Business and Finance

Bank of England Deputy Governor Charles Bean said rising asset prices and improved confidence may be signs the central bank’s bond purchases are working.

“It seems that activity here and elsewhere has probably troughed, so some of the worst downside risks look unlikely to crystallize,” Bean said in a speech in London today. “The rise in asset prices and the recovery in confidence since the start of the quantitative easing program have been significant.”

The Bank of England last week pledged to stick to its plan to buy 175 billion pounds ($277 billion) of bonds to cement Britain’s recovery from the worst recession in a generation. Policy makers have signaled they will reevaluate their program in November, when they produce new forecasts for economic growth and inflation.

Bean said the difference between U.K. government bond yields and overnight-indexed swap rates of the same maturity has fallen by about 0.75 percentage point since the asset purchases started in March.

Since that effect hasn’t been seen in the U pay day loan lenders.S. or the euro area, it “strongly suggests that the movement may be related to our gilt purchases,” Bean said.

He also cited rising stock prices, and the fact that U.K. companies have issued more than 60 billion pounds worth of bonds and equities since January.

The central bank won’t hold all its purchases to their maturity, Bean said.

“At some stage, as the recovery proceeds, the Monetary Policy Committee will need gradually to remove the large monetary stimulus that we have imparted to the economy, otherwise we will be in danger of overshooting our 2 percent inflation target,” Bean said.

“The process of selling off the gilts can then be expected to push gilt yields back up towards where they would have been in the absence of the quantitative easing program,” he said.

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India’s industrial production rose the most in 22 months, suggesting the central bank may have scope to make an early exit from emergency stimulus measures.

Output at factories, utilities and mines jumped 10.4 percent in August from a year earlier after gaining a revised 7.2 percent in July, the statistics agency said in New Delhi today. Economists were expecting a 9.7 percent increase.

Manufacturing across Asia is showing signs of recovery, prompting policy makers to consider when they can begin to withdraw the monetary and fiscal stimulus initiated to protect their economies from the global recession. Central bank Governor Duvvuri Subbarao last week said India may need to act ahead of advanced economies due to “incipient” inflation pressures.

“With doubts over the durability of India’s upswing fading all the time, and inflation pressures already high, policy rates look certain to move up soon,” said Kevin Grice, an economist at Capital Economics Ltd. in London. “We still expect a first hike in January but the possibility of a first move at the Oct. 27 monetary policy meeting now looks close to a 50:50 call.”

India’s benchmark stock index has more than doubled from a three-year low in March as foreign inflows rebounded and demand improved for cars, air conditioners, refrigerators and homes.

The central bank cut interest rates six times between October and April and the government reduced taxes on consumer products and imports, together providing a stimulus worth more than 12 percent of India’s gross domestic product.

Interest Rates

At its last meeting on July 28, the Reserve Bank held its reverse repurchase rate at 3.25 percent and maintained the repurchase rate at 4.75 percent. The cash reserve ratio was kept unchanged at 5.0 percent.

India’s industrial production probably continued to improve last month. The Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics increased for a sixth straight month in September, according to an Oct. 1 report. The gauge rose to 55 last month from 53.2 in August.

“There are sure signs of a durable manufacturing recovery,” said Sonal Varma, an economist at Nomura Securities Co no faxing payday loan. in Mumbai. “The downside is clearly behind us and we think India and China will lead the recovery in the Asia-Pacific.”

Factory output is improving across Asia as close to $1 trillion in government stimulus and record-low interest rates help the region lead the world economy out of the worst global recession since the 1930s.

China’s industrial production rose 12.3 percent in August from a year earlier, the most in 11 months. Malaysian output fell the least in 10 months.

Tax Revenue

Indian factory output may rise by more than 10 percent in the coming months as indicated by tax-collection figures and companies’ sales, according to Nomura’s Varma.

Reliance Industries Ltd., India’s most valuable company, paid 11.6 billion rupees ($249 million) in advance taxes in the quarter to Sept. 30, 69 percent more than the April-June period, the finance ministry said Sept. 22. State Bank of India paid 18.3 billion rupees and Oil & Natural Gas Corp. provided 17.96 billion rupees. Higher tax payments indicate rising sales.

Bajaj Auto Ltd., India’s second-largest motorcycle maker, sold 14 percent more vehicles in September from a year earlier and Tata Motors Ltd., India’s biggest maker, reported a 5.8 percent increase in sales in the month.

Policy makers will have to “strike a balance” in setting interest rates and shouldn’t compromise on growth in order to tame inflation, Finance Minister Pranab Mukherjee said Oct. 8.

India’s economic growth accelerated in the June quarter for the first time since 2007, with GDP increasing 6.1 percent from a year earlier. The central bank expects the $1.2 trillion economy to expand 6 percent in the year to March 2010, slower than the 8.7 percent average growth in the previous four years.

“Growth is recovering fast,” said Chetan Ahya, an economist at Morgan Stanley in Singapore. There’s “more than an even chance” the Reserve Bank in this month’s monetary policy statement will increase its cash reserve ratio by 50 basis points, he added.

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Wynn Macau’s strong debut in Hong Kong on Friday shows appetite for gambling stocks is strong despite high valuations, and will cheer U.S. casino rival Las Vegas Sands, which plans a listing later this year.

Wynn Macau shares ended 6 percent higher at HK$10.70 versus an IPO price of HK$10.08, defying forecasts of, at best, a flat start due to its relatively high IPO price. The closing price valued the casino giant at $6.9 billion.

“For big-cap IPOs, its performance is pretty good,” said Peter Pak, vice president at BOCI Research. “Its pricing is not cheap, but Macau’s gaming revenue has been rising and that helped boost confidence.”

Wynn Macau’s $1.63 billion IPO, the world’s sixth-largest this year, could speed up the expected listing for Las Vegas Sands, which plans to raise up to $2 billion in a Hong Kong offering for its Asia assets, most notably in Macau.

Macau, once owned by Portugal and now a special administrative region under Chinese rule, is the world’s biggest gambling market and the only place in China where gambling is legal.

Gambling revenues hit a monthly high of $1.4 billion in August, a faster-than-expected recovery compared with Las Vegas, and revenues are expected to have been stronger still in September as China relaxed restrictions on its citizens crossing into Macau from Guangdong province.

“The timing is very opportunistic to do an IPO taking advantage of strength in the Hong Kong stock market and a renaissance, if you will, of the Macau market,” said Robert LaFleur, a U.S. gaming analyst with Susquehanna Financial Group, which is a market maker in Wynn shares no faxing pay day loans.

“It establishes some firm valuation benchmarks for Macau operations and that’s been very supportive of a fairly significant run in stocks like Las Vegas Sands and Wynn,” LaFleur added.

Wynn, which had a 16.4 percent market share of Macau in 2008, is one of a handful of gambling “pure plays” there, with Melco Crown Entertainment, Galaxy Entertainment Group and SJM Holdings.

The listing by the Asia unit of Wynn Resorts marked a major victory for Hong Kong’s stock market, netting its first IPO for a big global brand in years.

“Wynn is a known name compared with other recent IPOs that many people have not heard about, so it’s probably easier to sell,” said Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management.

“The strong (Wynn) debut will boost the valuations of LVS’s IPO,” said Antonny Cheng, managing director at Gain Asset Management.

The Wynn Macau offering comes as the global IPO market heats up, encouraged by a rebound in stock markets worldwide. Santander Brasil and Verisk Analytics raised nearly $10 billion between them on Tuesday.

IPO JACKPOT

The strong reception for Wynn, and for Yingde Gases Group and Ausnutria Dairy Corp, among others, on Thursday, could also end a trend of weak performance in recent offerings as sentiment improves, brokers said. 

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The European Central Bank is expected to keep interest rates at a record-low 1.0 percent on Thursday and its head Jean-Claude Trichet will probably caution against high hopes of a speedy economic recovery.

The 16-country bloc is likely to have exited the worst recession since World War Two in the third quarter of the year but all 82 economists in a Reuters poll said they see no move in interest rates for the fifth month running, with most expecting them to stay unchanged until late next year.

The meeting, now underway in Venice, Italy, is the second of the two rate meetings held annually outside the ECB’s Frankfurt base, and marks the first anniversary of coordinated rate cuts by major central banks in the aftermath of the Lehman Brothers collapse.

The Reserve Bank of Australia on Tuesday became the first Group of 20 central bank to raise rates after the global recession, but the ECB is not expected to follow suit for some time.

While most analysts expect the next rate move to be a hike, they forecast that it will not happen before the third quarter of next year. But tighter liquidity conditions may push up market rates before that, futures pricing shows.

The Bank of England will also publish its rate decision on Thursday, and it is expected to keep its rates on hold at 0.5 percent.

At his news conference, ECB’s Trichet is seen confirming that current policy settings are appropriate and markets will listen any clues on the timing and order of the ECB’s exit strategy.

“Current rates are appropriate, that is a key sentence that will probably stay until well into next year,” Bank of America economist Holger Schmieding said online pay day loans.

But the ECB is unlikely to detail its exit strategy, just to repeat that it can exit when needed, he added.

Trichet’s comments on how governments should wind back their extra spending and how the ECB will take fiscal exit into account in its monetary policy decisions will also be key.

“They will definitely not do any explicit coordination (between fiscal and monetary exit strategies),” Schmieding said, but added: “There might be actually be a case that if fiscal policy is tightened in 2011, the ECB may take that into account and thus have an indirect impact on its rate policy.”

DOLLAR WEAKNESS

Trichet’s comments on economic recovery will also face close scrutiny. The euro-zone economy shrank by a revised 0.2 percent in the second quarter of the year, and analysts expect it to have grown 0.3 percent in the July-September quarter.

But even though the ECB meets in what many say is the most romantic city in the world, the Trichet is not expected to shower the markets with love, but caution on too much optimism.

ECB policymakers have said the road ahead would be bumpy, and Trichet is unlikely to change his tune just a month after the latest set of ECB staff economic projections. 

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U.S. mortgage applications surged last week to their highest since mid-May as consumers sought to take advantage of the lowest interest rates in months, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, were below 5 percent for a third straight week, reaching a four-month low. Demand for home refinancing loans was the highest since mid-May.

Appetite for applications to buy a home, a tentative early indicator of sales, climbed to the highest level since early January. The trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to October 2 increased 16.4 percent to 756.3, the highest since the week ended May 22.

“The residential housing market appears to be stabilizing due to lower mortgage rates,” said Alan Rosenbaum, president of Guardhill Financial, a New York-based mortgage banker and brokerage company.

“The affordability factor, which takes into consideration both price and mortgage rates, has been very positive of late,” he said.

Low mortgage rates, high affordability and the federal government’s $8,000 tax credit for first-time home buyers — part of the stimulus bill — have helped pave the way for stabilization.

But with the tax credit set to expire on November 30 and distressed properties making up a high proportion of sales, the recent uptick in activity may mask uncertainty about the long-term outlook.

Rising unemployment is another obstacle. The U.S. Labor Department last week said the jobless rate reached a 26-year high of 9.8 percent in September.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.89 percent, down 0.05 percentage point from the previous week and the lowest since the week ended May 22.

The rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below the year-ago level of 5.99 percent.

The MBA’s seasonally adjusted purchase index rose 13.2 percent to 306.1, its highest since the week ended January 2.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 4.2 percent.

REFINANCING JUMPS

The Mortgage Bankers seasonally adjusted index of refinancing applications increased 18.2 percent to 3,377.1, with the index at its highest since the week ended May 22. 

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The U.S. service sector in September expanded for the first time since August 2008, growing at a faster pace than expected to take the benchmark index to its highest since May 2008, according to a report released on Monday.

The Institute for Supply Management’s services index rose to 50.9 last month from 48.4 in August, above economists’ median forecast for a rise to 50.0.

The dividing line between growth and contraction is 50 and the last time the index was above 50 was in August 2008, which was followed by a reading of 50.0 in September, 2008.

The index reading for September, 2009 was the highest since it posted at 51.2 in May, 2008.

“This is a good way to start off the week after a sour nonfarm payrolls on Friday,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. “We need to see the service sector doing better because it’s such a big part of the economy.”

The services sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

U.S. stocks edged up after the data with the benchmark Standard and Poor’s 500 index around 1,029 points while U.S. Treasury debt prices were little changed, leaving the benchmark 10-year yield around 3.18 percent.

The U.S. dollar was little changed against other major currencies.

The prices paid component of the index fell to 48.8 in September from 63.1 in August, while the new orders index rose to 54.2 in September from 49.9 in August, its highest since October, 2007.

The employment index rose to 44.3 last month from 43.5 in August. The reading for September was the highest since August, 2008.

“The employment component of the ISM data improved, which was a welcome development, and business activity picked up handsomely,” Woolfolk said. “New orders are also up big. This is a solid report that is consistent with a glass-half-full outlook.”

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Japanese Finance Minister Hirohisa Fujii issued his clearest warning yet that his nation is open to intervening in the currency market even as the Group of Seven declined to criticize the tumbling dollar.

“If currencies show some excessive moves in a biased direction, we will take action,” Fujii said Oct. 3 in Istanbul after a meeting of G-7 finance ministers and central bankers. He declined to say if the yen is now trading in such a way.

Fujii’s position has shifted since his initial remarks on taking office last month, when he opposed seeking a “weak” yen and selling the currency which last week rose to an eight-month high of 88.24 against the dollar. The gain is threatening the profits of exporters from Canon Inc. to Toyota Motor Corp.

The change in stance reflects a slide in the dollar that has sparked concern from Canada to France over the potential impact on economic recoveries. While the G-7 stopped short of issuing a specific call for a stronger U.S. currency, Fujii’s language raises the risk of the first currency-market action by a G-7 nation since 2004.

“Japan is thinking more about the currency’s effect on the real economy, and if necessary they’ll intervene,” Gerard Lyons, the London-based chief economist of Standard Chartered Bank, said in Istanbul. “For now they seem to want to talk it down, but eventually they’ll have to do something about it.”

Comments ‘Misunderstood’

Fujii, 77, said last month he opposed stepping into the foreign-exchange market in principle, before revising that comment to say he wasn’t an advocate of a strong currency and that Japan was open to acting should the market move “abnormally.” Fujii said in Istanbul that his early comments about the yen “have been a bit misunderstood,” and that currencies should be set by markets.

Fujii is confusing traders and likely still wants the yen to gain as the ruling Democratic Party of Japan, which won power in August, tries to refocus the economy toward domestic demand and away from exports, said Stephen Jen, a managing director at BlueGold Capital Management LLP in London.

“I doubt Finance Minister Fujii will materially change his stance until Japan is pushed deep into recession,” Jen said.

Japan hasn’t entered the foreign exchange market since the central bank, at the request of the Finance Ministry, sold a record 14.8 trillion yen ($164 billion) in the first quarter of 2004 to restrain the currency. In his first tenure as finance chief, from August 1993 until June 1994, Fujii oversaw more than 1.3 trillion yen ($15 billion) of yen sales. The G-7 hasn’t intervened as a group since September 2000.

Export-Driven Recovery

The yen’s appreciation threatens to undermine Japan’s export-driven economic recovery as the jobless rate hovers near a record high and deflation continues. Tokyo-based Canon, the country’s biggest maker of office equipment, estimates every 1 yen appreciation against the dollar will lower its second-half operating profit by 4.2 billion yen.

The “current level around 90 yen is a bit painful,” Yukitoshi Funo, executive vice president of Toyota City-based Toyota, the world’s largest seller of hybrid autos, said on Sept. 25. “I think the yen should be a little weaker.”

Fujii struck a different tone than his G-7 colleagues, who repeated that “excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability no teletrack payday loans.”

That means further declines in the dollar are likely, said Sophia Drossos, co-head for global foreign exchange strategy at Morgan Stanley in New York. In April 2008, the G-7 spoke out against a declining dollar by complaining about “sharp fluctuations in major currencies.”

Recognizing Limitations

“If the G-7 wanted to push back more forcefully, they could have,” said Drossos, a former manager of the Federal Reserve’s foreign-exchange portfolio. “Since they didn’t, they may be tolerant of recent moves or they may recognize their limitations in slowing recent trends.”

The dollar may also be undermined as governments and central bankers seek to tackle so-called imbalances such as the U.S. trade deficit and China’s current-account surplus, said Marco Annunziata, chief economist at UniCredit Group in London.

“This inevitably validates dollar weakness” he said. “This was an impossible circle for the G-7 to square.”

Still, French Finance Minister Christine Lagarde said after the meeting that there is a need for a “strong dollar.” U.S. Treasury Secretary Timothy Geithner told reporters that “it is very important to the United States that we continue to have a strong dollar.”

Pressure on China

The G-7 kept pressure on China to allow greater flexibility in the yuan in the interest of smoothing out lopsided flows of trade and investment. While the dollar has dropped 14 percent against a basket of seven currencies since early March, it has gained 0.3 percent against the yuan, which is managed by Chinese authorities.

That is handing Chinese exporters an advantage in overseas markets and forcing other nations to shoulder the burden of the dollar’s dive.

“We all need to have our currencies fluctuate” if their relative values are to be set by the market, Canadian Finance Minister Jim Flaherty said in an interview yesterday. He added: “There’s clearly upward pressure on the Canadian dollar.”

Lagarde said she was “struck” by Chinese pledges to bolster domestic demand. It was “very precise language” that, if followed, will help “address global imbalances” and “have consequences on exchange rates,” she said.

‘Fragile’ Recovery

G-7 officials said the global economic recovery is “fragile” and promised to maintain stimulus programs until growth takes hold. They met in Turkey before this week’s annual meetings of the International Monetary and World Bank and a week after the G-20 leaders named that forum as the primary arena for international economic policy-making.

The transfer of power toward the G-20, which includes emerging markets such as China and Brazil, prompted the G-7 finance officials to say they would tighten the schedule of their meetings, work more in parallel with G-20 events and issue statements only on merit. G-20 finance chiefs will meet next month in Scotland.

“We agreed that we want to work more informally again in the future, taking a step back to what it used to be like in the past,” said German Deputy Finance Minister Joerg Asmussen.

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CALGARY–Oncolytics Biotech Inc. shares soared Friday morning and hit a multiyear high after the Calgary-based company announced it has taken a major step forwards in researching and developing a potential cancer treatment.

Shares in the biotechnology company added 75 cents or 23.6 per cent to $3.93 in Friday morning trading on the Toronto Stock Exchange. They had traded as high s $4.10 earlier Friday, the highest intraday price since May 2006.

The gain came after Oncolytics said it has received approval to conduct a Phase 3 trial of a treatment for head and neck cancers using the company's Reolysin drug in combination with chemotherapy.

Oncolytics president and chief executive Brad Thompson said the approval by the U.S. Food and Drug Administration is a "significant step" towards final approval of Reolysin, which he described as a “first-in-class agent."

"This (trial) provides an agreed upon path for product development from now until submission for product approval," Thompson said Friday in a conference call with analysts.

"It allows us to proceed into this Phase 3 trial with the confidence that if the trial is successful, we should be able to move forward toward product approval in the United States and also provide guidance toward the use of Reolysin in other cancer applications low rate payday loans."

Thompson added that Oncolytics has seen "strong pre-clinical and clinical evidence" supporting the use of Reolysin in combination with chemotherapy.

Reolysin uses a naturally occurring human reovirus in a process developed by the Calgary-based biotechnology company.

The U.S. Food and Drug Administration has agreed to allow Oncolytics to conduct a two-stage trial at multiple clinical centres to test Reolysin.

Some patients will receive the company's drug in combination with two chemotherapy drugs – paclitaxel and carboplatin – while other patients will receive only the chemotherapy and a placebo.

The first stage of the trial is designed to enrol 80 patients and the second stage is to enrol between 100 and 400 patients, with 195 the most likely number.

The company is focused on the development of oncolytic viruses as potential cancer treatments.

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Bank of America Corp and former Merrill Lynch & Co brokerage chief Robert McCann have resolved a dispute over his contract, freeing him to take another job in financial services.

The settlement was announced by the two sides on Thursday. A joint statement gave no details, but McCann’s lawyer, Steven Eckhaus, said his client was free to return to work at the end of the month.

McCann left Merrill Lynch after the investment bank was acquired by Bank of America on January 1. In a lawsuit in August, he accused the bank of blocking him from taking another job in financial services before January 2010. He contended he should have been free to go back to work in July.

He sought to lift a “non-competition” clause in his contract so he could take a job with a Bank of America rival. Published reports said the rival was Swiss bank UBS AG. UBS declined to comment on Thursday.

Representatives of Bank of America, the No. 1 U.S. bank, declined comment on the settlement.

Justice Melvin Schweitzer of the New York State Court of Claims reserved judgment on McCann’s lawsuit after hearing arguments from lawyers and testimony from McCann on September 16. “This is a very close call,” the judge said at the hearing. [ID:nN16156325]

Bank of America Chief Executive Kenneth Lewis called Merrill’s brokerage unit the “crown jewel” of that company when he announced the purchase of Merrill.

Merrill had about 16,000 brokers at the time, and its profits have helped Charlotte, North Carolina-based Bank of America offset rising losses from credit cards and other consumer credit.

In a court filing, McCann contended that he gave written notice on January 5 that he would resign and that Bank of America accepted his reason for leaving. He said the bank rescinded its acceptance the following month, and fired him effective January 30, 2009.

For its part, the bank’s lawyers argued that McCann was “intimately familiar” with Bank of America’s long-term strategic plans and that it would lose a lot of business if he went to work for a rival.

The case is McCann v. Bank of America Corp 602628/2009 in New York State Supreme Court (Manhattan)

(Reporting by Grant McCool and Steve Eder; editing by John Wallace)

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Toyota Motor Corp said it will recall some 3.8 million vehicles in the United States because of the risk that a loose floormat could force down the accelerator, a problem suspected of causing crashes that have killed five people.

The recall includes the hot-selling Prius hybrid and would be the largest ever for Toyota, which has built a reputation for safety and quality that helped it surpass General Motors as the world’s top automaker last year.

The recall also comes at a critical time for Toyota as it scrambles to squeeze spending to bounce back from record losses forecast this year amid a broad-based slump in car sales.

“This is an urgent matter,” said U.S. Transportation Secretary Ray LaHood.

The U.S. government said it has received reports of 100 related incidents that include 17 crashes and five fatalities involving Toyota vehicles.

Toyota said it was too early to provide a cost estimate for the move. Deutsche Securities auto analyst Kurt Sanger estimated the cost at a modest 5-10 billion yen ($50-$100 million), saying the bigger worry was its image.

“Monetarily I wouldn’t expect it to be a major issue for Toyota,” he said, noting that labor costs, which typically make up the bulk of recalls, would likely be minimal.

“The bigger concern is reputational.”

In Tokyo on Wednesday, Toyota shares were down 1.1 percent, underperforming a 0.2 percent fall in the main Nikkei average and a rise in rival Japanese car stocks.

“CAR REACHED 120 MPH”

Toyota spokesman Yuta Kaga in Tokyo said on Wednesday that the floormats subject to the recall are used only in vehicles sold in the United States.

The company is also checking whether the problem originates in the floormats or the process of placing them in the vehicles, he said, without naming the floormat supplier.

Toyota and U.S. safety regulators warned owners to remove all driver-side floormats from eight Toyota and Lexus models manufactured in the last six years as an immediate safety precaution.

Last month, an off-duty California state trooper and three members of his family were killed in the San Diego area in a crash of a 2009 Lexus ES350.

Before the crash, a passenger in the car had called 911 and told dispatchers that the accelerator was stuck and the car had reached 120 miles per hour (193 km per hour). 

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