Sunday newspaper round-up: ECB, India, Next, LSE

18th Dec 2011 14:49

Risk appetite recovered a bit towards the end of last week, as evinced by the rise in the Euro/dollar cross to over 1.30 on Friday, the Financial Times writes in this weekend´s edition. Likewise, in general Eurozone government bonds did well, although Italian 10 year bond yields did rise by 20 basis points on the week. For Robert Lynch, strategist at HSBC, however, the recovery in risk appetite was likely the result of the European Central Bank´s offering 3-year funding next week. "There is speculation that banks will be more willing to purchase and subsequently repo increased amounts of Eurozone sovereign debt," he said. The auction will be a key event allowing investors to gauge how in need of funding European banks are. A lesser man might have quit by now. Even Indian Prime Minister Manmohan Singh's fabled ability to endure humiliation is being tested. (...) That he is undercut by colleagues, including Mrs Gandhi, who are still sceptical about his liberalising reforms, looks increasingly hard for him to swallow. (...) The price is being paid by India itself. (...) Mr Mukherjee, the Finance Minister, has cut his growth forecast for the year, from 9% to 7.5%. Even that may be optimistic, after figures on December 12th showed industrial output slumped by 5.1% in October, compared with a year earlier. The rupee promptly reached historic lows against the dollar. Inflation fell slightly, to 9.1% in November, but is still much too high. So the central bank will not rush to reverse its long run of rate rises that have left investors squealing, The Economist says. Next´s shares trade at about 11 times forward earnings -higher than UK peers Kingfisher (10 times) and Marks and Spencer (9 times), and that higher valuation is justified argues the Financial Times´ Lex Column this weekend. The reason for that is the retailer´s online presence, which is much more meaningful than that of the others. Supporting the above, shoppers appear to be trading in a physical shopping experience for an online one, which is why it is no wonder that Next´s margins are double those of its peers. Since 2006, and according to research by Goldman Sachs, the proportion of all non-food sales made online in the UK has almost doubled to reach 11%. More than a quarter of Next´s sales are generated online and they grew by approximately 15% in the first three quarters of the year, with margins of 23%, twice those achievable through physical space, where sales fell 2%. The public spending watchdog is to launch a probe into the controversial sale of state-owned bank Northern Rock, it was confirmed tonight. The National Audit Office (NAO) said it would examine the deal to sell the bank to Sir Richard Branson's Virgin Money for £747m - a potential loss to the taxpayer of £400m. Christopher Leslie, Labour's Shadow Financial Secretary, called for the sell-off to be delayed during the inquiry. However, NAO chief Amyas Morse said that the watchdog's role was confined to auditing a completed sale and it could not intervene in the process, reports The Sunday Times.The Government will "accept in full" radical plans to shake up the banking industry despite fears the measures will harm the economy, Vince Cable, the Business Secretary, said, writes The Times. A report by the Independent Commission on Banking (ICB) that proposed lenders should be forced to split their retail and investment banking arms to help prevent future bailouts will be backed by George Osborne in Parliament. (...) But with the planned reforms estimated to cost the industry up to £7bn, there are fears they will slow lending at a time when the economy is in danger of sliding into recession. And the moves will heighten speculation that banks, particularly HSBC, will move their head offices away from London, depriving the UK of jobs and tax revenues. Senior economists are concerned at Mr Osborne's determination to press ahead with bank sector reforms, even though the UK economy could register a period of negative growth in the final quarter of 2011. Roger Bootle, managing director of Capital Economics, said: "It's not as straightforward as it looks. If bank regulation is strengthened, banks will be safer and confidence should increase as a result but I think, looking at the reality - to the way banks feel - banks feel under siege. "If they're loaded up with important regulatory changes in the near term, the reaction is likely to be to retreat to the hills and not take risk," according to The Sunday Telegraph. Thousands of savers worried about the corrosive effects of inflation have snapped up £60m worth of corporate bonds issued by Tesco Bank. Demand for the inflation-protected bonds, which began trading yesterday, exceeded Tesco's target by £10m and came despite the majority view that inflation is set to tumble sharply. It was announced this week that inflation in November, as measured by the retail prices index, had fallen from 5.4% to 5.2%. Most economists, including the Bank of England, expect it to drop much further in the coming months as the VAT rise and energy price rises drop out of the sums. The consumer prices index, which excludes some property costs, also fell, from 5% to 4.8%. In recent years, however, the Bank has repeatedly underestimated inflationary pressures and failed to get CPI close to its 2% target, The Times says. By buying the 50% of FTSE International it did not already own - from Pearson for a price of £450m - Xavier Rolet, the London Stock Exchange's chief executive has made a bold statement of intent. Outsiders may think control of FTSE International gives little other than access to the FTSE 100 and a few other indices. But they would be wrong. What FTSE International gives the LSE is control of in excess of 200,000 different indices, and, more importantly, the gateway to the bourse's push into derivatives trading, The Telegraph holds. The High Street is poised for some of the biggest sales for decades with prices slashed by up to 75% as desperate retailers scramble to pull in shoppers. Rising unemployment, dearer fuel and utility bills and weeks of seismic economic news have left many consumers feeling financially fragile. Price cuts of 25% are already commonplace in fashion stores and the levels of discounting have been described by retail experts as 'unprecedented', writes The Financial Mail on Sunday.In a speech last Friday, Italy´s Prime Minister, Mario Monti, said that to avoid dividing countries as the process of building a unified Europe proceeds, "Europe´s response to the debt crisis "should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigour in some countries," according to the Financial Times´ Weekend Edition. That even as the negotiations for the country´s new €30bn austerity package revealed Mr. Monti´s caution in the face of powerful vested interests that lobbied successfully against even modest reforms in certain sectors, including unions who are against pension reform. Nonetheless, Italians are described as recognizing the need for "far-reaching" reforms, despite the negative impact which the above measures may have on short-term growth. AB