UPDATE 1-Australians learn to spend again as low rates lift spirits

UPDATE 1-Australians learn to spend again as low rates lift spirits
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Wed Jan 8, 2014 10:06pm EST

* Retail sales outpace forecasts for fourth month of solid gains

* Home building on track for much stronger year as low rates work

* Markets all but price out risk of further RBA easing

By Wayne Cole

SYDNEY, Jan 9 (Reuters) – Australians have rediscovered the urge to spend as retail sales and house building blew past expectations in November, just the warming mixture needed to help offset a cooling mining boom.

That is exactly the outcome the Reserve Bank of Australia (RBA) sought when it steadily cut interest rates to record lows last year and reinforces market expectations that the next move will be up, albeit not for some time yet.

“Sales momentum has picked up since August, and given the reasonably positive anecdotes, the odds are that sales finished 2013 on a firm note,” said Su-Lin Ong, a senior economist at RBC Capital Markets.

“The RBA will welcome the ongoing signs of policy traction and stay on the sidelines.”

Rates have been on hold at 2.5 percent since August and investors have priced out almost any chance of another easing this year. Indeed, futures markets show some are wagering that 2014 could end with rates on the rise.

Thursday’s figures from the Australian Bureau of Statistics showed retail sales rose 0.7 percent in November to a seasonally adjusted A$ 22.5 billion ($ 20 billion), easily outpacing market forecasts of a 0.3 percent gain.

Importantly, it was also the fourth straight month of solid increases in spending after a fallow period earlier in the year and lifted annual growth in sales to 4.6 percent, the fastest pace in 17 months.

That is a big plus for economic growth since retail spending makes up almost a third of household consumption, which in turn accounts for 53 percent of the country’s A$ 1.5 trillion in annual gross domestic product (GDP).

Evidence suggests wallets have stayed open with the major retailers reporting a strong holiday shopping period. The Australian Retailers Association estimates A$ 42 billion was spent just in the lead up to Christmas.

Demand for new vehicles also ended the year on a high note with sales in December up 5.3 percent on the previous month, according to the Federal Chamber of Automotive Industries.

“Anecdotally the Australia economy seems to have lifted a gear over December, which has continued early into the New Year,” said Savanth Sebastian, an economist at CommSec.

“Consumers certainly have more reason to be optimistic given, warmer weather, rising house prices and recent share market gains – all supporting a lift in sentiment.”

The ascent of home prices, which grew at an almost 10 percent pace over 2013, has in turn encouraged a much needed revival in home construction.

Approvals to build new houses jumped 6 percent in November, from the previous month, to be at the highest since mid-2010. For the year to November, approvals were up by a barnstorming 18 percent.

Include apartment buildings, and approvals for the year were up no less than 22 percent.

Home construction has an outsized impact on the economy given all the different trades involved and habit of buyers to pick up new furniture and electronics. The sector is also a big employer and contributes heavily to state tax revenues.

The ABS estimates that every A$ 1 spent on residential construction generates A$ 1.31 worth of spending elsewhere in the economy, while every million dollars spent creates 17 jobs.

As a result, a typical recovery in housing can add 2 percentage points or more to economic growth over a two to three year cycle.

“The residential construction upturn looks to be firmly entrenched, and will be one offset to lower levels of mining construction.” said Diana Mousina, an economist at Commonwealth Bank of Australia.

“The RBA will be pleased that prior cuts to interest rates are having a noticeable impact on the housing market.” (Reporting by Wayne Cole; Editing by Jacqueline Wong)

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Reuters: Financial Services and Real Estate

Read more about UPDATE 1-Australians learn to spend again as low rates lift spirits and other interesting subjects concerning Real Estate at TheDailyNewsReport.com

Wall Street gains on data; HP, Apple lift Nasdaq

Wall Street gains on data; HP, Apple lift Nasdaq
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By Ryan Vlastelica

NEW YORK Wed Nov 27, 2013 7:16am EST

1 of 4. Traders work on the floor of the New York Stock Exchange November 26, 2013.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) – U.S. stock index futures were little changed on Wednesday, as investors found few reasons to buy ahead of a market holiday with major indexes near all-time or multi-year highs, though Hewlett-Packard rose after its results.

* Trading is expected to be light this week, with many market participants out for the Thanksgiving holiday. The stock market will be closed on Thursday, and will close early on Friday. The light volume could add to market volatility.

* Wall Street has soared this year, largely on the back of expectations for continued stimulus from the Federal Reserve. Both the Dow .DJI and S&P 500 .SPX have risen more than 20 percent in 2013, hitting a series of all-time highs, while the Nasdaq .IXIC on Tuesday closed above 4,000 for the first time since 2000.

* Tech shares will be in focus a day after Hewlett-Packard Co (HPQ.N) beat revenue forecasts, as sales growth in its enterprise group inspired optimism about the computer company’s turnaround plan. The stock jumped 7.1 percent to $ 26.86 in premarket trading.

* S&P 500 futures rose 1.9 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 21 points and Nasdaq 100 futures rose 5.75 points.

* The year’s equity gains have been largely uninterrupted, prompting many investors to call for at least a short-term pullback.

* While the Fed’s stimulus program is expected to put a floor under equity prices for as long as it continues, recent volatility has come on uncertainty over when the program will end. The central bank has said it would begin to slow it when certain economic measures meet its targets, putting a heightened focus on economic data.

* Several economic reports will be released on Wednesday, including durable goods orders for October, as well as weekly jobless claims. All will be released at 8:30 a.m., with durable goods orders seen falling 1.9 percent and initial jobless claims expected to rise by 7,000 to 330,000 in the latest week.

* After the market opens, the November Chicago Purchasing Managers Index will be released at 9:45 a.m., followed by the final November Thomson Reuters/University of Michigan read on consumer sentiment at 9:55. The PMI is seen falling to 60 from 65.9, while the sentiment index is expected to rise to 73.5 from a preliminary reading of 72.

(Editing by Chizu Nomiyama)

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Reuters: Business News

Read more about Wall Street gains on data; HP, Apple lift Nasdaq and other interesting subjects concerning Business at TheDailyNewsReport.com

Bondholders lose bid to lift stay in Argentina litigation

Bondholders lose bid to lift stay in Argentina litigation
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NEW YORK | Fri Nov 1, 2013 11:45am EDT

NEW YORK (Reuters) – A U.S. appeals court declined Friday to lift a freeze on an order requiring Argentina to pay $ 1.33 billion in favor of bondholders suing for repayment in the wake of the country’s 2002 default.

The 2nd U.S. Circuit Court of Appeals in New York denied a motion to lift a stay it issued in favor of Argentina pending U.S. Supreme Court review of a ruling in favor of holdout bondholders.

The request to lift the stay was made October 15 by bondholders led by hedge funds Elliott Management Corp’s NML Capital Ltd and Aurelius Capital Management LP.

(Reporting by Nate Raymond in New York; Editing by Gerald E. McCormick)

Reuters: Business News

Read more about Bondholders lose bid to lift stay in Argentina litigation and other interesting subjects concerning Business at TheDailyNewsReport.com

Analysis: Detroit crisis may give lift to muni bond insurers

Downtown Detroit is seen looking south on Grand River Avenue in Detroit, Michigan July 25, 2013. Photo taken July 25, 2013.

Credit: Reuters/Rebecca Cook

By Edward Krudy

NEW YORK | Sun Aug 11, 2013 8:10am EDT

NEW YORK (Reuters) – At first glance, it is hard to see Detroit’s bankruptcy filing as anything but another body blow for downtrodden U.S. municipal bond insurers, which could be on the hook to investors for hundreds of millions of dollars in losses on the city’s debt.

But the city’s fiscal upheaval may in fact have the opposite effect – providing the marketing spark needed to revive a business decimated by the financial crisis like few others.

For issuers that have mostly gone without coverage since the 2007-09 financial crisis hammered most bond insurers, Detroit’s filing may serve as a stark reminder of the wisdom of buying insurance. Put simply, insurers’ payment guarantees make their bonds more attractive to investors.

“Investors are going to see the benefit of insurance in action more and more,” said Alan Schankel, head of fixed income research and strategy at Janney Capital Markets. “I think this is net-net a positive marketing story for bond insurance.”

Once a familiar fixture, bond insurance gave extra financial security to bondholders, including the retail investors who hold almost half of the $ 3.7 trillion market, while helping local issuers lower borrowing costs.

Before the crisis, about half of all new municipal bonds had insurance from nine insurers, with nearly 60 percent covered in 2005. Last year, just 3.6 percent were insured, and this year the number is just over 3 percent, Thomson Reuters data shows.

Bond insurers collapsed during the financial crisis after they ventured into mortgage-backed securities in the years before 2007. Ratings agencies slashed their AAA ratings to junk or withdrew them altogether. That meant bond issuers no longer benefited from their coverage.

With insurers failing to make promised payments, their stock tanked and so did their businesses.

Insurers are among the biggest players in Detroit’s case, as about 86 percent of the city’s $ 8 billion debt is insured by six companies. But the bulk of losses is expected on only about $ 530 million of unsecured general obligation bonds, which are payable over the next 22 years.

That makes the hit insurers would take from Detroit manageable, analysts say. At the same time, coming after other municipals bankruptcies such as Jefferson County in Alabama or Stockton and San Bernardino in California, Detroit would help investors see the benefit of bond insurance.

In June, Detroit defaulted on $ 1.45 billion of bonds issued to fund its pension obligations. Syncora, which insured most of those obligations, covered $ 24.7 million.

But Financial Guaranty Insurance, on the other hand, which is undergoing a court-ordered rehabilitation process, failed to pay about $ 16.2 million.

Insurers will keep paying debt service to most bondholders but not on the more than $ 5 billion of Detroit water and sewer bonds, as the city will keep current on those during the bankruptcy process.

Despite the record low presence of insurers on the primary market, some lower-grade, lesser-known issuers have reaped the benefits of insurance, with 645 deals insured for a total value of $ 6.57 billion so far this year.

The New York Dormitory Authority issued $ 60 million on behalf of Roosevelt school district earlier this year. Officials said insurance with Build America Mutual (BAM) saved 10 basis points on the borrowing costs, or about $ 200,000.

In March 2012, the Lafayette Yard Community Development Corporation sold $ 15.3 million of bonds guaranteed by the city of Trenton in New Jersey. After paying an insurance premium of about $ 139,000, the issuer saved about $ 60,000, in present value debt service payments, according to advisers for Trenton.

UNVIABLE BUSINESS MODEL?

Not everyone, however, is buying the idea that muni bond insurance is going to make a comeback.

“It’s not a very viable business model,” said Dan Berger, a muni market analyst at Municipal Market Data, a unit of Thomson Reuters. “The longer people do without insurance, the less they see a need for it.”

Still, the ratings of bond insurers are looking healthier. Of the two active insurers, BAM is rated AA by Standard & Poor’s and Assured Guaranty’s (AGO.N) MAC is rated AA-. S&P upgraded National Public Finance Guarantee, the muni-only insurer formed out of MBIA insurance Corp, to A in May after it settled a lawsuit over restructuring with Societe Generale.

There are signs competition is starting to creep back in. After BAM entered the market in 2012 with a focus on the safest types of municipal bonds, Assured announced its own muni-bond only insurer, Municipal Assurance Corp, in July. MBIA is also tipped for a return to the market.

Assured accounted for 99.8 percent of $ 11.5 billion of the new issues insured in 2012, according to Thomson Reuters.

Both BAM and Assured say they saw an uptick in interest even before Detroit, and Assured expects the market to gain steam.

Other muni bond insurers either declined to comment or did not return requests for comment.

DETROIT CONTAGION A RISK TO INSURERS

Any positive Motown impact on the insurance business will come if and only if Detroit is not the start of wave of defaults across U.S. municipalities. Such a scenario would be a severe blow for the bond insurance industry.

“The amounts of losses that we are talking about here are really quite manageable,” said Mark Palmer, an equity analyst at BTIG Research. “(But) if Detroit really is the first domino, then it would be an issue. It’s our view that Detroit really is a one off,” he said.

Palmer has a buy rating on the stocks of Assured Guaranty, MBIA, and Ambac (AMBC.O) and believes all three insurers are significantly undervalued at current levels.

Analysts and investors who believe bond insurance may have hit bottom do not suggest the industry is headed back to pre-crisis peak. They simply predict a rising demand.

Duane McAllister, a portfolio manager at BMO Global Assets Management who helps oversee about $ 5 billion in muni bonds, says the insured part of his portfolio has fallen to about 20 percent from 35 to 40 percent before the crisis. He would like to see that climb back to 25 percent, or even 30 percent.

“My view is that the industry has bottomed and that it is climbing its way back slowly,” said McAllister. “They are going to get tested obviously in the Detroit bankruptcy scenario, but if they can come through that and they’re still in OK shape, then they will have proven their value.”

(Reporting by Edward Krudy, Editing by Tiziana Barghini and Dan Grebler)

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Reuters: Business News

Analysis: Detroit crisis may give lift to muni bond insurers