As Cadbury Schweppes (CBRY.L: Quote, Profile, Research) moves closer to being a pure confectionery company by selling its North American Dr Pepper drinks unit, industry analysts say it should now pull off a merger deal before it becomes a target.
Cadbury’s shareholders on Friday approved the British group’s plan to spin off Dr Pepper in May, and analysts say the company is now looking to buy U.S.-based chocolate maker Hershey Co (HSY.N: Quote, Profile, Research).
The deal would have clear strategic logic, as Cadbury, the world’s biggest confectionery group, lacks presence in the U.S. chocolate market, while Hershey is looking to expand overseas.
The London-based maker of Dairy Milk chocolate, Trident gum and Halls cough drops will be reborn on May 2 as Cadbury Plc after being wedded to Schweppes for 39 years. The Dr Pepper Snapple Group (DPSG) unit will be separately listed in New York from May 7 payday advance online.
“Cadbury’s management has made clear that they are interested in a deal with Hershey in order to consolidate the confectionery industry,” said analyst Ian Kellett at Numis.
Others are conscious of the obstacles, particularly the potential obstruction of the trust that controls Hershey.
“It would make strategic sense to combine Hershey and Cadbury in the U.S., although it is unlikely near-term, given the trust’s commitment to retain control of Hershey,” said Polly Barclay at Cazenove.
However, last week’s announcement that the Hershey Trust’s Chief Executive Robert Vowler, Hershey’s top shareholder, will retire in April 2009, could mean events are moving forward after fruitless Cadbury-Hershey takeover talks of recent months.
Japan's Finance Minister Fukushiro Nukaga said he wants the U.S. to make its “utmost effort'' to prevent financial turmoil in the world's biggest economy from worsening.
“We want the country to keep implementing bold and speedy measures,'' Nukaga told reporters today following a meeting of Group of Seven finance ministers and central bank governors in Washington.
Finance chiefs from the Group of Seven nations said in a joint statement today the global economic slowdown may worsen amid an “entrenched'' credit squeeze and signaled concern about the dollar's slide over the past two months.
Finance ministers and central bankers meeting in Washington downgraded their outlook for the world economy from that of just two months ago, blaming the U.S. housing recession, credit-market turmoil, high commodity prices and inflation pressures instant payday loan.
The G-7 pledged to implement further monetary and fiscal policies “as appropriate'' without giving details.
Policy makers met after the International Monetary Fund this week estimated a 25 percent chance of a global recession this year. A collapse in the market for U.S. subprime mortgages has pushed the U.S. economy toward its first contraction in seven years and prompted banks to shun lending after $245 billion of asset writedowns and credit losses since the start of 2007.
The G-7 officials also said they are “concerned'' about sharp “fluctuations'' in major currencies and their possible implications for economic growth and financial markets.
Italian industrial production declined in February as the worsening economic outlook choked demand for manufactured products.
Production dropped 0.2 percent after rising a revised 1.2 percent in the previous month, the Rome-based national statistics office said today. Economists predicted a decline of 0.5 percent, according to the median of 23 forecasts in a survey by Bloomberg News.
The International Monetary Fund yesterday cut its forecast for Italian growth this year to 0.3 percent, the slowest pace since 2003. Business confidence has slumped to the lowest level in 2 1/2 years and the economy is set to expand less the European Union for a 13th year in 2008, the EU Commission says.
“All the signs are stacking up and pointing to stagnation at the very least, recession at worst,'' said Morgan Stanley economist Vladimir Pillonca in London.
Manufacturing is holding up better in France and Germany, Italy's biggest trading partners paydayloan. Production in Germany, Europe's largest economy, rose 0.4 percent in February while French output rose 0.3 percent, a separate report showed earlier today.
Production of Italian consumer goods fell 2.6 percent from January as the output of durable goods like refrigerators declined 0.6 percent with non-durable goods contracting 2.6 percent. The only gain came in energy related goods, which rose 0.5 percent.
Part of the decline in output may have been caused by the plunge in car production, which fell 24 percent from a year earlier on a non-adjusted basis. Istat did not give car output figures compared with the previous month. Production of all vehicles, including trucks and busses, declined 3.2 percent from a year earlier on a non-adjusted basis.
Australian consumer confidence fell in April to the lowest since 1993, reinforcing the central bank's view that the highest interest rates in 12 years will slow the $1 trillion economy.
The sentiment index dropped for a fourth month, falling 1.3 percent from March to 87.4, according to a Westpac Banking Corp. and Melbourne Institute survey released today in Sydney.
The third straight reading below 100, which shows pessimists outnumber optimists, suggests Reserve Bank of Australia Governor Glenn Stevens' back-to-back interest-rate increases in March and February are prompting consumers to scrap spending plans. Stevens last week said there is “some evidence that a moderation in demand is occurring'' and will cool the fastest inflation since 1991.
This month's report “emphasizes just how concerned households much be with the current economic environment,'' said Bill Evans, Westpac's Sydney-based chief economist.
The Australian dollar bought 93.04 U.S. cents at 10:33 a.m. in Sydney from 93.09 cents just before the report was released. The two-year government bond yield fell 1 basis point to 6.32 percent. A basis point is 0.01 percentage point.
The confidence index fell to the lowest since June 1993, when unemployment was close to a record high of 10.9 percent. In February this year, the jobless rate fell to 4 percent, the lowest since 1974.
The survey was conducted between March 31 and April 6. Stevens left the benchmark rate unchanged at 7.25 percent on April 1, after raising the rate four times since August 500 fast cash.
Home Loans
Homeowners are also paying more for their mortgages after the nation's five largest banks raised interest rates on home loans by an average of 83 basis points this year. That's more than the 50 basis points of increases by the Reserve Bank in that period.
Rate increases by the Reserve Bank and commercial lenders since August have added about A$210 ($195) to the monthly repayments on an average A$250,000 home loan.
Westpac's index measuring whether now is a good time to buy a major household item, such as a television or appliance, plunged 12.7 percent.
Today's report echoes a slump in business sentiment. Companies remained pessimistic about the economy in March for a record third month as concern about the slowing U.S. economy and the global credit squeeze saw Australia's stock market record its worst first quarter since 1987, a National Australia Bank Ltd. report showed yesterday.
Mounting household pessimism is already hurting consumer spending. Retail sales fell in January and February as consumers spent less on household goods and at restaurants and bars, a report showed last week.
Growth in the economy slowed to 0.6 percent in the December quarter from the previous three months, when it expanded 1.1 percent.
The U.K. Treasury is overestimating economic growth and tax receipts because it doesn't give enough weight to the risks from turmoil in financial markets, a panel of lawmakers from the three main political parties said.
Chancellor of the Exchequer Alistair Darling gave “little analysis'' of the risks from market volatility, Parliament's Treasury committee said in a report today. Slower-than-expected growth may curb tax revenue and jeopardize efforts to close the budget deficit enough to meet rules governing the fiscal purse.
“The Treasury's forecast of economic growth in the next two years is more optimistic than the consensus view,'' John McFall, chairman of the panel and a member of the ruling Labour Party, said in a statement. “There are significant downside risks to the economy and therefore potentially to tax receipts.''
The comments add to criticism of the government's annual budget statement delivered last month in which Darling raised taxes on the lowest earners and on alcohol to keep a lid on the deficit. At least 26 Labour lawmakers signed a petition last week criticizing the measures.
The committee added its weight to those criticisms, saying the poor are “an unreasonable target for raising additional tax revenues.''
Darling estimated the economy will expand by between 1.75 percent and 2.25 percent this year. That compares with a median forecast of 1.6 percent made by 22 independent economists surveyed by the Treasury. The economy grew 3 percent in 2007.
Subprime Woes
The collapse of the subprime mortgage market in the U.S. last year pushed up credit costs around the globe and prompted U.K. banks including Nationwide Building Society to withdraw mortgage offers to consumers.
U.K. interbank loan rates reached 6.01 percent on March 31, the highest this year, as banks posted $230 billion in writedowns from the subprime crisis. The rate for three-month loans was 5.98 percent April 4.
Britons may feel a deeper pinch in their access to credit in coming months. Financial institutions plan a “slightly larger'' reduction in home loans in the second quarter, and default rates and losses on mortgages will increase, a central bank survey published April 3 showed http://us-no-fax-payday-loans.com.
The government may not be able to count on gains in residential property to support the economy. After house prices more than tripled in the past decade, pushing up stamp duties on property purchase paid to the Treasury, the market now is in its worst decline since 1990.
`Problems'
“Some of the very things that have kept our economy growing over the last decade may start to cause us problems, and the 2008 budget may not have recognized this fully,'' McFall said.
Treasury spending has failed to keep pace with tax revenue in the five years since fiscal 2003, erasing three years of surpluses registered after the Labour government took office in 1997. Debt is approaching the 40 percent of GDP ceiling set by the government, the panel of lawmakers said last month.
“Since 2001, the government has never really met its targets for tax receipts or balancing the books,'' Frank Haskew, head of tax at the Institute of Chartered Accountants, said in an interview on Bloomberg Television. “At some stage the government is going to have to bite the bullet that it's not getting enough money in to service its spending commitments.''
Britain had a 2.7 billion-pound ($5.4 billion) budget deficit in February, the most for the month since 1997, as spending rose at almost three times the pace of receipts. A self- imposed golden rule requires that the government raise enough tax revenue to cover day-to-day spending and borrow only for investment over the economic cycle.
Lawmakers questioned Prime Minister Gordon Brown's ability to keep to fiscal rules he established in 1997.
“It appears to us to be premature for the Treasury to state that it is `on course' to meet the golden rule in the next economic cycle, given the lack of an end date for the previous economic cycle,'' lawmakers said in today's report.
Japan’s opposition leader signaled on Sunday that his party was likely to approve the government’s latest nominee for central bank chief, but he called for an election to break a wider political gridlock.
Democratic Party leader Ichiro Ozawa’s comments suggested that an end was in sight to a tussle over who to appoint as Bank of Japan governor, which has embarrassed the government ahead of a G7 meeting in Washington on April 11.
But he also raised the prospect of further wrangling over who should be deputy governor.
Ozawa has made no secret of his desire for an early poll for parliament’s powerful lower house in the hope of ousting the long-ruling Liberal Democratic Party (LDP), and on Sunday he made his pitch in the clearest terms yet.
The political deadlock that has followed since the opposition won control of the upper house of parliament last year led to the first vacancy at the top of the Bank of Japan (BOJ) in 80 years.
Last week the stalemate also blocked the extension of a gasoline tax earmarked for road construction that the Democrats argue symbolizes the LDP’s wasteful spending on vested interests.
“Various problems have emerged and the only solution in a democracy is to seek a mandate from the people,” Ozawa said in an interview with private broadcaster Fuji TV fast payday loans. He made similar comments on public broadcaster NHK the same day.
“It depends on the degree to which the people’s consciousness swells up, but our goal is to see an election as soon as possible, before the (Group of Eight) summit (to be hosted by Japan in July). But at the latest, there must be an election within the year,” he added.
Was Tuesday’s explosive market rally just another head fake or have investors finally shifted from dreading the recession to anticipating the recovery?
Market strategists think it’s a little of both.
"There seems to be a growing awareness that the worst is nearly behind the market in terms of the bank sector’s problems, although not the economy," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.
But that may not be enough of an impetus to get investors too excited, Ghriskey said, particularly because the economic outlook remains foggy.
Tuesday’s nearly 400-point surge in the Dow came on decent, but not especially strong trading volume, after all. And the lack of a follow-up rally Wednesday is another sign of investors’ reluctance to call a bottom. The Dow fell nearly 100 points in late trading Wednesday.
What’s more, Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams, said a lot of Tuesday’s gains were likely fueled by short-covering, particularly in beaten down financials.
Short sellers bet that stock prices will go down. But when the market has a big up day like it did Tuesday, short sellers are often forced to cover their positions, i.e. buy back the shares they’ve sold short, to avoid big losses.
So some of the buying Tuesday was probably done by bearish investors who were not really signaling that they thought the market had bottomed.
To put it more bluntly, Tuesday was a classic "sucker’s rally," said Ryan Atkinson, market analyst at Balestra Capital.
But Atkinson said "it could last as much as a month before the next leg down" because the number of shares being held short, or short interest, is at record levels. That means there is the potential for more rallies generated by short-covering in the weeks ahead.
Still, he cautioned that even though traders may be able to benefit from this, nothing fundamental about the markets has changed for long-term investors yet.
On a more positive note, Rovelli said this week’s market moves show that the ‘all news is bad news’ mentality which dominated trading in the first quarter is changing.
Bad news is good news
Take for example, the reaction to more news of big bank writedowns Tuesday.
UBS (UBS) announced another $19 billion in writedowns related to bad mortgage bets instant cash advance. But investors ignored the staggering sum and instead hailed the company for raising more than $15 billion in cash.
Lehman Brothers (LEH, Fortune 500), subject of rumors that it was heading for a Bear Stearns type of collapse, said it will raise $4 billion in preferred stock.
The news that UBS, Lehman and others are still raising money and pulling through the credit crunch sent the financial sector sharply higher Tuesday and was the main reason for the market’s overall surge.
"There are still a lot of questions [about financials], but people are feeling a little better that at least we are over the hump," said Peter Dunay, chief investment strategist at Meridian Partners.
Halfway through a recession?
Investors also seem to be coming to terms with the likelihood that the economy is in the midst of a recession.
Federal Reserve chairman Ben Bernanke told Congress Wednesday that the U.S. economy could shrink in the first half of the year and that a recession was possible.
Dunay said Bernanke’s acknowledgement was roughly the equivalent of a CEO finally owning up to a company’s problems when all the analysts and shareholders have already been talking about it for months. In other words, investors have already priced in a recession into stocks
To that end, some economists think a recession began as early as November. If so, there could be reason to expect stocks to make a bigger move higher in the near-term. Historically, investors tend to anticipate a recovery halfway through a recession and stocks begin to rise.
The average recession lasts about 10 or 11 months. If this one started in November, April is the midpoint.
However, this recession may not fit the historical pattern. Wall Street faces what some are calling the worst financial crisis since the Great Depression.
"The fear is that the slowdown in housing is so dramatic and the writedowns are so dramatic that this recession is going to last longer than the historical average," Dunay said.
So even though some investors may be feeling a little better of late, they may not be rushing to buy stocks just yet.
Under the backdrop of record gas prices and record profits, Congress is set to grill executives Tuesday from the world’s five biggest publicly traded oil companies.
Lawmakers are expected to focus their questions on why the cash-rich industry needs $18 billion in tax breaks over ten years with some in Congress looking to take them away and use them to subsidize renewable energy projects.
Beyond the tax breaks though, congress is sure to raise issues surrounding the industry’s record profits. But it shouldn’t be just lawmakers that get to ask the questions. So CNNMoney.com asked the general public and some industry-watchers: If they could ask oil executives anything, what would they ask?
"Are they going to tell the citizens why gas prices are so high?" said Maryann Mancino, who drove into Manhattan from New Jersey to attend the New York auto show.
High gas prices were also on the mind of Mark Cooper, research director at the Consumer Federation of America a consume rights watchdog.
Cooper said the industry is misusing its massive profits, underinvesting in refineries and failing to keep supplies adequate when entering the high-demand summer driving season and driving gas prices higher.
"We’re talking hundreds of billion of dollars," said Cooper. "Where do all the profits go?"
Others wanted to know about Big Oil’s plans for expanding alternative energy initiatives.
"I don’t really feel bad about the oil companies making large profits," said Rich Landy, stepping out of a cab in Manhattan’s Columbus Circle. "It’s really more of a question of what we can do together to figure out how we can reduce our dependence on oil."
Environmentalists were a bit more forceful.
"They’ve done a great job of marketing, but a pretty poor job of showing what percent of their overall budget goes to the development of alternatives," said Deron Lovaas, an energy analyst at the Natural Resources Defense Council.
Some people wanted to find ways to increase the domestic supply of oil.
"Why do we have to rely on foreign sources for petroleum," asked New Jersey resident Pete Rogers. "Why can’t we do a lot of the producing ourselves?"
The industry has long argued for greater access to domestic oil and gas resources. A lot of oil lies in the waters off the East and West coasts but it’s currently off limits to drilling.
The oil industry also says the tax breaks Congress is seeking to eliminate are essential to increasing domestic production, and that they’re not specifically aimed at oil companies.
"These are not specialized tax breaks specifically for the oil industry," said John Felmy, chief economist at the American Petroleum Institute quick payday. "All industries get these."
Responding to questions of high gas prices Felmy said they’re high largely because crude oil prices are so high - a factor Western oil companies have little control over.
Oil prices are set in a worldwide market and Western oil companies control a small fraction of the supply. Most oil comes from nationalized oil companies from countries like Russia, Saudi Arabia, or Mexico.
Explaining what oil companies were doing with their record profits, he said the industry was either reinvesting them in exploring for more oil, or returning them to shareholders in the form of stock buybacks and dividends. He noted that 41% of oil company stock is owned by pension or retirement funds.
And he said the industry has been expanding refining capacity at existing facilities to help ease the refining crunch, but that building new refineries was difficult.
"We’d love to see a new refinery, but people simply don’t want a new refinery near them," he said.
Still, oil is a basic commodity that everyone must use, and the fact that it has gotten so expensive and the oil firms are making so much money from it, made one person ask if profit should be part of the equation at all.
"It seems silly, to ask people ‘well, did you make the most profit you could make?’" said Brooklyn resident Mei Campanella. "Well, that’s what a business does. Maybe it shouldn’t be a for-profit business."
The hearing is set to begin at noon Tuesday before the House Select Committee on Energy Independence and Global Warming. Senior executives from Exxon Mobil (XOM, Fortune 500), Chevron (CVX, Fortune 500), ConocoPhillips (COP, Fortune 500), BP (BP) and Royal Dutch Shell (RDSA) are scheduled to appear, although no CEOs are expected to testify.
Tuesday is just day one of oil on Capitol Hill. On Thursday a Senate committee is expected to hear testimony regarding the role investment money is having on oil prices.
European Central Bank council member Christian Noyer suggested there may be scope to lower interest rates in Europe if policy makers contain inflation expectations.
“A solid anchoring of inflation expectations remains a pre-requisite for rate cuts in times of heightened financial uncertainty and downside risks to growth,'' Noyer, who is also governor of the Bank of France, said in a speech in Prague today. While the ECB must remain “especially cautious'' in assessing price expectations, there are reasons to believe the outlook has not deteriorated markedly, Noyer said.
“It's an interesting choice of words,'' said James Nixon, an economist at Societe Generale SA who previously worked as a forecaster at the ECB. “It does seem to hint that he sees some potential for rate cuts down the road in the face of financial- market turbulence and downside risks to growth.''
Noyer's comments mark the first time this year that an ECB council member has mentioned the possibility of the central bank reducing interest rates. At the same time, he said the economic outlook in Europe is “much more encouraging'' than in the U.S., where the Federal Reserve has slashed borrowing costs six times since September to fend off a recession.
While the Fed has lowered its key rate by 300 basis points to 2.25 percent since the U.S. housing slump caused credit markets to seize up in August, the ECB has left its benchmark interest rate at a six-year high of 4 percent to fight inflation.
Not Right Now
Noyer said the policy considerations behind the Fed's actions are not relevant in Europe “for the time being,'' as major financial disruption from the credit squeeze is “less likely'' and household debt remains “relatively low.''
“Even if our economies are slowing down, no recession lies on the horizon,'' he said creditreports. Still, “the crisis is clearly not over and all the consequences of accumulated financial imbalances have not unraveled yet.''
Deutsche Bank AG, Germany's biggest bank, announced today it will write down a record 2.5 billion euros ($3.9 billion) in loans and asset-backed securities for the first quarter and said markets have deteriorated.
UBS AG, struggling to stem damage from the U.S. subprime meltdown, today reported a second straight quarterly loss after an additional $19 billion of writedowns.
The ECB has stressed its main concern remains keeping control of inflation, which accelerated to 3.5 percent last month, the fastest pace in almost 16 years. The Frankfurt-based central bank aims to keep annual gains in consumer prices just below 2 percent.
ECB Script
Departing from ECB script, Noyer voiced some optimism about the inflation outlook. The recent rise in inflation expectations, as measured by French inflation-indexed bonds, may be partly due to “technical factors and not reflect any marked deterioration in the outlook for inflation,'' he said.
Investors have nevertheless reduced bets on ECB rate cuts this year, futures trading shows. The implied rate on the Euribor futures contract maturing in December was at 4.07 percent today, up from 3.31 percent on Feb. 11.
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