Jalatama Artha Berjangka News

The longer Greece avoids default, the closer European leaders come to breaking one of their oldest taboos by taking responsibility for the finances of a neighbor.

Even as they resist European Central Bank President Jean- Claude Trichet’s call for a “major strengthening” of fiscal ties, European authorities are becoming the biggest holders of Greek debt. That would leave the country a virtual ward of the state, the objection of the bloc’s politicians to sharing sovereignty undercut by their own efforts to save the euro.

“The more debt restructuring is avoided the more Greece’s liabilities are socialized and the more a de facto fiscal union occurs,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “If the ECB is successful in its attempt to prevent any kind of restructuring in the near- term, the region will move down the path towards the destination Trichet wants.”

Greek lawmakers yesterday approved an austerity package, clearing the way for the second international rescue in two years, which would expand taxpayers’ stake in Europe’s most- indebted country. For investors, greater subsidies from the strong to the weak risk hurting the German bonds that serve as the region’s benchmark.

The outcome of the scrap may determine whether the euro evolves or runs aground on the concern that its 17 members are too diverse to be united in one currency if some aren’t willing to abide by the rules and others won’t aid those in trouble.

“We are at the crossroads for Europe,” said Guy Verhofstadt, Belgium’s prime minister for most of the euro’s first decade, said in an interview. “It is impossible to have monetary union in the coming years if we don’t build economic and fiscal union. We see Trichet realizing that, but some political leaders have other views.”

The cost of greater union would fall mainly on the core economies. Nomura International Plc economists calculate that reaching a U.S.-level of integration would require Germany to transfer 3.5 percent of gross domestic product, compared with the 0.7 percent it contributes to the EU budget that amounts to about 1 percent of GDP.

Strategists at Brockhouse & Cooper Inc., a Montreal-based brokerage, say funding Greece, Ireland and Portugal will amount to about 2 percent of the gross domestic product in France and Germany in 2011, roughly the same as their growth rates.

Open Europe, a London-based research group, estimates each euro-zone household already underwrites 535 euros ($773) of Greek debt and a second bailout would almost triple that by 2014.

Trichet made his most public case yet on June 2 when he accepted the Charlemagne prize, awarded annually by the German city of Aachen to supporters of European integration. Seeking to turn the crisis into an opportunity to deliver a “union of tomorrow,” the 68-year old central banker urged politicians to fix a flaw in the euro architecture he helped build.

While the ECB has delivered the price stability required of monetary union, beating current “difficulties requires a major strengthening of the rules and organizations that govern fiscal and economic policies,” said Trichet. He proposed European institutions wield veto power over the budgets of countries in crisis and the creation of a regional finance ministry that, while lacking spending powers, would monitor policy making.

The likes of German Chancellor Angela Merkel, 56, fret that deeper ties mean national capitals will lose influence over their budgets as they transfer more cash across borders to keep the euro area together.

Still, the need to prevent a Greek default has already led toward greater fiscal solidarity, says Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London.

Even more would force yields on the bonds of the so-called periphery to “meet more in the middle” with Germany’s, he said. “Greek debt would look better and German debt worse.”

Investors demand a premium of about 13 percentage points to hold 10-year Greek debt over 10-year German notes. The spread has narrowed from a record 15 percentage points as Europe moved closer to a second bailout. German borrowing costs are now about the same as in the U.S., where 10-year yields were higher by an average of 18 basis points in the first five months of the year.

Jim O’Neill, chairman of Goldman Sachs Asset Management, says countries may need to start issuing common bonds to attract investors to Europe and terminate the crisis.

“If you wanted economic and monetary union, you have got to start delivering it,” said O’Neill. “This crisis is all about whether Europe’s policy makers want this thing to survive.”

Germany now rejects such an idea for fear it would impose higher borrowing costs on its economy. A solution suggested by the Brussels-based research group Bruegel would have countries fold their debts up to 60 percent of GDP into a joint “blue” bond that would likely enjoy relative lower interest rates than governments currently pay. Any excess debt would then be sold on a national basis as a “red” bond, which by facing a higher yield would carry an incentive to cutback.

“The benefit for Germany is if it strengthens the system and makes fiscal policy more disciplined, while smaller countries get access to a larger market,” said Jean Pisani- Ferry, Bruegel’s director and a former EU adviser. Those with large debts “suffer a margin cost.”

The euro area’s lack of a U.S.-style mechanism to spray money around the region to smooth gyrations has been singled out from the start by critics as its Achilles heel. Billionaire investor George Soros said June 26 that the euro has “fundamental flaws that need to be corrected.”

Signatories of 1991’s Maastricht Treaty, which created the currency bloc, dodged the issue to maintain control over their individual purse-strings and policies. In doing so, they ignored the Bundesbank’s call for a “comprehensive political union’” and instead imposed limits on budgets and debts that have never been enforced.

What they sought to dodge may nevertheless be happening. While the rulebook bans bailouts and monetary financing of member states, the fiscal strains of Greece, Portugal and Ireland have been soothed with 256 billion euros in aid and 77 billion euros of bond buying by the ECB.

“One of the endgames of this crisis is more fiscal integration and we may be getting more of it because of this crisis than we did in the last 20, 30 years,” said Laurent Bilke, head of European interest rate strategy at Nomura in London and a former ECB economist.

Trichet, a co-writer of the Maastricht treaty who is set to step down in four months, has chastised governments’ recent efforts to harden surveillance of economies for lacking the “quantum leap” that would involve “quasi-automatic” fines and fewer voting rights for transgressors. Governments respond that they are still tightening their grip by enforcing their budget rules faster, setting annual targets for debt reduction and advancing the vetting of national fiscal plans.

Trichet’s 11th-hour campaign underscores how much the ECB has at stake. The Frankfurt-based central bank has about 120 billion euros of exposure to Greece, having bought its bonds and accepted them as collateral for emergency bank loans, London- based Fathom Financial Consulting estimates. A 70 percent writedown would cost the ECB about 25 billion euros and its collateral would take a hit of 20 billion euros, erasing its entire capital base, it said.

Trichet’s cause may be carried on when Bank of Italy Governor Mario Draghi replaces him at the helm of the ECB in November. Draghi told the European Parliament this month that the debt crisis poses “a real test for the political will in Europe to do whatever is needed to ensure the achievements of economic and monetary integration.”

Merkel, the biggest contributor to the EU’s bailouts and an advocate of having investors share the cost, says her aim is to preserve a system in which the taxpayers of prudent nations aren’t on the hook for the mistakes of the wasteful. For her, fiscal union spells a weaker not stronger euro.

“The question for me as chancellor isn’t just showing solidarity,” Merkel said on March 23. “There’s also a question of where does that solidarity end” and the risk is that Europe’s strength drifts into “mediocrity.”

A push toward fiscal union and the euro itself could still founder if the public runs out of patience. The role of governments is being questioned throughout the continent with Greeks taking to the streets to oppose the austerity measures demanded of them and opinion polls showing Germans irritated by footing the bailout bill.

“The people of Europe do not want any form of fiscal union, so any debate is just theoretical,” said Eric Chaney, chief economist for the Axa SA (CS) and a former French finance ministry official. “If it means fiscal transfers the population is very clear in opposing that.”

Trichet has failed to win some past battles. As well as governments rebuffing his tougher budget monitoring, they ignored his idea to replace the ECB as a buyer of bonds and his reluctance to involve the IMF in supporting Greece.

Notwithstanding these defeats and what he calls Germany’s aversion to “unlimited liability union,” Gilles Moec, co-head of European economic research at Deutsche Bank AG, sees signs of greater fiscal links already forming as policy makers head off what would be the first default by a euro member.

At their latest round of crisis talks, authorities this month vowed to do whatever it takes to prevent a Greek bankruptcy. To do so, they boosted the size of their rescue fund, agreed the investment of creditors would be voluntary and said their future crisis-resolution mechanism would no longer have priority over investors in any post-default repayment.

“The losses arising from a sovereign default on Greece, Portugal and Ireland would be shared across all euro-zone’s taxpayers,” said Moec, a former economist at the Bank of France. “This is a clear step towards fiscal union.”

Prada SpA raised HK$16.7 billion ($2.14 billion) in its initial public offering, following Samsonite International SA as the second foreign issuer in a week to scale back its Hong Kong fundraising plans.

The Milan-based luxury goods retailer priced 423.3 million shares at HK$39.50 each, below the middle of the marketed range, according to two people familiar with the matter. The sale values Prada at about 9 billion euro ($12.8 billion), or 23 times 2011 earnings, said one of the people, who asked not to be identified because the details aren’t public.

Prada had sought to sell the shares at HK$36.50 to HK$48, according to the IPO prospectus. The company yesterday narrowed the range to HK$39.50 to HK$42.25 after getting orders for just half of the stock offered to retail investors, two people with knowledge of the matter said.

Like Prada, Samsonite narrowed the price range marketed to investors, and priced its IPO at the bottom of the narrowed range. The Mansfield, Massachusetts-based luggage maker yesterday dropped 7.7 percent in its first day of trading from its initial public offering price of HK$14.50. The benchmark Hang Seng Index fell 1.8 percent.

Diana Footitt, an outside spokeswoman for Prada in Hong Kong, declined to comment. www.bloomberg.com

Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 7:43 a.m. in New York.

Citrix Systems Inc. (CTXS) fell 2 percent to $80.51. The software maker was downgraded to “underweight” from “neutral” at JPMorgan Chase & Co, which said the stock is expensive. The share-price estimate is $65.

Expedia Inc. (EXPE) rose 2.9 percent to $27.70. Citigroup Inc. raised its share-price estimate for the online travel site to $33 from $29, citing positive industry trends that should benefit margins.

Ford Motor Co. (F) added 1.2 percent to $14.07. The automaker said global sales will rise 50 percent by 2015 to 8 million annually, driven by expansion in Asia and growing demand for small cars.

G-III Apparel Group Ltd. (GIII) : The clothing manufacturer which has licenses with Kenneth Cole Productions Inc. (KCP US) and the Timberland Co. (TBL US) estimated second- quarter profit of as little as 18 cents a share. The average of analyst projections in a Bloomberg survey is 22 cents a share.

Mitcham Industries Inc. (MIND) : The seller of seismic- data equipment reported first-quarter revenue of $26.5 million, beating the average analyst estimate by 23 percent, according to Bloomberg data.

Pep Boys - Manny, Moe & Jack (PBY US): The Philadelphia- based auto-parts retailer reported first-quarter earnings of 23 cents a share, missing the 30-cent average of analyst estimates in a Bloomberg survey.

Talbots Inc. (TLB) : The women’s clothing retailer reported first-quarter sales of $301.3 million, trailing the average analyst estimate of $305.6 million, as comparable-store sales fell 7.7 percent. The company said it plans to close 110 stores and predicted second-quarter sales and profit margin that will be lower than the previous year.

Temple-Inland Inc. (TIN) soared 44 percent to $30.30. International Paper Co. (IP) , the world’s largest pulp-and- paper maker, made a $3.31 billion hostile takeover bid for the company to expand production of containerboard used in shipping boxes. Temple-Inland, based in Austin,Texas, rejected the bid. www.bloomberg.com

Lockheed Martin Corp. (LMT)’s F-35 Joint Strike Fighter, the Pentagon’ most expensive weapons program, may face cost overruns of as much as 15 percent on early production models, U.S. Vice Admiral David Venlet said.

The plane’s expense may exceed the contracted target cost by $964 million in the worst-case scenario, Venlet said in an April 28 interview in Washington. The overrun is calculated on $6.43 billion in aircraft and engine costs for 28 planes, according to F-35 program data. The low end of the overrun estimate is 11 percent, or $707 million, he said.

The first three “low-rate initial” production contracts are cost-plus agreements that require the U.S. to pay most of an overrun. Venlet inherited these contracts when he was assigned last year by Defense Secretary Robert Gates to improve the $382 billion program’s cost, schedule and performance.

“These bills are not all due now,” Venlet said in the interview. “They are spread out over the delivery of the program, so to the best of my ability I’ve told leadership I am not going to cause pain to others, I’m going to try and resource those” inside the program.

The Pentagon won’t have to pay all of the amount exceeding the contract target because Bethesda, Maryland-based Lockheed will make up much of the cost by losing incentive fees, said Venlet, who is the Pentagon’s F-35 program manager.

“That’s a lot of money,” he said. “We believe we have access to funds to pay those bills, so it’s not going to drive the program into a ditch.”

“Where is Lockheed’s pain? It’s in the fee decrement,” he said. “As target cost overruns, the fee comes down.”

Lockheed Martin spokesman Mike Rein said the company confirms the higher cost stated by the government.

“Lockheed is absorbing approximately 30 percent of the overruns cost,” Rein said in an e-mail.

The worst-case scenario would cost Lockheed about $289 million if the 30 percent forfeiture were realized. This fee is separate from $614 million for development-phase performance fees that Gates set aside last year.

The higher expense comes primarily from changes in material requirements and labor costs, Rein said. Lockheed staff worked with the government on the overrun estimates.

The early aircraft costs reflect more than the price of the planes, engine and mission systems used to fly the jets. Other expenses include one-time costs such as buying production equipment and setting aside funds to address engineering changes and retrofits.

Early-production planes generally have higher costs due to initial tooling investments. As the program moves from development jets into production jets, the learning curve and other improvements will help drive down costs, Venlet said.

The first contract for two aircraft with United Technologies Corp. (UTX) engines is valued at $591 million and is estimated to have exceeded its cost target by 11 percent, Venlet said. The work is complete.

The second contract for 12 aircraft and engines is valued at $2.74 billion and is 80 percent complete. The third contract, for $3.69 billion, covers 16 aircraft and engines and is 60 percent complete.

Unlike the first three cost-plus contracts, Venlet in November accelerated use of a fixed-price contract that includes an incentive fee and requires Lockheed to share overruns.

“We are positively protected,” Venlet said.

Lockheed would earn $441 million in profit from the fixed- cost contract if it meets the target of $3.46 billion for 32 jets, according to F-35 contract data. In this instance, Lockheed and the Pentagon would share equally any savings if the jets cost less to build than the target cost.

Similarly, they would share cost overruns up to 120 percent of that figure. The full burden would fall on Lockheed for overruns above that.

Venlet said 10 percent of the contract work is complete so there isn’t enough data to estimate performance trends yet.

Lockheed is scheduled to accomplish 30 percent of its contract work by December.

“Thirty percent ought to be enough work to start to see deviations,” he said. www.bloomberg.com

The yen fell versus all of its major counterparts on speculation the Bank of Japan will signal this week it will maintain monetary stimulus while policy is being tightened elsewhere.

The euro climbed against the yen for a second day before data this week that may show industrial orders in the trading bloc accelerated, adding to the case for the European Central Bankto increase interest rates further. Malaysia’s ringgit advanced beyond 3 per U.S. dollar for the first time in more than 13 years on speculation the Asian central bank will raise interest rates next month to help damp inflation.

“Japan and the U.S. are the countries that can’t steer toward monetary tightening, so the yen and dollar will be weak,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The yen will continue to depreciate as long as the global economy is recovering gradually.”

Japan’s currency dropped to 119.65 per euro as of 12:33 p.m. in Tokyo from 119.24 in New Yorklast week, and fell to 82.28 per dollar from 81.88. The euro traded at $1.4540 from $1.4561 after touching $1.4649 on April 21, the highest level since December 2009.

Financial markets in Australia, Hong Kong and New Zealand are closed for a public holiday today.

The Bank of Japan will hold its benchmark interest rate at a range of between zero and 0.1 percent at its April 28 meeting, according to all 13 economists surveyed by Bloomberg. The central bank may cut its forecast for real growth in fiscal 2011 to 0.8 percent from 1.6 percent as a result of a record earthquake on March 11, the Nikkei newspaper reported.

The euro has gained 3.4 percent this year, the second-best performer after Sweden’s krona among the 10 most-widely traded currencies tracked by Bloomberg Correlation-Weighted Currency Indexes.

ECB President Jean-Claude Trichet said last week that price stability remains the central bank’s primary mandate and that maintaining credibility on inflation is critical. ECB executive board member Jose Manuel Gonzalez-Paramo speaks tomorrow followed by central bank council member Athanasios Orphanides on April 27.

The ECB, which aims to keep inflation below 2 percent, this month raised interest rates by a quarter-percentage point to 1.25 percent. It left the door open for more rate increases even as a sovereign debt crisis tempers growth in peripheral countries such as Greece, Portugal and Ireland.

“Currencies of nations which are hiking rates are attractive,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust & Banking Co., a unit of Japan’s largest brokerage. “There’s a high possibility for further euro appreciation.”

The Swedish krona climbed to its highest level against the dollar in more than 2 1/2 years today after the Riksbank increased interest rates last week. The krona rose to $6.0701, a level not seen since August 2008.

Industrial orders in the euro area rose 1.5 percent in February from the previous month, when they increased a revised 1.2 percent, according to economists surveyed by Bloomberg before the April 27 report.

The dollar erased earlier losses against the euro. The European currency’s 14-day stochastic oscillator against the dollar rose to 82.3 on April 22, above the 80 threshold that suggests to some traders an asset’s price has risen too quickly and is poised to weaken.

“The dollar is likely oversold, given its recent slump,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is probably contributing to some buying back of the greenback amid holiday-thinned markets.”

Futures traders cut their bets that the euro will rise versus the dollar, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a gain in the euro compared with those on a drop -- so-called net longs -- was 62,195 on April 19, compared with 64,985 a week earlier.

The ringgit led gains among Asian currencies. A government report showed this month inflation in Southeast Asia’s third- largest economy accelerated at the fastest pace in 23 months.

“We could expect the ringgit to strengthen to counter inflation, given that there’s still a small probability of a rate increase in May,” said Saktiandi Supaat, head of foreign- exchange research in Singapore at Malayan Banking Bhd. “It’s also helped by the dollar weakness.”

Malaysia’s consumer prices rose 3 percent in March from a year earlier, the most since April 2009, the statistics department said on April 20. Bank Negara has kept its overnight rate at 2.75 percent since July, after raising it three times earlier in 2010.

The ringgit touched 2.9913 against the dollar, the strongest level since October 1997. www.bloomberg.com

Gold fell in New York as some investors sold the metal after prices rallied to a record on concern about European debt and faster inflation. Silver touched a 31-year high.

Bullion futures reached a record $1,489.70 an ounce today. China increased banks’ reserve requirements to cool inflation that quickened in March to the fastest pace since 2008. The euro weakened against the dollar on speculation Greece will be unable to avoid a default. Unrest in the Middle East and North Africa and concerns about Japan’s nuclear crisis also helped gold’s gain this year.

“A further pullback could be seen in gold and silver given the gains seen in recent weeks,” James Moore, an analyst at TheBullionDesk.com in London, said in a report to clients. Still, “rising debt problems could dampen economic recovery in the euro zone, and when coupled with other factors such as inflation, Middle East and North African unrest and the impact of Japan’s earthquake, we expect dip-buying to underpin the metals.”

Gold futures for June delivery fell $5.80, or 0.4 percent, to $1,480.20 an ounce by 8 a.m. on the Comex in New York. The metal for immediate delivery in London was 0.5 percent lower at $1,479.65 an ounce after reaching a record $1,488.68.

The cost of insuring Greek government debt rose to a record today. Greece isn’t discussing restructuring its debt, Finance Minister George Papaconstantinou said April 16 in Washington. Greece received a bailout from the European Union and the International Monetary Fund last year, and has been followed by Ireland and Portugal in seeking aid.

Reserve ratios will rise a half point from April 21, the People’s Bank of China said on its website yesterday. The European Central Bank this month raised interest rates from a record low as inflation in the region quickened to 2.7 percent in March, the fastest pace since October 2008.

Libyan rebels repelled an attack from forces loyal to Muammar Qaddafi on the city of Ajdabiya, defending the front line that runs between the country’s two biggest cities. Rebels have struggled for weeks to take and hold cities in central Libya. Yemen’s opposition coalition rejected a plan by six Gulf states to end unrest in the Arabian country, saying that the swift departure of Yemen’s President Ali Abdullah Saleh isn’t negotiable.

Silver for May delivery in New York climbed as much as 1.9 percent to $43.38 an ounce, the highest price since January 1980, the year futures reached a record $50.35. The metal was last up 0.5 percent at $42.765 and has surged 38 percent in 2011.

Palladium for June delivery was down 2.4 percent at $749.35 an ounce. Platinum for July delivery fell 0.6 percent to $1,784.10 an ounce. www.bloomberg.com