August auto sales on track to beat estimates


DETROIT |
Tue Sep 4, 2012 1:55pm EDT

DETROIT (Reuters) – Auto sales continued to show a slow but steady recovery in August, as all three Detroit automakers and Toyota Motor Corp (7203.T) reported gains that outstripped analyst expectations.

General Motors Co (GM.N) posted a 10 percent jump, as higher gasoline prices spurred sales of compact cars including GM’s Cruze. Average U.S. gasoline prices rose 21 cents a gallon in the past month.

“Higher gas prices in August will lead to unseasonably strong small car performance across the industry,” said Edmunds.com analyst Jessica Caldwell.

With roughly 70 percent of the market reporting so far on Tuesday, the U.S. auto industry was on track to show an annual sales rate of 14.5 million vehicles, J.P. Morgan said.

Analysts polled by Reuters forecast an annualized sales rate of 14.2 million light vehicles.

GM predicted an annual sales rate of about 14.6 million for August.

So far this year, the U.S. auto sales rate has been 14.3 million on an annualized basis, GM and Ford said. Those figures do not include medium and heavy trucks.

Automakers are banking on a rebound in U.S. auto sales in the second half of the year after sales dipped in the spring. The industry has been helped by pent-up demand as consumers seek to replace aging cars and trucks.

GM’s sales gain of 10 percent last month surpassed expectations from five analysts of a gain between 2 and 6.4 percent.

GM is No. 1 in the U.S. auto market by sales, followed by Ford, Toyota and Chrysler.

Toyota’s August sales of 188,520 represented a 46 percent gain over last August, when its sales were greatly pressured by a lack of inventory caused by the March 2011 earthquake and tsunami in Japan.

Honda Motor Co’s (7267.T) sales rose 59.5 percent to 131,321 vehicles, led by an 89 percent rise in sales of its top model, Accord.

Beau Boeckmann, vice president of Galpin Ford in Southern California, said sales at his dealership are up in part because consumers are finding it easier to obtain credit. Galpin is the largest Ford dealership in the world as measured in sales volume.

“There’s been an overall opening up of credit to consumers,” Boeckmann told Reuters on Tuesday. “A couple of years ago when you were talking with the banks, they tried to find a way to not buy the deal. There’s been a big attitude shift.”

GM said sales rose to 240,520 vehicles. Ford’s U.S. August sales rose 13 percent to 197,249 vehicles, and Chrysler Group LLC posted a 14 percent rise in August.

Chrysler sales were 148,472 vehicles, which the company said showed its best performance for August since 2007. Chrysler is managed and majority-owned by Italy’s Fiat SpA (FIA.MI).

GM shares were down 0.8 percent at $21.17 on Tuesday afternoon, while Ford shares were up 0.6 percent at $9.40. The broad SP 500 Index .INX was down 0.4 percent.

VOLKSWAGEN, HYUNDAI, NISSAN

Volkswagen AG (VOWG_p.DE) turned in its best August U.S. sales performance since 1973, said Carsten Krebs, head of communications for Volkswagen Group of America. The carmaker’s sales rose 62.5 percent to 41,011 vehicles last month.

Overall, Volkswagen’s U.S. sales rose 48 percent, including sales of luxury brands Audi and Porsche. Audi’s sales rose 13 percent to 11,527 vehicles.

Hyundai Motor Co’s (005380.KS) U.S. sales rose only 4 percent in August, to 61,099 vehicles, as the South Korean automaker was limited by constraints on its supply.

John Krafcik, chief executive of Hyundai Motor America, said via Twitter that the company will add a third shift to its Alabama plant in September which “will help us better meet demand.”

Limited supply of Nissan Motor Co’s (7201.T) top-selling car, the Altima midsize sedan, helped cut in to that automaker’s monthly sales, which rose only 7.6 percent – less than analysts had expected.

Sales of the redesigned Altima began in July, and August sales were up 12.5 percent from a year ago. Still, “several thousand” Altima sales were lost due to lack of inventory by some U.S. dealers, said head of the Nissan brand in North America, Al Castignetti.

RISING GASOLINE PRICES

Rising gasoline prices were a factor in consumers’ choice of vehicles in August, said Ken Czubay, Ford vice president of U.S. marketing.

“As fuel prices rose again during August, we saw growing numbers of people gravitate toward our fuel-efficient vehicles,” said Czubay.

Still, sales of its Fiesta small car fell 28 percent in August. Meanwhile, Focus compact car sales rose 31.5 percent.

Ford reported record sales for the Escape crossover and Fusion sedan, and said the F-Series pickup had its best sales month all year. Ford brand sales were up 13.1 percent, while Lincoln brand sales rose 1.7 percent.

Chrysler said sales of its Dodge Dart compact sedan was 3,045 in August, as it rolled out the new car to more U.S. dealerships.

U.S. auto industry sales should be 14.6 million new vehicles on a seasonally adjusted annualized rate, including medium and heavy-duty trucks, Chrysler said.

Taking out the medium and heavy trucks, that would be about 14.3 million light cars and trucks, compared with 14.1 million projected in July.

Economists polled by Thomson Reuters last week expected an August annualized sales rate of 14.2 million light vehicles, compared with 12.1 million vehicles on an annualized rate last August.

Analysts regard light vehicle sales as a key measure of the industry’s health.

(Editing by Gerald E. McCormick and Matthew Lewis)

Spain’s Rajoy to seek German backing for a bailout


MADRID |
Tue Sep 4, 2012 10:31am EDT

MADRID (Reuters) – Prime Minister Mariano Rajoy’s eight months in power have been tumultuous from the start but September and October may be even tougher, with the Spanish leader assailed on all sides.

Internationally he is caught between diverging pressures from Germany and France, and at home he faces protests over spending cuts sought by the euro zone’s big powers.

France wants Rajoy to request an international bailout to prop up Spanish finances and stop the debt crisis deepening.

But he is unwilling to ask for aid until he is sure of support from euro zone paymaster Germany which he will seek on Thursday at a meeting with Chancellor Angela Merkel.

“The worst thing that could happen is Spain asks for aid and Germany blocks it,” said a senior European diplomat.

Last week Rajoy met French President Francois Hollande who nudged him to ask for help before October to give European leaders time to consider it before an October 19-19 summit.

But Rajoy told Hollande he was getting mixed messages from Germany, according to a source who was briefed on the meeting.

Berlin wants more details of the problems in Spanish banks, including the results of an audit by global accounting firms due later this month, and regions, which will get 45 billion euros from Spain’s central government this year, before backing a bailout.

Spain has already been promised up to 100 billion euros of European money to keep its banks afloat. A sovereign bailout could deplete the region’s rescue funds, the EFSF and the new ESM that will be the euro zone’s permanent rescue fund.

Rajoy’s team feels that Merkel is also wary of news that could jeopardize a September 12 German Constitutional Court ruling on the ESM as she faces some domestic resistance to Germany providing money to prop up countries that run into trouble.

“Germany doesn’t want any messages right now that will contaminate the decision of the constitutional tribunal. We can’t precipitate things,” said a Spanish government source.

As Merkel and Rajoy meet, European Central Bank head Mario Draghi is due to give details of his plan to shore up Spanish and Italian bond prices with a secondary market buying program. But he has said this will not happen until Spain agrees to conditions in return for EFSF help.

With borrowing costs painfully high, a recession undermining his austerity drive and Spaniards angry over cost cuts, that deal could be attractive to Rajoy even if it means protracted wrangling over the terms.

RATING UNDER SCRUTINY

The pressure on Rajoy is just as unrelenting at home, where he faces increased social unrest over tax hikes and cuts at public schools and hospitals. He must present the 2013 budget before the end of September and this is likely to reveal a gloomy economic outlook as well as more spending cuts.

Moody’s credit rating agency is due to review Spain by the end of the month and could downgrade the debt of the world’s twelfth largest economy to junk status.

That could block Spain from markets before a financial hump in October, when some 27.5 billion euros of debt comes due.

Rajoy’s approval rating has crumbled in his first six months of office, with 56 percent of Spaniards having a bad or very bad opinion of him in a July poll by Sigma Dos.

In every speech Rajoy says: “You can’t spend what you don’t have”, to explain why Spain is suffering for spending borrowed money during a property boom that ended in 2007. But he lacks inspiration to keep the public on his side.

A close ally will run for re-election as regional president of Rajoy’s home region of Galicia on October 21 and this will be seen as a referendum on the government’s austerity policies.

But analysts say Rajoy’s approach of delaying tough decisions and his capacity for riding out turbulence may save him from the fate of the leaders of Ireland, Greece and Portugal, whose political careers ended with their countries’ bailouts.

“Everyone sees the rescue as inevitable. That’s good for the government, they’ve dealt it out in steps so it looks like a logical stage,” said Jose Ignacio Torreblanca, from the European Council on Foreign Relations think tank.

“Also, the back and forth with the ECB looks good for Rajoy, it looks like the other side is giving a bit as well.”

NO EXCEPTIONS

Spain and the euro zone are already in talks over the terms of sovereign aid. [ID:nL6E8JNKXK] But Rajoy told European newspapers this week that Spain is doing so many reforms that it should not have to do any more in exchange for new money.

Rajoy wants any fresh terms tacked onto the existing Spanish-EU agreement for the bank rescue and does not want a new memorandum of understanding, said the source who was briefed on the meeting with Hollande last week.

But his European partners are taking a tough line.

“There will be no exception made for Spain,” Michael Meister, vice-chairman of Merkel’s conservatives in the Bundestag lower house, told Reuters. “If such a request is made… there will need to be an agreement on the conditionality of the assistance, as in all previous cases.”

With German Central Bank President Jens Weidmann opposed Draghi’s plan to buy Spanish and Italian bonds, the ECB boss is under pressure to attach strong conditions.

Finnish Prime Minister Jyrki Katainen, one of the most hardline euro zone voices on conditions for bail-outs, is next in line to visit Rajoy, on September 11.

(Additional reporting by Catherine Bremer in Paris and Andreas Rinke in Berlin; editing by Barry Moody and Anna Willard)

Manufacturing another headache for U.S. economy


NEW YORK |
Tue Sep 4, 2012 1:48pm EDT

NEW YORK (Reuters) – Manufacturing in the United States shrank at its sharpest clip in more than three years last month, a survey showed on Tuesday, the latest sign that the slowing global economy is weighing on an already weak U.S. recovery.

August was the third month in a row of contraction in the factory sector, according to an Institute for Supply Management survey. Firms hired the fewest workers since late 2009, a possible red flag for the August U.S. jobs report due on Friday.

ISM’s index of national factory activity fell to 49.6 in August, from 49.8 in July, and shy of the 50.0 median estimate in a Reuters poll of economists. A reading below 50 indicates contraction in the key sector.

“Overall, today’s report keeps intact concerns that industrial output growth could slow to a crawl in the remaining months of 2012,” said JP Morgan economist Michael Feroli.

Manufacturing had faded as a driver of the recovery in the U.S. economy which is still struggling to add jobs more than three years after the recession was formally declared over.

On Monday, data showed a contraction in manufacturing had deepened in both Europe and China.

U.S. unemployment in July remained high at 8.3 percent. Weak jobs growth has caused deep concern at the Federal Reserve. It could add more stimulus as soon as next week. The weak economy is also center stage in the presidential election campaign.

President Barack Obama, heading for the Democratic national convention this week, has previously highlighted the revival of manufacturing as a success story of his economic policies.

Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, called the ISM index “a disappointing number that can bring the Fed a step closer to offering more support to the U.S. economy.”

The U.S. dollar briefly trimmed gains against the euro after the ISM data was released, while Treasuries held steady and stocks slipped.

A separate gauge of U.S. manufacturing showed the sector grew in August but at a pace that was still one of the weakest since October 2009.

The Markit Manufacturing Purchasing Managers Index stood at 51.5 last month, higher than the 51.4 reading in July thanks to a slight increase in output and overall new orders.

But August’s final reading, released on Tuesday, fell short of a preliminary estimate as exports declined for a third straight month, and firms were slow to add new workers.

New export orders were a drag on activity, as slow or negative growth in Europe and elsewhere sapped foreign demand for U.S. products, the survey showed.

Mark Wingham, a Markit economist, said without a significant jump in activity next month, manufacturing growth in the third quarter “will likely be one of the weakest since recovery began,” he said.

ALL EYES ON AUGUST JOBS

The next big test of the U.S. recovery will be the August employment data on Friday. The median forecast of economists polled by Reuters is for a gain of 120,000 jobs, down from 163,000 in July.

Some analysts suspect a number below 100,000 could provoke the Fed to try to boost overall growth with another round of monetary stimulus when it meets in mid-September.

Before the U.S. jobs data, markets await a European Central Bank meeting on Thursday. ECB President Mario Draghi, who has pledged to do “whatever it takes” to save the euro, may present details of a new bond-buying plan that could ease the crisis.

On Monday, Markit’s final Eurozone Purchasing Managers’ Index (PMI) notched its 13th month of contraction, showing Germany and France are suffering downturns.

Meanwhile, surveys showed China’s vast manufacturing sector has been badly hit by slowing new orders.

SLOW RECOVERY IN DETROIT

Fed policymakers have pointed to the euro zone’s debt crisis and China’s slowing economy as serious hurdles to U.S. economic growth, which was 1.7 percent in the second quarter.

But the Fed’s decision on whether to take further policy action is complicated by relatively positive data including a rebound in July U.S. retail sales and a modest uptick in housing this year. A slow recovery is also taking shape in the auto sector. On Tuesday all three Detroit automakers reported sales gains that outstripped analysts’ expectations.

Another report showed that lending to small U.S. businesses edged up in July, but the size of the increase was too modest to signal that there was much momentum to the economy.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small American companies, rose to 103.8 from 100.5 in June, PayNet said. Borrowing was up 15 percent from a year earlier.

“It doesn’t really signal as much strength in a composite view as you would think,” said PayNet founder Bill Phelan. “We’re still seeing these very halting numbers, and we’re not seeing just a strong indicator of growth.”

(Additional reporting by Julie Haviv; Editing by Chizu Nomiyama and Leslie Gevirtz)

Wall Street slips on economic worries, ECB eyed


NEW YORK |
Tue Sep 4, 2012 1:11pm EDT

NEW YORK (Reuters) – Stocks fell on Tuesday, led by weakness in shares most sensitive to the health of the economy after a report showed the country’s manufacturing sector shrank at its sharpest clip in more than three years last month.

Declines on Wall Street followed a bounce on Friday after Federal Reserve Chairman Ben Bernanke kept alive hopes for further monetary easing, although he stopped short of signaling any imminent action to prop up the economy.

The Institute for Supply Management said its index of national factory activity fell to 49.6 in August from 49.8 in July. The index also shrank in June. A reading below 50.0 indicates contraction. The data followed similar disappointing readings on manufacturing elsewhere in the world.

“What people saw with today’s U.S. ISM and the manufacturing data in Asia and Europe yesterday is that the global economy is still slowing down. In particular, cyclical stocks are pretty weak today,” said Peter Boockvar, equity strategist at Miller Tabak Co in New York.

The Dow Jones industrial average .DJI dropped 90.82 points, or 0.69 percent, to 13,000.02. The Standard Poor’s 500 Index .SPX fell 7.42 points, or 0.53 percent, to 1,399.16. The Nasdaq Composite Index .IXIC shed 21.31 points, or 0.69 percent, to 3,045.66.

The Morgan Stanley cyclical index .CYC fell 1.4 percent. The SP materials sector index .GSPM lost 1.5 percent.

Shares of Cliffs Natural Resources Inc. (CLF.N) fell 4.2 percent to $34.33. Allegeny Technologies Inc. (ATI.N) slipped 3.1 percent to 28.71.

Investors are now awaiting comments from European Central Bank President Mario Draghi after the bank’s meeting on Thursday. Speculation the ECB will unveil plans to lower borrowing costs for Spain and Italy mounted after Draghi said central bank purchases of sovereign bonds of up to three years maturity did not constitute state aid.

The all-important payrolls report due Friday will also be closely watched. The employment report will be the final major economic report before the Federal Open Market Committee meets on September 12-13.

“What we are seeing is a little bit of profit-taking after three consecutive months of gains in light of the possibility of some more disappointment this week,” said Fred Dickson, chief market strategist at D.A. Davidson Co. Lake Oswego, Oregon.

Separate data also showed U.S. construction spending in July fell by the most in a year as both the private and public sectors cut back on investment, according to a report that could dampen hopes of a pick-up in economic activity in the third quarter.

(Additional reporting by Angela Moon; Editing by Dave Zimmerman)

U.S. Steel, union reach tentative agreement


NEW YORK |
Sun Sep 2, 2012 6:50pm EDT

NEW YORK (Reuters) – United Steelworkers said on Sunday it reached a tentative agreement with U.S. Steel (X.N) on a three-year labor contract for more than 16,000 workers employed at the company’s U.S. facilities.

The union said in a statement it had been negotiating for a collective-bargaining agreement with the steelmaker since June.

Members of the union will cast a deciding vote on the agreement over the next few weeks.

But union negotiations continue with Luxembourg-based ArcelorMittal (ISPA.AS) — the world’s largest steelmaker — over a new labor contract, after a midnight deadline passed without an agreement.

“We have been exchanging proposals with the company and remain engaged in negotiations,” USW president Leo W. Gerard said in a statement.

He added that members of the union will continue to work under the terms set in a 2008 contract while the negotiations are ongoing. The contract, however, has not been formally extended.

The company is restarting blast furnaces idled in the run-up to the contract expiry at midnight on Saturday, Gerard said.

ArcelorMittal operates steel plants in Indiana, Ohio and several other states.

United Steelworkers represents about 850,000 workers in the United States, Canada and the Caribbean.

The deal with U.S. Steel comes a day before the Labor Day holiday on Monday, which honors American workers.

(Reporting by Selam Gebrekidan; editing by Theodore d’Afflisio, Gary Crosse)

Barclays sees Middle East driving investment bank


DUBAI |
Mon Sep 3, 2012 7:37am EDT

DUBAI (Reuters) – The Middle East will be an important growth area in coming years for investment banks, including Barclays (BARC.L), as local wealth funds put their oil dollars to work buying European assets, a senior executive at the British bank said.

“If you look globally, the upside is in emerging markets and the Middle East is a key component of that,” Makram Azar, global vice-chairman for investment banking at Barclays, told Reuters.

“We are committed to the Middle East. I do not see why our strategy would change,” Azar said in an interview.

Last week’s appointment of retail banker Antony Jenkins as Barclays group chief executive could see a shift from riskier investment banking, analysts said, as the lender tries to recover from an interest rate-rigging scandal that brought down former CEO Bob Diamond.

Barclays is also the subject of a British regulatory inquiry into payments to Qatar’s sovereign wealth fund linked to its participation in an 11 billion pound ($17 billion) refinancing of the bank at the height of the financial crisis in 2008.

Azar would not comment on whether that inquiry might affect its business in the region.

While investment banking has been at the heart of recent troubles at Barclays, the unit delivered 54 percent of underlying first-half group profit.

BUSY ADVISING

Middle Eastern deal activity has been picking up after a subdued period. Cash-rich Gulf Arab sheikhs and governments are buying European assets, lured in part by attractive valuations due to weak markets.

“There is a pick-up in MA activity in the MENA (Middle East and North Africa) region, led to a large extent by Qatar and Abu Dhabi,” Azar said.

“The environment in Europe is still challenging but there are names that were beaten up and are now trading at attractive levels. This presents an opportunity for Gulf investors.”

Barclays leads MA advisory rankings in MENA, according to Dealogic, with $4.7 billion of deals this year, followed by Goldman Sachs (GS.N) at $3.7 billion and Credit Suisse (CSGN.VX) on $3.5 billion.

Gulf investment into Europe almost froze in 2010 and 2011 because of confusion over the euro zone debt crisis and losses suffered on previous overseas deals completed at the height of the 2008 crisis – most notably sovereign funds from Abu Dhabi and Kuwait investing in U.S. banks.

Middle East funds are beginning to return and are making waves, led by cash-rich Qatar, which said last month it was buying a 20 percent stake in London Heathrow airport owner BAA.

Also, Qatar’s sovereign wealth fund became an unexpected kingmaker in the Glencore-Xstrata (GLEN.L) (XTA.L) deal after spending more than 3 billion pounds raising its stake to 12.3 percent.

Other regional players are also involved, with Abu Dhabi fund Mubadala MUDEV.UL acquiring a 5.6 percent stake in Brazilian conglomerate EBX for $2 billion and Almarai 2280.SE, Saudi Arabia’s largest dairy company, buying Argentine farm operator Fondomonte S.A. for $83 million.

Gulf Arab investors are also targeting options closer to home as they look for places to park their cash.

“The oil price is at a high level, higher than the levels at which Gulf government budgets are based on, and this excess revenue needs to be invested,” Azar said.

“Some of it is being channeled indirectly into the region in the form of investments such as Qatar Telecom’s bid for Wataniya and the rest is invested outside the region.”

Barclays has been advising Qtel’s QTEL.QA $2.2 billion bid for the 47.5 percent of Kuwaiti telco Wataniya (NMTC.KW) it does not own. The Qatari group has also increased its stake in Iraqi firm Asiacell to 60 percent in a $1.47 billion deal in June.

Gulf-based banks are also said to be keen to acquire stakes in Egyptian lenders being offloaded by French owners who want to divest assets to shore up capital positions at home.

Azar said further opportunities would emerge this year.

“The bank worked on several deals in the region worth around $4.7 billion and the year is not over yet. We are now looking at a number of additional deals in the pipeline.”

($1 = 0.6296 pound)

(The story corrects ninth paragraph to remove second part of quotation which was included in error.)

(Reporting by Mirna Sleiman; Editing by David French and Dan Lalor)

At Jackson Hole, a growing fear for Fed independence


JACKSON HOLE, Wyoming |
Sun Sep 2, 2012 5:39pm EDT

JACKSON HOLE, Wyoming (Reuters) – Increasing political encroachment on the Federal Reserve, particularly from the Republican Party, could threaten the central bank’s hard-won independence and undermine confidence in the nearly 100-year old institution.

That was the pervasive sentiment among economists gathered at the Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. Against the dramatic backdrop of the Grand Teton mountain, many said a closely-contested presidential race has turned the monetary authority into a political football.

“I do fear for it a bit if the election comes out that way, especially if some of the more radical voices, that happen to be Republican voices nowadays, get reelected,” said Alan Blinder, Princeton economics professor and a former Fed vice chairman, adding that historically opposition to the U.S. central bank had come predominately from the left.

“There’s a lot of hostility,” said Blinder, who was appointed to the Fed by former president Bill Clinton.

The primary topic of conversation at the rustic mountainside resort was whether or not Fed Chairman Ben Bernanke and his colleagues would deliver another round of monetary stimulus soon.

But, when probed on the issue on the sidelines of the meeting, many participants voiced concern about the heated political rhetoric aimed at the Fed, including a bill that would audit the conduct of monetary policy that is gaining increasing traction among Republicans.

Republican presidential nominee Mitt Romney has said the Fed should be audited and that he would not reappoint Bernanke, himself a Republican who was originally picked for the job by George W. Bush, to a third term when his current one expires in early 2014. Still, he has pledged to respect central bank independence.

The Fed is already subject to regular audits, but congressman Ron Paul’s bill would remove an exemption for monetary policy deliberations.

For some observers, that pressure is already affecting the Fed’s behavior, preventing it from pushing more aggressively for stronger economic growth following the sharp blowback received back in 2010, when policymakers announced their last large scale bond purchase program.

Some analysts outside the Fed’s inner circle — the ones that weren’t invited to Jackson Hole — argue top central bank officials brought some of the political heat on themselves. By backing bank bailouts that came with few strings attached and allowing some of the chief culprits of the financial crisis to continue doing business as usual, these critics say, the Fed was seen as too close to Wall Street, making it an easy political target.

LONE RANGERS

Ironically, the complete political gridlock that characterizes U.S. fiscal policy has left the Fed in the difficult position of being “the only game in town.”

Both the Fed and the independent Congressional Budget Office have said a looming “fiscal cliff” of spending cuts and expiring tax breaks at the end of this year could shove a fragile economy into a new recession.

In response to the financial crisis and deep recession of 2007-2009, the Fed cut interest rates to effectively zero and bought some $2.3 trillion in government bonds and mortgage debt to keep borrowing costs down and stimulate investment. Despite such aggressive efforts, growth remains subpar, registering an annual rate of just 1.7 percent in the second quarter, a level seen as too tame to bring down the country’s 8.3 percent jobless rate.

Bernanke, during his keynote speech here on Friday, spent much time outlining the benefits of recent Fed policies, arguing they prevented a much deeper slump and helped put unemployment on a downward trajectory.

But many Republicans in Washington have cried foul, berating the central bank for risking high inflation in the future — even if there has been little sign of substantial upward price pressures from the expansion of the Fed’s balance sheet five years after officials started cutting rates.

Critics also contend the Fed’s loose monetary policy has made it easier for the government to run large deficits.

“Central banks are under a lot of scrutiny right now,” said Karen Dynan, a former Fed economist now at Brookings Institution. “It’s partly because they are using these unconventional measures that people don’t really understand and don’t really trust.”

Romney’s choice of Paul Ryan — an ardent Fed critic who supports “sound money” — as his running mate appeared to ratchet up the potential for a possible Romney administration to tighten the screws on the central bank.

Such an attack would most likely come in two forms: support for Texas libertarian Ron Paul’s Audit the Fed bill, which Bernanke has said would be a “nightmare” for Fed independence, and an attempt to curtail the Fed’s mandate and force it to focus solely on inflation rather than giving equal weight to unemployment.

Fed officials including Bernanke have warned that monetary policy cannot go it alone in supporting the economy, and yet there is little prospect of any resolution to Washington’s long-running showdown over fiscal policy and the budget.

“Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve,” Bernanke said in his Jackson Hole remarks.

UPSIDE DOWN

Historically, the notion of political interference in monetary affairs boiled down to fears that, if politicians with short-term horizons had their way, they would always have central bankers crank up the printing presses in order to juice up growth — leading, in extreme cases, to hyperinflation.

In the current case, however, opposition has emerged against a proactive central bank that has been forced to widen its range of policy tools in a zero interest rate environment.

Susan Collins, professor of economics at the University of Michigan’s Gerald R. Ford School of Public Policy, stressed the dangers of political interference in monetary policy of either stripe.

“Compromising that (independence), maybe not immediately but over the medium- to longer-term, would have some really unfortunate consequences,” said Collins.

These could include a loss of market confidence that perversely pushes borrowing costs higher and tarnishes the central bank’s credibility.

“I absolutely hope that some wiser council would prevail should that issue come to the fore,” added Collins.

Comments from Romney advisor Martin Feldstein, also attending the Jackson Hole event, suggested a more Fed-friendly tone could yet reemerge from Republican side. Feldstein, a Harvard professor who would likely be on Romney’s short-list to replace Bernanke at the Fed, downplayed the Republican push to strip the Fed of its dual mandate.

“I don’t think that is a realistic idea,” he said, noting that even central banks with single mandates have to pay close attention to growth and employment. “I don’t think the dual mandate has handicapped them in their focus on keeping inflation down.”

(Additional reporting by Alister Bull; Editing by Theodore d’Afflisio)

Samsung to review 250 Chinese suppliers for labor violations


SEOUL |
Mon Sep 3, 2012 9:29am EDT

SEOUL (Reuters) – Samsung Electronics Co said on Monday it would inspect 250 Chinese companies which make products for the South Korean firm to ensure no labor laws are broken after a U.S.-based group accused one of its suppliers of using child labor.

Samsung also said its audit into working conditions at an HEG Electronics facility in Huizhou in southern China found no under-aged workers. New York-based China Labor Watch said last month seven children younger than 16 were working in the factory that makes phones and DVD players for Samsung.

But Samsung said the audit identified several instances of inadequate management and potentially unsafe practices such as overtime beyond local regulations, improper safety measures and a system of fines for tardiness or absences.

“Samsung has demanded that HEG immediately improve its working conditions… If HEG fails to meet Samsung’s zero tolerance policy on child labor, the contract will be immediately severed,” Samsung said in a statement.

It said it would conduct inspections for all 105 supplier companies in China which produce goods solely for Samsung by the end of September, and review, via documentation, by the end of the year another 144 suppliers that makes products for it and other firms.

“If supplier companies are found to be in violation of our policies and corrective actions not taken, Samsung will terminate its contract with those supplier companies,” Samsung said.

The move follows allegations earlier this year that Apple Inc’s products were assembled in China amid multiple violations of labor law, including extreme hours.

Apple and its main contract manufacturer Foxconn Technology Group, whose subsidiary Hon Hai Precision Industry assembles Apple devices in China, later agreed to tackle violations of conditions among the 1.2 million workers assembling iPhones and iPads. That landmark decision could change the way Western companies do business in China.

(Reporting by Miyoung Kim; Editing by Ron Popeski)

Global shares gain on central bank hopes, eyes on ECB


LONDON |
Mon Sep 3, 2012 10:53am EDT

LONDON (Reuters) – European shares crept higher on Monday after weak factory data highlighted the poor health of the global economy, keeping alive talk of fresh stimulus from major central banks.

However, with U.S. investors out for the Labor Day holiday, markets were stuck in a limited range.

Expectations that central banks would soon take steps to boost growth increased after separate surveys showed manufacturing activity in China and Europe slowing by more than expected in August. ID:L6E8K32OQ

“I think we’re going to see more stimulus from pretty much every central bank on the face of the planet,” said Michael Ingram, market analyst at BGC Partners.

“We’re living in a globalised economy. It’s a globalised slowdown. So policy makers have to step up to the plate.”

The hopes helped lift the FTSEurofirst 300 index .FTEU3 of top European shares 0.5 percent on Monday to 1,088.80 points, adding to gains of 0.5 percent on Friday.

The MSCI world equity index .MIWD00000PUS was barely changed at 322.40 points, but it had ended seven straight down days on Friday when investors decided U.S. Federal Reserve Chairman Ben Bernanke was open to further stimulus if needed.

After Bernanke made his remarks to central bankers in a speech at Jackson Hole in Wyoming the euro had hit an eight-week peak of $1.2638. It remained steady just below this level at $1.2570 on Monday.

EYES ON ECB

Any move by the Fed is seen as unlikely before its next policy meeting, which runs from September 12-13, and will be heavily dependent on the outcome of Friday’s August payrolls report which could add to recent signs of a gradual U.S. recovery.

In the meantime, the market’s main focus is on the European Central Bank meeting this Thursday, where expectations are rising that it may cut its main interest rates, already at record lows.

The likelihood of a rate cut grew on Monday after the final Purchasing Managers’ Index (PMI) reading for the factory sector in August showed activity across the region contracting at an accelerating rate.

The euro area index fell to 45.1 from an initial estimate of 45.3, notching its 13th month below the 50 mark that separates growth from contraction.

The data also confirmed that a downturn which had begun in the smaller peripheral members of the 17-nation bloc has now spread to the core nations of Germany and France, and that the region’s third and fourth biggest economies of Italy and Spain are still weakening.

“The general picture is one in which we are losing momentum,” said Peter Dixon, an economist at Commerzbank.

“Growth is going to struggle, not just in the euro zone but everywhere, over the next few months until authorities find a way to inject some positive sentiment,” he said.

The ECB releases its latest economic projections for the euro area at Thursday’s meeting, on the same day that Europe’s statistics agency Eurostat is likely to announce the region’s economy contracted by 0.2 percent in the second quarter.

Markets are also expecting the ECB to release details of its new bond-buying plan to ease the region’s debt crisis on Thursday. Many central banks say that crisis is the prime cause of the global slowdown in economic activity.

The prospect of ECB bond buying helped 10-year Spanish bond yields to fall 1.5 basis points on Monday to 6.9 percent, while two-year yields shed 21 basis points to 3.52 percent.

COMMODITY STIMULUS

In oil markets, the latest surveys on factory activity, in particular the unexpected weakness in China, the world’s No.2 oil consumer, saw prices initially ease; but the possibility of more stimulus measures saw prices quickly recover.

Brent October futures were up 40 cents at $114.97 per barrel, steadying after jumping nearly $2 on Friday. U.S. crude futures were little changed at $96.48.

“The Chinese data is very gloomy and suggests that the world economy is slowing,” said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. “But the market impact is rather limited as it raises hopes of more economic stimulus measures.”

Gold held around five-month highs of $1,686.96 an ounce posted on Friday as any sign of more monetary easing from the world’s major central banks makes the precious metal more appealing to investors as a hedge against potential inflation.

Speculation the Fed may be about to act lifted the gold price by 4.8 percent in August, marking its third successive monthly gain and the largest one-month increase since January.

Gold has now doubled in price since the Fed first employed quantitative easing, the practice of buying government debt on the secondary markets to keep rates low and liquidity high, in late 2008.

(Additional reporting by Jonathan Cable and Christopher Johnson; Editing by Anna Willard and Alastair Macdonald)

Iran says oil exports unaffected by sanctions


DUBAI |
Sun Sep 2, 2012 7:11am EDT

DUBAI (Reuters) – Iran’s oil exports are at their normal levels and are unaffected by Western embargoes, an Iranian oil official was quoted as saying on Sunday.

“We don’t see anything abnormal, almost everything is progressing routinely,” Mohammad Ali Khatibi Tabatabaei, director for international affairs at the National Iranian Oil Company (NIOC), told the Iranian Students’ News Agency (ISNA).

He did not give any figures on Iran’s current oil export levels.

Iran’s top oil customers have slashed Iranian purchases under pressure from European Union and U.S. sanctions that aim to squeeze Tehran’s oil income and curb its nuclear program.

Japan’s imports of Iranian crude fell to zero in July for the first time since 1981, trade ministry data showed last week. To compensate, Japan increased imports from the United Arab Emirates and Iraq, among other suppliers.

South Africa imported no crude oil from Iran in July, customs data showed last week. The country used to import a quarter of its crude from Iran.

The EU’s embargo also included a ban on insurance of Iranian cargoes. Tehran has offered to provide up to $1 billion of insurance cover to Iranian vessels shipping oil.

“This step has been taken in the last few months and everyone saw that the insurance companies could provide $1 billion in coverage,” Tabatabaei was quoted as saying.

(Reporting By Yeganeh Torbati. Editing by Jane Merriman)