in commodity production now under way, not even the US where the Fed remains fearful about a second-half slowdown this year. One point to remember: unlike 2008, food prices have not run out of control because of huge grain crops around the world. Grain prices have fallen this year so far.
A sense of wonderment: Now some in the media have discovered that commodity prices are not only rising, but that that can affect Australia, a leading commodity exporter. Last week’s gushing over record iron ore price settlements ignored the inflationary impact on Australia from the boost to our terms of trade and national income. Yesterday’s statement from the Reserve Bank reminded those in the markets that higher commodity prices of the sort now on offer, will mean higher interest rates in Australia. The RBA is now aiming at 2011-12 inflation, not this year. The RBA wants to see the Australian dollar as high as possible — in fact parity with the US wouldn’t be a problem because it will help the central bank control inflation over the next two years. The Canadian dollar has been over parity with the US currency twice this week, the first time that has happened since mid-2008.
It’s only money: Greece and its euro partners are doing their best to bring on a crisis, despite having settled on a mechanism to handle the problem last month. In fact you’d have to say there’s a certain willfulness involved on the part of Greece and especially Germany, to re-ignite a market crisis. Traders didn’t believe denials from Greece of reports that it wanted to renegotiate the agreement involving the IMF because of the fund’s tough line on spending cuts and tax increases. So the premium Greece has to pay over German bonds widened to its highest ever, 4.09% overnight, as investors sold Greece bonds, shares and other financial assets.
Really: The renewed doubts about Greece saw the euro fall against the US and Aussie dollars, which in turn made up some ground against the greenback to trade about 92.7 in the wake of our rate rise yesterday. Greece has to find €23 billion of new debt over the next seven weeks to replace maturing debt of the same amount. The way things are going Greece won’t find that money, except at impossible-to-sustain rates above 7%. Scepticism is rising in the ability of the Greek government to deliver on its side of the agreement: that it cut deeply into spending and lift taxes. Before Easter the chances of the EU-IMF aid mechanism being triggered this year were remote, now the odds of it coming into play have increased markedly. Germany has regional elections next month and the government of Chancellor Angela Merkel is under pressure. This story will run for weeks.
What’s in a name? So will it be a Nissedes, a Renedes, a Mercissan, or a Mercanault? Renault-Nissan and Daimler (makers of the Mercedes) are due to announce a partnership in Paris later today. The announcement could be made about 3pm our time, but advance details of the link have started circulating with one French newspaper saying that Daimler would hold 3.1% of Renault and of Nissan, while Renault and Nissan would each take 1.55% in the German car maker. The links will cement negotiations over the past few months to extend technology and cost sharing to the three groups as a whole. Car names won’t change, but its planned that some of the bits (so-called platforms) will eventually be shared, or developed across all three groups.
Will it matter? Former Citigroup CEO, Charles “Chuck” Prince and his lead adviser Robert Rubin (a former US treasury secretary and Goldman Sachs exec) appear before a special US Commission on Thursday night, our time, to answer questions about their handling of the bank, which has emerged as the most damaged of all US banks in the credit crunch. Price left after saying that the bank “was still dancing” only weeks before the crunch started on August 8-9, 2007. Rubin was the bank’s senior adviser and as treasury secretary under President Bill Clinton, played a key role in defeating plans to bring some financial derivative under the control of US regulators. The Financial Crisis Inquiry Commission hears from former Fed chairman Alan Greenspan tonight, our time, but the appearances of Price and Rubin are awaited with considerable interest because neither have been questioned about the virtual implosion of Citigroup. Watch for some carefully scripted mea culpas, but no real assumption of guilt by either man. It will be someone else’s fault (The system?).
And it’s only golf: Will you be rising early Friday morning to watch serial (you fill in the adjective) and golfer Tiger Woods hit his first balls for five months in public at the US Masters? His tee off time is 1.42pm US central time, (the next to last group for the first round) fits nicely into the coverage of ESPN (which has the first two rounds). It means he will be finishing about 6pm in the US (or 10am in Australia). Peak viewing time in the US and not bad for the Ten Network in Australia. His playoff time though is about 3.42 am Sydney time. Ten starts its coverage here at 5.45am (and running to 10am), according to current TV guides. Ten will miss it live, unless it brings its start time forward. But who really cares, I hear you all ask? Good question. Tiger Woods’ career has been as much about milking the media as playing golf (admittedly at a very high level of skill). The coverage of his personal life was the same, as was the assumption of the moral high ground by the media milking his name for all it could over the usually slow Christmas-New Year period. His return to golf is the same, a media event as much as sport. Sleep in and catch up later in the day, if you want to.
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