BA to cut 1,200 jobs amid losses

British Airways says it plans to cut a further 1,200 jobs after reporting a first-half loss for the first time. The job loss announcement means the airline will have shed a total of 4,900 positions by March 2010.  The company suffered a loss before tax of £292m ($485m) for the six months to the end of September, compared with profits of £52m a year earlier.  The first half of BA's financial year is usually stronger because it covers the summer holiday season.  BA said revenue over the six-month period was down 13.7% to £4.1bn, compared with £4.75bn in 2008. 

"Aviation remains in recession with revenue likely to be £1bn lower this year," said BA chief executive Willie Walsh. He told the BBC that this had been the "most difficult year in the history of the aviation industry".  "All airlines are facing the same pressure. Operational changes at British Airways are absolutely necessary to improve the performance of the business," he said. 

BA has already achieved 1,900 global job reductions by natural wastage, voluntary redundancies and reduced overtime.

Strike ballot

BA is currently in a battle with unions over changes to jobs and pay. It wants to cut the number of cabin crew staff on its long-haul flights from 15 to 14, with the change coming into effect on 16 November. 

See BA's share price

The company is also proposing a two-year pay freeze. It says the changes are essential to its survival.  On Thursday, the Unite union said it would continue with a strike ballot of British Airways cabin staff over the changes, despite its legal challenge to the new working patterns being delayed.  Unite had sought a High Court injunction to have the changes blocked, but the full trial will now not go ahead until 1 February. 

Unite said staff would "unwillingly" work the new schedules from this month but it would still ballot for a strike. The result of the strike vote will be known on 14 December. Analysts said the latest figures could be used as ammunition by the union. 

"These weak results will underscore their fragility to unions opposed to wholesale restructuring that is required if BA aims to survive this downturn," said Saj Ahmad from Gerson Lehrman Group.

Shares in BA closed higher, up 6.7% to 198.8 pence, as the market welcomed news of the extra job cuts and measures to reduce costs.

BA said its half-year operating costs were down 8.7%, despite the weakening of the pound, and fuel costs were also lower by 17.8% compared with the same period last year.

Pension scheme

BA's half-year results revealed a growing problem with its two final-salary pension schemes.

Both are now closed to new joiners, but although the older scheme (APS) now consists mainly of BA pensioners, just under half of the 70,000 members in the newer scheme (NAPS) are still working for the airline.

In the past six months, the surplus in the older APS scheme fell from £860m to £27m while the deficit in the NAPS scheme ballooned from £1.167bn to £2.66bn.

The value of the assets in both schemes rose, largely due to this year's huge rebound in share prices.

But this has been outstripped by the rising cost of paying for the pensions once they come into payment.

The BA pension scheme trustees, in their interim valuation, have assumed that the scheme's assets will earn a smaller income in the future.

The implication is that BA will have to increase the already large deficit payments it makes to its final-salary schemes, which it is obliged to do to ensure that they eventually return to balance.

A spokeswoman for the airline said it was currently paying in £335m per year into APS and NAPS, and that over the past three years, the company has paid in £1.8bn to cover its current payments and the deficit.

Japan Airlines shares drop 45% as bankruptcy fears grow

Shares in Japan Airlines (JAL) fell by 45% to a new all-time low on Tuesday as fears grow that the carrier is heading for bankruptcy. The fall came despite an improved offer of investment from American Airlines, up from $1bn to $1.3bn.  The US carrier is keen to link into JAL's lucrative Asian routes.  Meanwhile, JAL's current and former employees have agreed to cuts in the company's pension scheme payouts. The fund has a $3.6bn (£2.2bn) deficit.  Those cuts are crucial to the company gaining any government support. 

Battle for skies

American Airlines' improved offer of help also comes with strings attached. It wants JAL to stay with the Oneworld alliance that American is also a member of, along with British Airways and Qantas.  JAL has another, rival, offer of support from the US. Delta Airlines is offering $500m and wants JAL to join its SkyTeam network. Thomas W Horton, chief financial officer of American's parent, AMR Corp, said: "While JAL and the Japanese government might decide to address capital requirements internally - and we certainly would understand and respect that - our offer of capital would be available if this was deemed an appropriate resource to aid in the restructuring of JAL." 

Staff cuts

Japan Airlines applied for a government bail-out in October last year through the state-backed Enterprise Turnaround Initiative Corporation of Japan (ETIC) - a body able to draw on taxpayers' money to prop up the business while it restructures. A decision on that is due before the end of January, but the ETIC requires cost-cutting concessions, which not only include the restructuring of pension arrangements but also potentially severe job cuts of up to a third of the company's 49,000-strong workforce. 

It will then inject fresh capital into JAL, provided the airline files for bankruptcy and creditors agree to waive around 350bn yen ($3.8bn, £2.36bn) in debts.

EUR/USD: Trading the Change in German Unemployment

The Euro is likely to face increased volatility over the next 24 hours of trading as economists forecast unemployment in Germany to rise 5K in December, and the downturn in the labor market could weigh on the exchange rate as the Bundesbank anticipates the jobless rate to reach 10.1% in 2011.

Trading the News: German Unemployment Change

What’s Expected
Time of release: 01/05/2010 08:55 GMT, 03:55 EST
Primary Pair Impact : EURUSD
Expected: 5K
Previous: -7K

Impact the German Unemployment Change has had on EURUSD over the last 2 months

01.04_TTN1

November 2009 German Unemployment Change
Unemployment in Germany pushed lower in November amid government measures that encouraged firms to maintain their labor force, and conditions are likely to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy. The number of people out of work unexpectedly tumbled 7K in November, with the jobless rate slip to 8.1% from 8.2% the month prior, and firms may continue increase their willingness to retain their employees as the economy emerges from the recession. Going forward, the government plans to cut taxes by approximately 20 billion Euros in January and by the same amount in 2011 in order to encourage a sustainable recovery in Europe’s largest economy, and the European Central Bank is widely expected to keep borrowing costs at the record-low throughout the first-half of 2010 as policy makers aim to balance the risks for growth and inflation. 01.04_TTN2

October 2009 German Unemployment Change
Job losses in Germany unexpectedly fell in October, with the number of individuals out of work declining 26K after slipping 15K in the previous month, and conditions are likely to improve as policy makers take unprecedented steps to shore up the ailing economy. Serving as a lagging indicator, unemployment is expected to rise at a moderate pace even as the economy recovers from its deepest recession since World War II as policy makers see a risk for a protracted recovery. Chancellor Angela Merkel, who was sworn in for a second term on October 28th, expects the economic downturn to “strongly affect” Germany throughout 2010 and push unemployment higher throughout the following year. As a result, the European Central Bank is widely expected to hold the benchmark interest rate at the record-low of 1.00% going into the following year in order to encourage a sustainable recovery. 01.04_TTN3

What To Look For Before The Release

Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
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How To Trade This Event Risk

The Euro is likely to face increased volatility over the next 24 hours of trading as economists forecast unemployment in Germany to rise 5K in December, and the downturn in the labor market could weigh on the exchange rate as the Bundesbank anticipates the jobless rate to reach 10.1% in 2011. At the same time, the German central bank sees economic activity expanding at an annual rate of 1.6% in 2010 after contracting 4.9% this year, but stated that the growth forecast is “still subject to a high degree of uncertainty” as households continue to face fading demands for employment paired with tightening credit conditions. Moreover, a report by the Economy Ministry showed factory orders slumped 2.1% in October amid expectations for a 0.8% rise, while industrial outputs unexpectedly fell 1.8% during the same period, and business may keep a lid on production and employment this year as global trade conditions remain far from favorable. Nevertheless, the final GDP reading showed economic activity expanded 0.7% in the third quarter as businesses replenished their inventories, and conditions are likely to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy. As a result, the Bundesbank said that the labor market remains “surprisingly robust” and expects the drop in employment to “moderate” over the coming months as the nation emerges from the worst recession since the post-war period, but went onto say the slump in “private consumption will likely have a damping impact” on the overall economy. In addition, the central bank noted that the “medium-term potential for growth was also damaged” by the financial crisis, with Bundesbank President Axel Weber maintaining a dovish outlook for future policy as the government expects inflation to average 0.9% this year and 1.0% in 2011. As policy makers aim to balance the risk for growth and inflation, the European Central Bank is widely anticipated to keep the benchmark interest rate at 1.00% this month in order to encourage a sustainable recovery, and may hold borrowing costs at the record-low throughout the first-half of the year as price growth remains below the 2% target.

Trading the given event risk favors a bearish outlook for the single-currency as market participants anticipate unemployment to rise in December, but the unexpected drop seen during the last five-month has certainly left the door open for an enhanced labor report. Therefore, if the economy adds 10K jobs or more from the previous month, we will need to see a green, five-minute candle following the release to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance taking, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second-lot to cost once the first trade reaches its target in order to preserve our profits.

In contrast, the ongoing slump in global trade paired with fears of a protracted recovery may lead businesses to lower their temperament to retail their employees, and a rise in job losses is likely to drag on the exchange rate as market participants weigh the outlook for future growth. As a result, if unemployment rises 5K or greater in December, we will favor a bearish outlook for the single-currency, and will follow the same strategy for a short euro-dollar trade as the long position laid out above, just in reverse.

01.04_TTN4

Read more: DailyFX - EUR/USD: Trading the Change in German Unemployment http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/trading_news_reports/2010-01-04-1922-EUR_USD__Trading_the_Change_in.html#ixzz0bpR0owSq

British Pound Falls to Lowest in a Week as UK Consumer Confidence Disappoints Read more: DailyFX - British Pound Falls to Lowest in a Week as UK Cons

The British Pound fell to the lowest level in a week against the US Dollar after UK consumer confidence posted the largest decline in over a year in December as stimulus measures fade and the government reverses a value-added tax reduction.

Key Overnight Developments

• UK Consumer Confidence Fell Most in Over a Year, Shop Prices Surged
• Australian Building Approvals Topped Expectations on Public Spending

Critical Levels



The Euro consolidated NY-session losses in overnight trading, oscillating in a choppy range above 1.4340. The British Pound dropped to the weakest level in a week, testing as low as 1.5945 against the greenback on a drop in consumer confidence (see below). We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.

Asia Session Highlights



UK Consumer Confidence fell more than expected in December with an index from the Nationwide Building Society slipping to 69 from a revised reading at 74 in the previous month, the largest decline in over a year. Economists were forecasting a print at 72 ahead of the release. A sub-index tracking consumers’ expectations about the economy 6 months into the future dropped to the lowest level since August 2009. Nationwide Chief Economist Martin Gahbauer said the outlook for consumer spending may turn out to be “sluggish” in 2010 as stimulus measures are withdrawn while the government returns the value-added tax (VAT) to 17.5% from 15% where it had been for past year to help deal with the burgeoning fiscal deficit.

The VAT was also a key factor behind a jump in retail inflation as the British Retail Consortium’s Shop Price Index gained 2.2% in the year to December. Indeed, the VAT was first lowered in December 2008, exactly one year before the period covered in today’s release. BRC Director General Stephen Robertson also identified “increases in the costs of oil, food commodities such as wheat and sugar and the continued weakness of the Pound” as contributing factors to higher prices.

In Australia, Building Approvals outperformed expectations to rise 5.9% from the previous month and 33.3% from a year before in November. However, the outcome is not as encouraging as the headline figure would suggest considering most of the upswing was accounted for by a huge 28.8% increase in approvals for government-funded buildings, an increase more than six times larger than the rise in permits for private construction projects. The data likely reflects a boost from the infrastructure projects approved as part of last year’s fiscal stimulus plans, meaning it says relatively little about the likelihood of a robust self-sustaining recovery in the property market even as mortgage rates begin to reflect higher benchmark borrowing costs while the government reduces its grant for first-time home buyers to A$7,000 from A$21,000.


Euro Session: What to Expect



The final revision of the composite Euro Zone Purchasing Manager Index is expected to confirm that the metric rose to 54.2 in December from 53.7 in the previous month, revealing that the currency bloc’s manufacturing and services sectors expanded at the fastest pace since October 2007. The metric has steadily pushed higher since bottoming in February of last year, upward momentum may be slowing as firms look ahead to the withdrawal of stimulus measures amid uncertainty about the pace of a self-sustaining recovery as record-high unemployment and shrinking private-sector lending continue to weigh on spending and investment. Indeed, December’s outcome will mark the smallest increase in the PMI gauge in 10 months.

Elsewhere on the calendar, Euro Zone Industrial New Orders are set to decline 1% in October, the first drop since March, likely reflecting fading support from close to $2 trillion in global fiscal stimulus that has underpinned both domestic and foreign demand over recent months. The Producer Price Index is expected to have declined -4.5% in the year to November, the smallest decline in 9 months, as rebounding commodity prices put upward pressure on wholesale inflation. However, the outcome is unlikely to prove particularly market-moving with the underlying themes behind the headline figure likely to have been priced in after yesterday’s preliminary CPI release.

US economy suffers sharp nosedive

Falling exports have hurt US economic growth

The US economy shrank at an annual rate of 6.2% in the last three months of 2008 official figures show, a far sharper fall than previously reported.

Plunging exports and the biggest fall in consumer spending in 28 years dragged the annualised figure down from an earlier estimate of 3.8%.

The decline was much worse than analysts had expected, sending US stocks spiralling lower.

In 2008 as a whole, the economy grew by 1.1%, the slowest pace since 2001.

The blue-chip Dow Jones industrial average dropped 119.15 points, or 1.66%, to 7,062.93. The broader Standard & Poor's 500 Index fell 2.36% to 735.09 - a 12-year low.

Recession warning

Consumer spending, which accounts for about two-thirds of domestic economic activity, fell by a rate of 4.3% in the final quarter - the biggest fall since the second quarter of 1980. This was a revision of the earlier figure of 3.5%.

With rising unemployment, sliding home values, increasing numbers of repossessions and the slumping value of investments, observers say many US consumers are hanging on to whatever disposable cash they have.

Meanwhile, exports - which had until recently been supporting the economy - fell at the sharpest rate since 1970 at an annual rate of 23.6%, down from 19.7%.

Earlier this week, Federal Reserve chief Ben Bernanke warned Congress that without the right policies from the government, the US recession could last into 2010.

But he said if the Obama administration and the central bank can restore some measure of financial stability, 2010 could be a year of recovery.

President Obama recently signed a $787bn (£556m) recovery package of increased government spending and tax cuts, and unveiled a $75bn scheme to stem repossessions.

No good news

The latest GDP figures were "just awful" said Matt Esteve, a currency trader at Tempus Consulting in Washington DC. "It shows the weak state of the world's largest economy."

And Boris Schlossberg, director of currency research at GFT Forex said there was "doom all over".

He predicted that the dollar would not weaken too much against the euro because "there's no good news on the other side of the Atlantic, either".

India's economy: Can the boom last?

For the Indian economy the year 2003 ended on a high - on 20 December, the foreign exchange reserves breached the $100bn mark.

Fancy shopping malls cater to newly-enriched consumers

The year also saw Indian companies breaking into the international corporate market, making 35 global acquisitions totalling $450m.

Thinking internationally, Prime Minister Atal Behari Vajpayee floated the idea of a common currency for South Asia.

And the industrial sector is booming. Car sales in November were 41% higher than the previous year. Overall, Gross Domestic Product is expected to grow by more than 7% in the financial year ending in March 2004.

But it is easy to over-interpret this news.

Your views on India's economic prospects

Growth challenge

A sober analysis indicates that India is continuing to do well, as it has done since 1993, with 6% per annum average growth.

Boom-time in Bombay: Record share prices spark a trading frenzy

This robustness, combined with the advantage of its size, means that it is a country that global players cannot ignore.

But if India is to go beyond this, to a sustained annual growth rate of over 8%, and with benefits reaching all levels of society, more needs to be done by government than whipping up electoral support by pointing to the headlines.

It is worth remembering that India has seen brief growth spurts before - its growth rate in 1988-89 exceeded 10%.

The challenge therefore, is to bring about sustained growth.

Economic interest

Consider the $100bn foreign exchange (forex) news.

The large reserve points to a good performance by the Reserve Bank - the reserve was $5.83bn in 1991.

But, in itself, this does not mean as much as the screaming newspaper headlines on 21 December suggested.

What was more significant was the fact that the news made the headlines.

Never before has dry, economic news been celebrated so widely in India.

The interest of the citizenry in such matters was reminiscent of South Korea in the 1980.

It augurs well for India as it compels politicians to divert some of their attention from politics to economics.

The forex reserve of a government is like an individual's bank balance.

The fact that it is high does not indicate economic strength and preparedness to respond to emergencies. Rather, it reflects the person's preference for keeping money in a bank rather than investing it in assets.

Indeed, there are economists who argue that India should run down a part of its reserve to increase investment.

Order first

The other big news was also one where the symbolic value outstripped the actual.

Appetite for luxury: A saleswoman shows off costly Indian jewels

This was the idea floated by Indian Prime Minister Vajpayee of a common currency for South Asia.

Although this is not about to happen, the suggestion shows a level of maturity that political leaders can think in terms of economic co-operation even while political irritants remain.

Moreover, the very effort to build such co-operation could serve to reduce the risk of political conflict.

To guarantee long-run strength, the Indian Government needs to:

Raise the level of investment (and that includes investment in people)

Make a fetish of efficiency

Make it easier for new private firms to start up business.

India's investment rate has remained virtually stationary at 24% (with a slight fall in the last three years).

A sustained growth rate of over 8% will not be possible unless the investment rate rises to 30%. That, in turn, requires the government to put its fiscal house in order.

Sweet subsidies

On the human side, India has done better than Pakistan, but worse than its much poorer eastern neighbour, Bangladesh, in many dimensions.

In 1990, under-5 child mortality (that is, the number of deaths before age 5 per 1000 children) was 144 in Bangladesh, 128 in Pakistan and 123 in India.

By 2001 the numbers were Bangladesh 77, India 93, and Pakistan 109.

India's rural poor are still waiting for their share of the economic pie

As far as school enrolment of girls as a percentage of boys go, the figure for Bangladesh is an exemplary 103%, whereas for India it is 78 and for Pakistan 61.

India is a potential global economic power.

But for that potential to be realised, its promise must not be treated as an instrument of short-term electoral popularity. Instead, the government must invest more on infrastructure and social improvement.

For the Indian government to spend as much as it does - on subsidies and the bureaucracy - and then to wonder why the economy is not growing faster is like my father's youngest sister who in her old age lamented to me, "I don't know why I keep such poor health - I eat only sweets."

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.