Dollar rises on Bernanke comments

The dollar has rebounded from recent lows after US Federal Reserve boss Ben Bernanke said he would tighten monetary policy when the economy recovers. The comments eased concerns about the inflationary impact of US interest rates remaining at the current level of between 0% and 0.25%. Higher rates would also make the dollar more attractive to investors. Mr Bernanke's comments saw the dollar rise against the yen, and also gain against the euro and the pound. The pound was down 1.4% against the dollar at $1.5870 , while the euro had fallen 0.7% to $1.4705, and one dollar was worth 89.76 yen.

'Prevent inflation'
"Accommodative [fiscal] policies will likely be warranted for an extended period," Mr Bernanke said in a press conference at the Fed's Washington headquarters. "At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road." US economic data continues to point to a slow and patchy recovery in the world's largest economy. While a report last week showed that US firms cut more jobs than expected in September, figures this week detailed a rise in retail sales, and unemployment claims falling to a nine-month low.

Tata buys breathing space as it raises $750m

Tata Motors has raised $750m through an international share sale and convertible bond issue, completing the prolonged refinancing of a $3bn bridge loan it raised to fund its acquisition of former Ford marques, Jaguar and Land Rover, last year. The move, in which Tata Motors sold $375m of global depositary shares and the same amount in convertible bonds, buys India’s largest automotive producer some breathing space as it negotiates one of the most difficult periods in its history.Moody’s Investors Service analyst Ivan Palacios said in a research note: “Moody’s expects to see a slow but progressive improvement in [Tata Motors’] performance in the following quarters.”Tata Group, India’s largest conglomerate, bought Jaguar and Land Rover in June last year at the tail end of an overseas acquisition drive in which it also purchased Anglo-Dutch steel producer Corus and a number of other companies. The Jaguar and Land Rover acquisition ran into trouble. The global financial crisis made it difficult for Tata to refinance the bridge loans used for the purchase even as demand for cars plummeted.

With markets picking up, however, Tata Motors has lined up about £500m ($794m) of financing facilities for Jaguar and Land Rover, relieving some of the pressure on its own balance sheet. The group has been forced to pump more than £1.2bn into the two brands to keep them afloat. Tata Motors said on Friday the GDS and convertible bond offering was closed in less than an hour after it received bids for more than double the original amount on offer. “The deal size was upsized from a base $600m to $750m,” it said, adding that the GDSs were sold at a 1.5 per cent discount to Tata Motors’ closing price in Mumbai on Thursday of Rs589.25. The notes, due in 2014, were sold with a coupon of 4 per cent and a conversion premium of 7.5 per cent over the GDS price.

Tata Motors shares ended down 6.6 per cent at Rs548.30 per share on Friday as investors worried about the dilution from the GDS offering. The stock has tripled in value this year, helped by the improvement in the global automotive sector outlook. An analyst with a foreign brokerage in Mumbai said Tata Motors was taking advantage of a benign market to raise money against a future full of uncertainties. The outlook for Jaguar and Land Rover remained difficult, with a turnround in the UK-based businesses likely to take time. “They are making hay while the sun shines,” the analyst said. “They probably should have raised more.” Moody’s also cautioned that Tata Motors’ leverage remained high. “Moody’s expectation that the company will generate negative free cash flow in fiscal year 2009-10 means further leverage reductions will be challenging,” Mr Palacios said. Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

GM agrees Chinese sale of Hummer

General Motors (GM) has agreed to sell its iconic Hummer brand to Chinese firm Sichuan Tengzhong Heavy Industrial Machinery for an undisclosed fee.

The two parties had been in talks about the sale for a number of months. GM is in the process of selling and winding up a number of brands as it looks to reorganise after emerging from bankruptcy protection in July. At the start of this month, the troubled carmaker announced it would be winding down its Saturn brand. This was after the proposed sale to Penske Automotive Group collapsed. GM has already announced that it is discontinuing the Pontiac brand, and is close to finalising the sale of its European brands Saab, Opel and Vauxhall. GM plans to reinvent itself by concentrating on fewer brands following bankruptcy protection, made necessary after car sales plummeted during the downturn.

'Next generation'
Under the terms of the Hummer deal, Tengzhong will take an 80% stake in the company, with the remaining 20% going to Hong Kong entrepreneur Suolong Duoji. The current Hummer management team will continue to run the company. The deal is still subject to regulatory approval. "Hummer is a strong global niche brand and this agreement signifies another important milestone in writing the next chapter of both GM and Hummer," said GM boss Fritz Henderson. The company also said it would be focusing on improving efficiency, including the introduction of diesel engines. "We are excited about some of the initiatives already underway at Hummer that we believe our investment will be able to accelerate, particularly related to the creation of the next generation of more fuel efficient vehicles to meet not only future regulations but also customer expectations," said Yang Yi, chief executive of Tengzhong.

Star struck
Hummers were originally built as military off-road vehicles by a company called AM General. The brand took off as US motorists flocked to the sport utility vehicles favoured by celebrities including Arnold Schwarzenegger. GM bought the Hummer brand in 1999, but sales have suffered recently as the gas-guzzling performance and military image have become less popular.
Hummers weigh up to five tons and have fuel consumption of around 15 miles per gallon. Tengzhong specialises in making equipment for the road, construction and energy industries. It is based in China's Sichuan province.

Fall in Japan's unemployment rate

The rate of unemployment was expected to have continued ri

Japan's jobless rate unexpectedly fell to 5.5% in August from July's record high of 5.7%, official figures showed.

But the number of people unemployed hit a six-year high of 3.61 million in August, a figure which was up 32.7% on the same month of 2008. Official figures also showed that household spending rose 2.6% in August from a year earlier. Also on Friday, US figures for September showed 263,000 jobs had been lost, taking the jobless rate to 9.8%.

'Worst levels'

Analysts had been expecting the Japanese jobless rate to rise again in August. "The unemployment rate fell earlier than expected, but we don't know yet whether it is just a dip for one month or something more continuous," said Masamichi Adachi, senior economist at JPMorgan Securities. The quarterly Tankan survey of business confidence on Thursday had indicated that companies were feeling better than they had three months before, but that they still felt they had too much capacity and too many workers.

The number of workers employed in manufacturing fell almost 10% year on year, but the number employed in the care and hospitality sectors rose. There was a cautious response to the figures from the government. "The figures may give the impression that the situation has improved a bit," said Labour Minister Akira Nagatsuma. "However, it continued to be around the worst levels in the post-war period."

Global economy expanding says IMF

The IMF says unemployment will remain

The global economy is expanding again and financial conditions have improved significantly, the International Monetary Fund (IMF) has said.

But in its latest World Economic Outlook, the IMF said the "pace of recovery is expected to be slow". It added that the recovery is likely to be "insufficient to decrease unemployment for quite some time". On Wednesday, the IMF cut its forecast for the amount that banks are likely to lose in bad loans and investments. The total it expects banks to lose between 2007 and 2010 is now $3.4tn (£2.1tn), down from its previous estimate of $4tn. This reduction is a direct result of the improved outlook for the global economy.

Separately, the head of the European Central Bank (ECB) said that the 16 countries in the eurozone should withdraw stimulus packages in the next two years. "From an ECB point of view, it is important to do what is necessary to exit as soon as possible," Jean-Claude Trichet said at a meeting of EU finance ministers and central bank governors in Gothenburg. "It is important in our view that it starts as soon as the recovery starts. It is something which is essential for the recovery itself. "I would say, in our own view, at the latest in 2011."

Recovery risks

The global recovery is being led by Asia, where economies have "withstood the financial turmoil much better than expected," the IMF said. But gains are now being seen in developed economies, where "financial market sentiment and risk appetite have rebounded", it added. Despite the improved outlook, however, the fund said there were a number of risks to the recovery. It cited major government stimulus packages, central bank support and restocking by companies that have run down inventories as three temporary factors that "will diminish during the course of 2010".

It also highlighted the fact that banks are being forced to hold more cash in reserve, which will limit the amount of credit available "for the remainder of 2009 and into 2010". With less money available to companies and individuals to borrow, and therefore invest, demand may be stifled. Most serious, it concluded, was the fact that "private demand in advanced economies remains very weak".

Increased growth

The IMF predicts that the US economy will contract by 2.7% in 2009, before growing by 1.5% next year. The eurozone, it thinks, will shrink by 4.2% this year and grow by 0.3% in 2010. It has upgraded its forecast for UK economic growth to 0.9% next year, up from a previous estimate of 0.2%. This puts the UK top of Europe's leading economies for growth in 2010, alongside France. The German economy, the IMF thinks, will grow 0.3% next year, while the Spanish economy will shrink by 0.7%. The world's fastest-growing economy in 2010 will be Singapore, which will expand by 4.1%, closely followed by Taiwan, Slovakia, South Korea and Hong Kong, according to the fund.

More US jobs lost than expected

The economy has shed 7.6 million jobs since the recession beg

The US economy lost 263,000 jobs in September, which was more than had been expected, according to official non-farm payrolls figures.

The jobless rate rose to a fresh 26-year high of 9.8% from August's figure of 9.7%. The number in employment has now fallen for 21 consecutive months. There was more bad news from the Labor Department, which revised its figures for July and August to show 13,000 more jobs lost than previously reported. The economy as a whole is expected to have grown in the past three months, but recovery in the jobs market tends to lag behind the rest of the economy.

'Pattern of weakness'

Since the start of the recession in December 2007, the number of people out of work has risen by 7.6 million to 15.1 million. "Together with the ISM data, delinquencies data and even the consumer confidence data we had, we're starting to see a pattern of weakness emerge," said Kevin Caron, market strategist at Stifel, Nicolaus & Co in New Jersey. "We saw a lot of artificial involvement by the government to prop up the markets, and now that that is starting to end the private sector isn't yet showing signs of life."Government employment, which has been one of the factors boosting the economy in the past year, fell by 53,000 in September. The other big areas of job losses were construction, manufacturing and retail.

Confidence needed

"It shows expectations for recovery may have gotten a little ahead of the reality," said Gary Thayer at Wells Fargo Advisors in Missouri. "The trend is still improved from earlier this year, but employers need to feel more confident about the economy before they start hiring again." The US is not alone in seeing rising unemployment, with the 16 nations that use the euro announcing on Thursday that its seasonally adjusted rate rose to 9.6% in August, putting the number of people without a job at 15.2 million. Earlier on Friday, Japan unexpectedly announced that its jobless rate had fallen to 5.5% in August from July's record high of 5.7%, but the number of people unemployed still hit a six-year high of 3.61 million.

Australia raises interest rates

The strength of Australia's mining sector helped it avoid recessi

Australia has raised its main interest rate to 3.25% from 3%, becoming the first G20 nation to do so as the global economy begins to recover.

The move by its central bank was not unexpected as the Australian economy was the only one in the developed world to expand in the first half of 2009. In fact, Australia managed to avoid recession, only seeing its economy contract in the last quarter of 2008. Its government has helped the economy with major stimulus spending. It has spent 42bn Australian dollars ($35bn; £21bn) on schemes including cash handouts for pensioners and for low and middle-income families, and a number of infrastructure projects.

This helped the economy to grow 0.4% in the first quarter of this year, and by 0.6% in the second, rebounding from the 0.5% contraction between October and December 2008.

'Gradual move'

"The Reserve Bank of Australia (RBA) had widely advertised it was near to edging up rates from their extraordinary lows, and now it's done so," said Rory Robertson, interest rate strategist at Macquarie. "It will be a gradual move from an emergency rate of 3%, to a still-easy 4%." Mr Robertson added that if the Australian economy continued to expand as expected, rates could return to "a more normal 5%" in the next year or two. Tuesday's move is the first time the Australian central bank has increased interest rates since March 2008. The Australian economy has also managed to avoid falling into recession thanks to the strength of its mining sector, which has continued to see strong demand from China for its iron ore and other commodities. "The Australian economy is outperforming other advanced economies, and I guess many economists will see the decision today as a consequence of economic recovery," said Federal Treasurer Wayne Swan.