Euro Watch

Deutsche Telekom AG recorded a slight loss for the fourth quarter on Thursday; the company said that its business was now getting steadier after it went through drops for many quarters owing to a great loss from fixed line of customers. Rene Obermann, the Chief Executive Officer of the company said in a press conference when the figures were announced that the year 2007 for the company was pretty challenging but still it was the most successful year for the company. The CEO further added that the current year is without doubt not a bed of roses; as competition has become even more dynamic but the company has significantly enhanced its competitive capacity in 2007 and this is what has strengthened the company for the new year.

The Bonn head quartered Deutsche Telekom had suffered losses of about 757 million euros that is $1.1 billion in October-December last year which is quite small when compared against its earlier year loss of about 898 million euros. Sales for the company had dropped to 15.8 billion euros or $23.7 billion from 15.9 billion euros a year earlier. The company further added that except for a big charge of cutting down its employee strength it has an adjusted profit of about 808 million euros that is $1.2 billion in the fourth quarter. This profit of the company for the fourth quarter was lower than 2% than the profits it earned in the earlier year which was about 824 million euros, however the current fourth quarter profit of the company was quite high than the 609 million euros or $916.2 million which analysts surveyed by Dow Jones had estimated to stand at for the fourth quarter. The adjusted profits of the company exclude the expenditure of about 1.4 billion euros that is $2.1 billion it made on cutting down the work force and in payments that went towards early retirement compensations.

In trading at Frankfurt the Deutsche Telekom shares dropped by 2.9% to 12.54 euros or $18.87. Deutsche Telekom is also planning to shed 32,000 jobs as it is trying to reshuffle its facilities so that it can efficiently fight with its competitors not only within Europe but also in the United States and other parts of the world. The net profit for Deutsche Telekom for the entire year 2007 declined to 569 million euros or $856 million from its earlier 3.2 billion euros in 2006. The drop according to the company is because of the income tax hike. In 2007 the sales for the company climbed by 1.9% to 62.5 billion euros or $94 billion from 61.3 billion euros in 2006. The mobile communications operations of the company were largely the driving force behind the annual sales growth.

The company also said that in Germany T mobile had as many as 962,000 new customers which brought the company’s total customer base in Germany to about 36 million. Given this customer base the company said that earnings from the mobile subscribers in Germany dropped to 2.7% which is 8 billion euros or $12 billion in the last year.

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The European Commission has punished American software giant Microsoft and has ordered the company to pay a staggering amount of 899 million euros, that is about $1.35 billion on Wednesday this week. The fine was imposed as the company did not follow the sanctions imposed on it for the antitrust breach and the latest fine for the company goes far beyond the original fine imposed on Microsoft. The executive body of the European Union, the European Commission has now penalized Microsoft to the tune of 1.68 million euros for the company’s original breach as well as for not observing the sanctions. The fine by the EU for Microsoft is greater than any other company ever had to bear.

The European Commission has also added that Microsoft was the only company that overlooked the sanctions and every other firm complied with the sanctions. Neelie Kroes, the competition commissioner said in a statement that in the fifty years of the EU competition policy Microsoft was the only company which the European Commission had to penalize for not complying with the antitrust judgment. A statement issued by Microsoft said that the fines ordered by the commission were in relation to past issues and it now looks to the future.

In a 2004 milestone judgment, which was also sustained by the EU court last year, the European Commission had said that Microsoft had denied the required information about interoperability to its rival manufacturer of the work group server software. The work group server software runs printers and sign-on for the small office groups and it must work together with the desktop Windows machine. The commission came to know that Microsoft withheld the important interoperability codes to competitors because of which the market shares of the firms shrunk in value whereas the product of Microsoft gained in the market. Microsoft was told to share the information and it also promised to share the information but put in place great royalties citing innovation.

The commission instead came to know that the information Microsoft was withholding did not have any great innovation and it was more of a lock to the combination for which the company was not sharing. The commission also ruled that that the royalties Microsoft wanted were quite disproportionate. Neelie Kroes, the competition commissioner hoped that this ruling of the EU will close the gloomy phase in Microsoft’s history of nonconformity with the European Commission’s judgment of March 2004.

Microsoft has had a record of penalties by the EU, and in 2004 Microsoft was fined e497 million and it again was fined in 2006 for not complying with sanctions to the tune of e280.5 million. And the fresh fine for Microsoft relates to the fine which was imposed in 2006 and the fine is for the period extending from June 21, 2006 until October 21, 2007 following which the company promised to cut down the royalties and share the vital information. In the last week when Microsoft felt that there is going to be the possibility of a huge fine, it came with a public promise that it would publish the vital information so that competitor programs work with windows.

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Finance Ministers from the European Union are likely to caution Latvia to bring down its expenditure and also to trim down the inflation to prevent getting into an “abrupt slowdown”. The information is based on the European Union’s Economic and Finance Affairs Committee’s draft document. The government of Latvia is relying on decelerating consumer demand so that the rate of growth can be brought down to 6.8% by the year 2010. The efforts of the Latvian government came in the wake of warnings issued by the economists as well as by credit rating agencies that said that the economy risks overheating.

The draft document of the EU’s Economic and Finance Affairs Committee was created for a meeting between the finance ministers of the European Union scheduled on the 4th of March. The draft document pointed out that the inflation in the Baltic country of Latvia speedily grew to as much as 15.8% in January this year which was the fastest inflation in the European Union. Further according to this draft document there will be an addition to the quickest inflation, the problem of sluggishness in the lending of banks as well as the declining property prices which endangers household expenditure greater than the government expected, the draft document further cautioned.

The EU draft document adding further says that the Latvian government’s economic situation is also accompanied with greater dangers to its macroeconomic constancy which also includes economic overheating along with a significant danger of an “abrupt slowdown” at a later point. Latvia, the former Soviet Republic experienced an economic growth of a record 13.1 percent in the first quarter of 2006, which generated fears of the economy getting overheated. In the next year that is in 2007 the gross domestic product or the GDP of the country increased by 11.2%, dropping to 9.6% for the fourth quarter. Credit judges as well as banks, which also included Goldman Sachs and also Standard and Poor’s have warned that Latvia runs even a greater risk of a severe slowdown.

The executive body of the of 27-nation union, the European Commission notified the potential risk to Latvia that its economy may have to suffer a “hard landing” on February 13. The European Commission further added that evidence of some slowdown is noticeable in Latvia’s housing market as well as in its domestic consumption however such slowdowns in the economy are not enough to eliminate the negative aspect of a hard landing for the economy. The finance ministry of Latvia declared that it managed to talk into the member states of the EU to take to milder economic jargon in its draft document during the EU finance ministers’ meeting in Brussels on March. 4. As per the request of the Latvian finance ministry, changes have been made in the draft document and the wording “hard landing” has been dropped for a “much softer variant,” spokeswoman for the Latvian Finance Ministry, Daiga Reihmane confirmed.

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The Eurozone business borrowing registered a record growth rate in January this year and this adds to the evidence that the fifteen-country Eurozone is preventing any credit shortage following the financial chaos all over the world. The percentage of lending to non-financial agencies at a yearly rate of 14.6% in January was the greatest since the introduction of the euro in 1999 and this data is as per the European Central Bank (ECB). The rate for the same in December of the previous year was 14.5%. Following the unexpected surge in the German business confidence the fresh figures may let the European Central Bank’s reluctance to cut interest rates grow even stronger and this even if the euro has moved beyond $1.50 for the first time.

There is a surprise rise in business borrowing even if there is enough proof that the banks have intensified their credit limits. And this seems to indicate that the eurozone companies were not restricting their plans for investment or expansion even if there is a gloomy US prospect. The Vice President of the European Central Bank Lucas Papademos, while speaking in New York expressed that the latest indications seem to suggest that the effect on the eurozone economy due to the turmoil in the financial market will not be great in proportion. The Vice President further added that there were no indications which suggested a credit shortage or even a slowing down in the rate of loan credit growth to the private sector. On the contrary, the Vice President said that, the rate of loan credit growth to the private sector has been quite strong especially the speed of credit expansion in non-financial institutions.

Mr. Papademos further said that the restricted credit limits put in force by the banks has happened from quite a lose level and it also has not considerably restricted the accessibility of credit. Economic analysts are of the opinion that the great growth in lending figures can be the sign of the difficulty banks have experienced to shift loans off their books. However the European Central Bank led by President Jean-Claude Trichet has out rightly rejected this as a factor. The ECB has maintained its main policy rate at 4% from June last year. Unicredit’s Marco Kramer, in Munich told that uncertainties and doubts regarding credit shortage or a drop in credit demand are mostly blown out of proportion and they are just a part of the explanation by the ECB President. He further said that he expected the first cut in the benchmark rate to come towards the end of the second quarter.

The ECB is expected to conduct the meeting for fixing the interest rates in the next week and is happy about the moderate slowdown in the housing markets of eurozone. The fresh data indicated slower rate of mortgage lending which had increased at a yearly rate of 6.9% in January which is a drop from its earlier 7.1% in December last year.

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EasyJet Plc is the second largest low cost airline of Europe which has to do a tight rope walk in the face of rising fuel prices in the market. According to Andy Harrison, the Chief Executive officer of EasyJet the low cost air carrier is under pressure which has prompted the company to purchase contracts for jet fuel at great prices for the next year. The CEO said that if the fuel prices maintain their current price levels it will cause a great stress on almost all airlines during an interview on Wednesday. He further said that the company at present is hedging for the next year but the price it has to pay is much higher.

The single largest cost for EasyJet is fuel and oil which has been over $100 a barrel over the five of last seven days at the Mercantile Exchange in New York. EasyJet is planning a 20% increase in its pretax profit for the financial year from September 30 and it is 40 percent hedged at about $735 a metric ton of jet fuel when evaluated against its last year’s average of $688. The CEO, Harrison while speaking at the company’s base at London Luton airport said that EasyJet is striving hard on its non fuel expenditure, he further said that it is difficult to immediately come up with new ways of cost cutting when the fuel prices rise. The company plans a 50% hedge which means that the airline will purchase contracts which promise a constant fuel price on a regular twelve month basis, the CEO further explained. This strategy of the company according to the CEO is safer and better than guessing about the direction the oil prices will take to.

The CEO also added that the aim of the company is not to have an outlook of the market and said that the company will be purchasing 1.3 million metric tons of jet fuel for the current year. The strategy of hedging is in place to ensure that there is a cushioning against the volatility of the oil prices in the market. In the stock market the shares of EasyJet also recorded a drop as they declined by 2.8% or by 12.5 pence to 442.5% and this was the share’s greatest decline in 20 days.

The shares of EasyJet were the most unsuccessful shares on the Bloomberg Airlines Index for the day. The net worth of EasyJet is about 1.86 billion pounds or $3.7 billion. In the last 12 months the stocks dropped by 33% as against the 26% decline on the European airlines index. The largest low cost airline of Europe, Ryanair Holdings Plc jumped by 49% at the market. An analyst with Ryanair Holdings Plc Chris Avery said that many of the published forecasts for the airlines do not state a barrel of oil at $95 to $100 and the fallout can be financially bad for many carriers. EasyJet CEO Harrison also pointed out that each ten dollar rise for the oil barrel results in 60 million pounds or $119 million in the operating costs of the airlines.

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The central bank of Slovakia maintained its benchmark rates for the tenth consecutive month so that inflation can be kept to its minimum which in turn will let Slovakia embrace the euro in the next year. The Vice Governor of the central bank Viliam Ostrozlik after a meeting in Bratislava, Slovakia, told reporters that the policy makers will be maintaining the two week repurchase rate at 4.25%. The bank’s decision to maintain the rates was expected by the thirteen economists whom Bloomberg had surveyed. The pressure on Slovakia to control its inflation is great because it is going to adopt the euro currency in 2009 after Slovenia, which was the first communist nation to take to the euro.

Economists are of the opinion that even price growth has increased its speed and has been tamed by the improving currency and the growth is also not that fast so that increase in rates can be justified. The central bank also has to manage borrowing overheads to the euro zone. The economist with Slovenska Sporitelna AS in Bratislava, Maria Valachyova says that monetary conditions are being made restrictive by the strengthening of Koruna and the restrictive monetary conditions will assist in fighting the risks of inflation. The economists further held that the Slovak central bank will be maintaining the rates unless the EU decides about the euro-adoption bid.

The Koruna traded against the euro at 32.765. Koruna’s gain this year is about 2.5% based on the expectations that Slovakia will appreciate the central rate by which Koruna is attached to the euro. Peter Sevcovic, the board member said that the Koruna’s latest temporary volatility will have little effect on the inflation. The credentials needed for countries to switch to the euro state that nations must maintain their 12-month standard yearly inflation rates within 1.5% points of the standard of the three European Union nations with the most sluggish growth of price.

Although growing prices of food and energy pressed the rate of inflation to 3.8% in January which was the highest in thirteen months, the standard price growth is going to stay down in the European Union’s standards. The governor also said that the highest economic growth of 14.1% for the fourth quarter does not indicate demand pressures in the economy. The Governor of the central bank of Slovakia Viliam Ostrozlik further added that that development of the economy is in accordance with the expectations of the bank and there is no need to make any changes in the monetary policy. If the EU accepts Slovakia’s currency switchover bid in the current year the central bank will have to meet its interest rates with that of the euro regions zones. As per the average estimate of twenty four economists, Bloomberg surveyed the European Central Bank which is likely to bring down its standard two-week rate by half-a-point for the current year from its 4%. The improving prospect earlier this year made the National Bank of Slovakia to cut its standard rate by half a point.

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The Munich based Siemens which is the biggest engineering and technology company will be cutting as much as 3,800 jobs all over the world following its failure to attract a buyer for its unit called Siemens Enterprise Communications or SEN. The company confirmed the announcement of the job cuts on Tuesday at its Munich HQ. The proposed job cuts of Siemens in Germany alone will be 2,000. In addition to this job cut the company is also planning to cut down on its 3,000 workers in two ways, it will either sell its factories or can also enter into partnerships with companies. Among these proposed cuts, job cuts in Germany are expected to be 1,200. Siemens seems to be reshuffling the communications division so that it can woo a buyer and also avoid the repetition that afflicted its mobile unit.

By the time Siemens sold the unit to Benq of Taipei in 2006 it was suffering losses amounting to €1 million every day. The Taiwanese company also had to suffer from bankruptcy after it bought the company which resulted in great layoffs. The company told that it will begin negotiations with the representatives of the employees very soon and would attempt to come up with a social plan for the workers who would be suffering from job cuts. Joe Kaeser, the chief financial officer of Siemens told in a statement that the company will speed up the reshuffling of Siemens Enterprise Communications and the other related reorganizing measures which are under Siemen’s control so that the personnel steps related to the reshuffling could be socially optimum. There are as many as 17,500 individuals who work for the SEN telecommunications unit. The SEN earlier was known as Siemens Enterprise Networks and Siemens had been trying to sell the unit for quite a long time now. The engineering and technology giant also said that it was talking to three potential buyers for the unit.

The unit’s Munich head quarters will be the worst sufferers by the job cuts and as many as 1,700 workers will be handed over their walking papers. Siemens said that SEN would let go of its manufacturing activities either by selling or getting a third party to operate its Leipzig factory which employs 530 workers. The company further added that it would also sell or get new partners to run its production units located in Thessaloniki, Greece and Curitiba, Brazil. A statement issued by the company said that there is also the possibility of closing down the facilities located in these regions. The savings program initiated by the company seemed to be approved by the German stock market on Tuesday because the shares of the company gained by 2% in the early trading hours. The corporate sector of Germany in 2006 witnessed the largest corruption scandal at Siemens which affected it badly. The corruption scandal of Siemens forced the Siemens CEO Klaus Kleinfeld to resign. Former Chairman Heinrich Von Pierer also had to put down his papers owing to the scandal.

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The highest court of Europe ruled that the right to market cheese under the name Parmesan should go to the Italians. The court also dismissed the German’s claim that they can use the same name for their own variations of cheese. The Parmesan cheese is used as a topping in pasta. European Court of Justice in Luxembourg held that only those varieties of cheeses which bear the protected designation of origin `Parmigiano Reggiano’ can be allowed to sell in the market bearing the name Parmesan.

This ruling by the highest court in Europe will help the European Union in its efforts to expand marketing security for food items that come from particular regions in Europe like Roquefort cheese and Prosciutto di Parma. The argument regarding the range of the supposed geographical indications has set the European Union against nations like Australia, Argentina, and the United States in the global trade discussions. Author of `Italian Cheese: A Guide to Its Discovery and Appreciation, Piero Sardo seemed very elated with this court ruling and said that is was a totally wonderful news and further added that this dispute has been going on without any result in site for as long as 12 years.

Paolo De Castro, the Italian Agriculture Minister expressed that with this ruling by the court thus the doubts and suspicions surrounding the name Parmesan are removed. De Castro offered a big piece of the debated cheese to reporters at the press conference in Rome and said that now in Europe consumers can find authentic Parmesan. However, he further added that outside the European Union the case is quite different and consumers run the risk of buying Parmesan which is not Parmesan at all. In Italy there are five hundred Parmesan producers who all are certified which the Consortium of Parmigiano-Reggiano Cheese represents. These certified parmesan producers firmly adhere to the 800 year old method of making the Parmesan cheese. In the last year the official sales figure of the Parmesan cheese had stood at 1.5 billion euros which is $2.2 billion and the 16% of the total Parmesan sold was in the form of exports.

Parmigiano Reggiano is secured as the geographical indication since 1996 in the twenty seven nation strong European Union. The protection means that the name can only be used for the cheese produced, grated and packaged in the regions surrounding the cities of Parma and Reggio in Italy. The executive agency of the European Union, the European Commission went to court against Germany when it did not punish the cheese makers who used the name and it also argued that that name was generic. The European Commission had said that Parmesan is the rendition of the protected phrase Parmigiano Reggiano. A Parmesan producer Paolo Carra coming from the nearby region of Mantova, Italy expressed that the name Parmesan should be protected because not only the consumers but also the producers are cheated. When consumers buy Parmesan which actually is not a Parmesan cheese, producers run the risk of losing customers who are not satisfied with the quality of the cheese.

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The Safilo Group SpA holds the distinction of being the world’s second biggest eyeglass frame maker climbed to its highest position in over seven weeks when the group announced that it anticipated significant growth in its dividends. The growth which Safilo registered was almost 16.8% and it grew by 34 cents, the stocks closed up at 10.8% at 2.23 euros in Milan. The fresh increase in the stocks is the highest since last month and with this increase the total market worth of the group stands at about 636 million euros or $943 million. Head of equities with Centrobanca in Milan Pio De Gregorio said that such levels of the stock are good-looking in the medium term especially for luxury items and the supplementary demand coming from Asia is a significant balancing element for the sluggish US and European demands.

Claudio Gottardi, the Co-Chief Executive Officer of the group during her interview in Milan expressed that the company wants to increase its dividends by as much as 36% which was also the company’s net profit increase last year. The Safilo group is improving the margins by reorganizing its methods of producing eyewear; the group is also focusing on the expansion of its retail activities by acquisitions and also having its own stores. The Co-Chief Executive further added that the company is waiting for the final figures and he also added that the group will be capable of presenting a significant raise for the current year’s dividend. Claudio Gottardi further added that the increase can be even a bit higher than the percentage growth in net income. The Co-CEO further added that that company expected flat sales for itself in the US for the current year. Sales for the Safilo group in Spain and Italy can decline but sales in the other European nations either improved or remained stable.

The net income for the Padua Italy based group increased by 36% to 51 million euros from 37.5 million euros in 2007. The company recorded revenue of 1.19 billion euros from its earlier 1.12 billion euros in 2006. The group also told that income before interest, taxes, depreciation and amortization can rise to 18% of the sales for 2008 which will be an increase from 15% recorded last year. Safilo and its competitor company Luxottica Group SpA are cashing in on demand for luxury items through signing agreements so that they can make eyeglass frames under license. For the Safilo group its net income comes from accords signed with companies like Gucci Group NV, Giorgio Armani SpA and LVMH Moet Hennessy Louis Vuitton SA.

The Safilo is also putting in investments in the brands owned by the group itself such as Carrera sunglasses. The group will be opening a factory in China in the current year and there will be old as well as new stores opened in Shanghai, Beijing and Hong Kong. However the retail expansion of the group will be done with its brand called Solstice sunglass.

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The fear of globalization is not only haunting developing nations but also continents like Europe. However with the study of the European labor market the picture of Europe against the backdrop of globalization is quite encouraging. Globalization means increased trade and the burning issues like outsourcing and offshoring instead of job cuts can increase more jobs in the advanced economies such as in West Europe. The European Economic Advisory Group, which comprises of academics from Europe and the Ifo institute in Munich which organizes this group argued in favor of globalization and said that even if globalization means decline in the demand of particular skills but at the same time this phenomenon can clear the rigidities in labor market which destroy jobs. The result of the study by the group indicates that the positive outcomes of globalization far outnumber the negative aspects of globalization.

Even though the group’s statistical data is unfinished it does indicate that globalization will definitely result in long term increase in employment. The report also said that given the results of the study globalization instead of being a curse to employment in Western Europe can in fact be a blessing for the continent. However the thing to worry about according to the study of EEAG is that the gains secured from globalization are most likely to be unevenly distributed in the region. Individuals with higher skills and riches stand to benefit from globalization and individuals with lower skills can turn losers and will have to face tough competition foreign labors as well as immigrants. If nations profit from trade it will also have its side effects in the form of growing inequality.

The European Economic Advisory Group urged to the governments that they should not have policies which strive to maintain equality in employment and wages against the background of competition from abroad. The group also suggested that the government on the contrary should see that the profits gained from globalization are distributed fairly in their nations and the other responsibility which the governments must perform is to see that the sections of society which will otherwise lose in the wake of globalization get their share of the profits secured from globalization. The group was highly critical and even attacked German leadership’s policies that gave higher minimum wages which according to the group would tempt people to opt for unemployment. The higher benefits gained from unemployment will make unemployment attractive to people, the group also added. Instead of such policies the group recommends lessening the impact that would result for individuals who will be doing jobs which are no longer viable in rich nations.

The EEAG also recommends that leaderships should concentrate more on retraining schemes, and compensation for individuals who would be accepting new employment that offer lower wages, as well as support severance compensation for displaced employees. However some past economic studies have found that there is a definite link between loss of employment and globalization and the group argues that such results were incomplete.

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According to a survey of economists the central bank of Hungary is quite likely to continue with its standard interest rates and this is because the Hungarian economy is the slowest moving economy of the European Union and another reason why the central bank will not change its interest rates is that it wants to reduce the pressure caused by rising inflation. There are 12 policy makers of the central bank and President Andras Simor leads this group of policy makers in Hungary. Sixteen out of the 27 surveyed economists are of the opinion that the policy makers will continue with the two-week deposit rate at 7.5%. Seven of the surveyed economists anticipated that the interest rates will increase to 7.75% as well as 4% to 8%.

The decision of the policy makers will be declared in Budapest. The economic growth of Hungary is the slowest in over eleven years following the steps taken to rein in the highest deficit in budget which resulted in preventing consumer spending and also hampered investment. These things analysts say may overshadow the dangers of speeding inflation which is caused by costly oil and a sluggish currency. An economist with Danske Bank A/S in Copenhagen Lars Christensen opined that the decline in the economy is the most important reason why the central bank will not increase the rates. He also said that macro data was not expected to be weak and the central bank has experienced a steady hand and it is very likely that it will maintain it that way. The forward rate agreements indicate that investors are all set for higher rates in the coming six months. The increase between the six-month forward rate and the base rate increased to 72 basis points and this gain is highest since October 2006. A basis point is equal to 0.01 percentage point.

The money market rate for three months is 7.92% which is almost 42 basis points greater than the rate of the central bank of Hungary. The forint of Hungary has also registered a weakness by as much as 2% as against the Euro since the last rate judgment which was on January 21.On February 11th the forint dropped to its fifteen month low. The weakness of forint is attributed largely to investors who are wary of potentially high risk assets due to fears that the US economy would slip into recession. This opinion was shared by economist Illes Toth at DZ Bank AG in Budapest among others. The economist also said that the weakness in forint and high costs of oil following crude oil is reaching its record price of $100 on the 20th of February and this will force the central bank of Hungary to increase its inflation estimate for the year 2009 to greater than its 3% target. Toth further added that this recession is not the only reason for the bank to raise the rates but there is the danger of downward inflation by way of demand and the retail and wage data indicate this fact.

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The financial markets once again suffered from a sluggish week following news that the US economy is slipping into recession. Investors were also left anxious due to the blow rocketing commodity prices will have and there were also added fears among investors as financial sector did not come up with encouraging results. There was in particular greater chaos in the credit markets owing to unwinding positions taken by investors in structured products added to this was the $2.8bn write-down revealed by Credit Suisse for investments backed by assets. Credit spreads expanded to their highest levels in Europe and the US but remained stable as the week ended. A still more worrying trend about the US economy was that of slipping into more recession of a regional indicator of manufacturing activity.

Worries about rising inflation were fueled by a strong US consumer price data and a sharp rise in commodities in which oil, gold and platinum reached to their record levels. North American economist at Merrill Lynch David Rosenberg expressed that economic recession is no longer the point of debate it is about how hard the blow will be. The situation got further gloomy when the Federal Reserve announced cut in its growth estimates which triggered the futures market to increase odds of a 50 basis point cut in US rates for March to 94%. Although the trend in the credit market was gloomy but in the equity markets the scene was quite stable all through the week. However speculators say that this disparity between the two markets will not last long. Stocks in Europe were able to record steady growth, the Eurofirst 300 Index of FTSE gained by 0.8% for the week and the London FTSE 100 rose by 1.7%.

European government bonds suffered instability in the week owing to investor’s reaction to the data of US economy as well as the expanding credit spreads. Economist at UBS, Larry Hatheway was of the opinion that he found weak trends in bond markets for some weeks and also said that sustained higher returns are hard to justify. The economist further added that global and US economic growth will remain slow for a considerable period which in turn will maintain low real rates and would also help in taming inflation stress. Larry Hatheway also said that short rate returns of US seem promising in the light of Fed policy results and the rate expectations in Europe will not be relaxed by the central banks.

The return on the two-year note increased by 6bp and stood at 1.96% for the week but the ten year Treasury note dropped by 3bp and came to 3.74%. The government bond return curve in Europe dropped greatly; it fell to 84bp from 67bp. reduced expectations from investors in the cut of eurozone interest rates was the reason cited by analysts. Comments by the president of the European Central Bank, Jean-Claude Trichet also affected the drop. The ECB is likely to cut down interest rates as it finds more evidence of rising economic slowdown.

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The Koruna of Czech is experiencing great prospects and it recorded gain for the fifth week trading against the Euro. The Czech currency also registered a record gain on the 22nd of February. This buoyancy of the Koruna is attributed to expectations that the Central Bank will be increasing interest rates. The Koruna of Czech gained the most as against the 16 most traded notes in the week that concluded. The gain of Koruna came when the policy makers increased the standard lending rate of 1.25 percentage points to 3.75% which for the EU is still the lowest rate. The forward rate agreements indicated that the bank will relax borrowing expenses still further in the face of accelerated economic growth for the fourth quarter which stood at 6.9%.

The strategist for emerging-market currency with 4Cast Ltd. in London Nicholas Kennedy said that the gain by Koruna is quite positive and he further added that traders are looking for a single reason to hold back but they cannot find one. At the end of the week, the Koruna gained by 24.990 per euro which is the record level for the Czech currency since the common currency for Europe was introduced in 1999. In Prague the Koruna stood at 25.060 and in the earlier week it had recorded 25.206. Another distinction the Koruna has gained is that it became the world’s most successful currency for this year while trading against the Euro. The Czech Koruna recorded a gain of almost 6%. The Koruna as well gained by 16.906 per dollar from its February 15 gains of 17.168. On February 18 the Czech currency moved to 24.944 however traders in the market are of the opinion that this advancement of the Koruna was mainly because of a single trade.

A trader at the biggest bank in Czech by assets Ceskoslovenska Obchodni Banks AS, David Sykora expressed that the gain is possibly a botch and it is called as the miss hit deal and cannot be termed as the record. The forward rate agreements indicate that the central bank in Prague is likely to hike to its key rate by another twenty five basis points in the coming six months. In order to curb inflation the central bank has maintained its tight monetary policy, the inflation had shot to 7.5% in January which the highest inflation in nine years.

In the other currency trading, the Lira of Turkey dropped by 0.4% in the week and stood at 1.2063 per dollar on Friday following the deployment of 10,000 troops into northern Iraq to fight terrorists of the PKK or the Kurdistan Workers’ Party. An economist with UniCredit MIB in Vienna Simon Quijano-Evans told his clients that the lira would find support from the investors residing in the country since the people supports this decision of the government. The zloty of Poland moved to 3.5692 per euro from its earlier week’s 3.5770 position. However the leu of Romania and forint of Hungary dropped against the euro.

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The notes of European government recorded the greatest drop in four years as traders were concerned about speeding inflation rates in the region which will affect the policy makers of central bank in their scope for cutting rates on interest. The impact was mostly felt in the two year government notes because they are most vulnerable to rate changes. The two year government notes dropped lowest for a second consecutive week owing to investors backed up citing that the ECB will decrease its main rate which earlier stood for a six year high. According to the reports for the week the rate of inflation especially in countries like France and Germany accelerated at a faster rate which was more than economists had estimated.

The increase in the prices of food and energy was the main reason for the accelerating inflation in these countries the report also stated. Chief of investment grade debt strategy at ING Bank NV in Amsterdam Padhraic Garvey said that the figures of inflation led investors to back up their bets wagered on interest rate cuts. The chief also added that this drop does not affect his views on the bigger picture and he also said that he expected the current year to be a sluggish environment for growth and returns will further begin to drop from its current standing. The return on the two year note increased by 23 basis points and stood at 3.34% which was the highest position for it since April 2004. The value of the 4% security which will mature in 2009 also dropped to 0.40 that is 4 euros per 1,000-euro or $1,484 face amount, to 101.12 and stood at 101.12. According to Garvey’s estimate the return on the notes will decline to 3% by month of June in the current year. Returns progress opposite to bond prices.

Germany is Europe’s biggest economy where as per a government report, annual producer prices increased by 3.3% which was the fastest rise in thirteen months. Consumer prices in France shot by an annual 3.2% which was a rise from its earlier 2.8% in December according to the national statistics bureau Insee and this data is calculated on EU harmonized system. This rise is the fastest since the year 1996. The return on the ten year Bund of Germany, which is considered as the standard for Europe gained by four basis points and stood at 4%. The longer dated bonds generally give higher yields as against the shorter dated bonds and this is when the traders calculate that the central banks will maintain their higher rates to tame inflation.

ECB’s borrowing costs dropped when the expected returns on the Euribor futures contract for June rose to 18 basis points and stood at 4.09% in last week. The inflation prospects increased as calculated by the return difference between nominal and index-linked bonds. The breakeven rate for the ten year inflation protected notes of France, which is also the standard for Europe gained by as much as 2.22% which is the record gain since last month.

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The European Commission cut its forecast for economic growth and raised its projection for inflation, reflecting the dilemma facing the European Central Bank. The economy of the 15 nations that share the euro will expand 1.8 percent this year, which is 0.4 percent below the rate predicted in November and the weakest since 2005. Inflation will average 2.6 percent, which is an increase from the previous estimate of 2.1 percent, the strongest since the euro began trading in 1999. The lethal combo of weakening expansion and rising inflation complicates the work of ECB, as it seeks to shield its economy from a US slowdown, without surrendering its campaign to restrain price pressures. The commission announced that economic activity is set to moderate, but the risks to the growth forecast remains sizeable.

The U.S slowdown is combining with costlier credit along with oil prices rising to about $199 a barrel and a rising euro to curb expansion. At the same time, higher energy prices and more expensive food are fanning inflation. Such risks prompted ECB President Jean–Claude Trichet to warn that stronger inflation and weaker growth, both were risks to economy. This was in stark contrast to his previous view that price pressures were the greatest threat. The central bank has left it’s benchmark interest rate at a six-year high of 4 percent since June and investors predict it will follow the Federal Reserve in easing credit by the end of second quarter.

Heineken NV, the Dutch brewer, announced that second-half profit fell by a third as slower economic growth in the US prevented the company from increasing prices in an effort to offset the rising cost of barley, metal and power. As a result, shares posted the biggest drop since 2003. The jump in credit costs from the collapse of the US subprime–mortgage market has sparked losses in stock markets around the world as Wall Street firms revealed $146 billion in losses on their debt holdings. Global stocks have lost more than $6 trillion this year. The commission’s growth forecast is more optimistic than the 1.6 percent prediction of the International Monetary Fund and the 1.7 percent median estimate of economists surveyed by Bloomberg News.

ECB releases new forecasts on March 6. Record–low unemployment, a balanced current account and “comparatively” low government budget deficits have cushioned the economy, the commission had said. In a review of individual economies, the commission slashed its forecast for growth in Italy by half to 0.7 percent amid a decline in confidence among executives. It predicted Spain would witness a “soft landing”, even as its real-estate market fades, with a growth of 2.7 percent this year, which is lower than its previous estimate of 3.0 percent. The commission said that weaker international growth explained its decision to cut its prediction for expansion in Germany from 1.6 percent to 2.1 percent and that for France from 1.7 percent to 2.0 percent.

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Mobile phones have long begun conquering parts of the world that are far from the nearest electrical substation. However, the rising oil prices are causing a great concern for operators. In the far reaches of places like Africa and Pakistan, companies such as Ericsson or Nokia Siemens Networks are installing new cellular base stations at a rapid pace. These facilities almost always get their power from diesel–powered generators. Fuel accounts for as much as two-thirds of base-station operating costs. In addition, there are the transport charges for trucking diesel over poor roads to remote areas and guarding it against thefts. As a result, green energy is all of a sudden transforming from just a feel-good project to a serious workable option for the mobile service providers. As mobile networks are fast expanding beyond the reach of power grids, they need to find a less expensive alternative to diesel. After years of experimentations on base stations powered by wind, solar energy and biofuel equipment, suppliers are preparing to roll out alternative energy technology in significant numbers.

Two Asian network operators are expected to announce plans for more than 500 new base stations which are powered by a combination of sun and wind. Solving the power problem has all of a sudden become a key factor in maintaining the growth of the mobile industry. The number of mobile subscribers is expected to climb to a mind staggering 5 billion by 2015. A large proportion of those new users will be in rural areas that have little infrastructure. Flexenclosure, a Swedish firm that makes shelters for base staion equipment, estimates that in Africa alone 40,000 new base stations will be located beyond the reach of reliable electrical grids during the next few years. Thanks to advances in technology, it’s becoming more practical to run base stations with renewable energy. For instance, it requires only one fourth as many solar cells to power a base station from five years ago.

Equipment producers have also put more effort in reducing the amount of power that a base station needs in the first place. Ericsson buries the battery for base stations about 20 feet underground, reducing the need for energy gulping cooling equipment (besides it also reduces the risk of theft). Installing the radio equipment at the top of the tower next to the antenna also helps to save power. The shorter the cable connecting the radio to the antenna, lesser is the power lost in transmission. Nokia Siemens is working on software that shuts down part of the base station at night, when there is less demand. Power conservation is turning out to be a major area of competition, and mobile service providers are racking their brains to come up with the base station that consumes the lowest amount of power. In fact, someday, green powered base stations may start popping up even in developed countries where the power grid is everywhere and reliable, but the pressure is mounting to reduce carbon emissions.

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The German chancellor, Angela Merkel threatened Liechtenstein with isolation in Europe, unless the Alpine tax haven eased bank secrecy. This happened even as bilateral tensions grew over Berlin’s handling of its spiraling tax evasion inquiry. Ms Merkel was speaking at Berlin after a meeting with Liechtenstein’s Prime Minister, Otmar Hasler. She accused the principality’s banks of “encouraging lawbreaking” in Germany by offering services allowing tax evasion. The German Chancellor warned that Germany could block Liechtenstein’s entry into the European Union’s border-free Schengen zone due in November. The principality’s entry into Schengen is expected to be discussed next Thursday by EU interior ministers, but Ms Merkel has made it clear that she “would not be surprised” if the German parliament “linked” its confirmation of the territory’s membership to other issues. German legislators reflected the same notion on Wednesday, calling an end to the status of Vaduz, the capital of Liechtenstein as a tax haven in the heart of Europe.

Angel Merkel was speaking almost a week after German prosecutors had launched an investigation in as many as 1,000 people who were suspected of hiding funds worth millions of euros via special trusts in Liechtenstein. The chancellor issued a stern warning to Liechtenstein saying it must act fast as “the clock is ticking”. Ms Merkel’s hardened stance reflected the souring of Berlin’s relations with Vaduz over the tax affair. This was as an aftermath when Crown Price Alois von Liechtenstein accused Germany of mounting “an attack” on his country, by allowing its secret service agents to buy allegedly stolen data on back clients from a former bank employee in the principality. Price Alois also expressed disgust in the way the tiny German-speaking territory being perpetually dominated by Berlin, calling it an “overpowering state”. To this, Ms Merkel retorted that the Prince’s outbursts are not making things any easier and that it was “not the right way to proceed and frankly its not helpful for out relationship”.

Mr. Hasler had sought to reduce tensions, and offered Germany assistance with its investigations. He accepted that Liechtenstein’s standing as a financial center was “going through a reform process”, but rejected the German accusation that it was actively promoting tax crime with its system of special foundations. He clarified, saying that it’s not legitimate to say that investing in Liechtenstein’s foundations means tax evasion. However, he did not publicly respond to specific calls for greater financial transparency. She said Vaduz should move quickly to abide by global guidelines set by Organization for Economic Co-operation and Development to reduce tax haven secrecy. OECD officials said that Liechtenstein was the “most secretive” of all tax havens monitored by the organization- even more notorious and reclusive than Monaco and Andorra, which are also on its blacklist of “uncooperative jurisdictions”. The ball is clearly in Liechtenstein’s court; either, set the tax system straight or be prepared to be treated as an outcast. Germany is too powerful a country and holds dominant and extensive influence and Liechtenstein would do well to come to terms with this fact.

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Crude Oil prices plunged from a record $100.10 a barrel in New York on a speculation that a U.S.Energy Department will be showing stockpiles rose for a sixth week. Oil prices fell as traders sold contracts to lock in the 4.5 % gain from yesterday, when prices closed at over $100 a barrel for the first time. Inventories probably climbed to 303.4 million barrels in the week ended Feb 15 from 301.1 million barrels due to the reduced heating-fuel use, according to responses in a Bloomberg survey. There are indications of some profit-taking surging into the market and people are waiting for the inventory data. As the weather warms up, the refineries are shifting to produce more gasoline rather than heating oils. Crude Oil March delivery dropped as much as 90 cents that would be 0.9 percent, to $99.11 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Futures soared to $100.10, which is the highest intraday price since trading began in 1983.

The Organization of Petroleum Exporting Countries is set to meet on March 5, and expected to cut output as the demand for winter heating is waning, this was announced by the oil ministries from Algeria and Iran in the past week. Oil also rose as a weakening dollar caused traders to invest in commodities as a hedge against inflation. OPEC has had a close inspection of what the US dollar has been doing the past couple of years and made the realization that they are getting fewer bangs for their buck.

These days, there are so many different players in the market and they have got plenty of cash to effect a change in the way the market moves. The record was they third time oil has reached $100. The previous was $100.09 a barrel in New York on Jan 3, a day after touching $100 for the first time after militant attacks in Nigeria, Africa’s biggest producer. The Energy department report is expected to released on Feb 21 at 10.30 am in Washington, which is a day later than the usual because of the President’s holiday on Feb 18.Brent crude settlement for the month of April fell as much as 86 cents or 0.9 percent, to $97.70 a barrel on London’s ICE Futures Europe exchange at 12:48 pm Singapore time. The contract was finally closed yesterday at a record $98.56 a barrel, which is an increase of 3.9 percent.

Inventories Gain

Oil supplies probably gained 2.28 million barrels in the week ended Feb 15. From 301.1 million barrels, according to a median of response in a Bloomberg survey. According to the responses, gasoline inventories probably climbed 500,000 barrels from 229.2 million. Supplies of distillate fuels, a category that comprises of heating oil and diesels, fell 2 million barrels from 127 million the week before, according to the survey. Gasoline and heating oil surged after an explosion shut Alon USA Energy Inc’s Big Spring, Texas refinery. The facility is capable of processing 70,000 barrels of crude oil a day. Mark Waggoner , president of Excel Futures Inc, commented that the refinery troubles seems to be getting bigger and bigger every year and that not a single new refinery was built in 35 years or so and every year somewhere, something keeps breaking down.

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Despite being the world’s second largest consumer-products company, Unilever always found itself being shadowed and outrun by agiler and more relentless rivals. The notable amongst them being Cincinnati based Procror & Gamble. But Unilever has decided to shed its sleepy uninspiring tag once and for all by challenging Proctor & Gamble in a category that it practically owns, antidandruff shampoo. It might sound a bit mundane but the battle against scalp flakes is big business theses days. Trade analysts that antidandruff shampoo accounts for half of the annual $40 billion global shampoo market. The biggest opportunity for Unilever lies in nascent markets, where antidandruff shampoos are categorized into premium products, this means they actually costs more than the beauty brands such as P&G’s Pantene. An ambitious restructuring program, aggressive marketing and a dandruff shampoo just might take the consumer goods company to the top.

Head & Shoulders, also from P&G is by far the market leader in so-called BRIC countries which includes Russia, India, Brazil and China with a $1.8 billion product line. Analysts speculate that Unilever may be as much as 40 years behind P&G in some of the areas. Unilever’s fight back weapon is surprising to say the least, an antidandruff shampoo called Clear that wasn’t even created in a state of the art western lab but rather in the developing world.

Augmented with a new found zeal, Unilever went on a blitzkrieg, blasting out to seven new markets in just six months last year, sweeping up sales of $367 million. In Philippines, which was long considered a P&G territory, Head & Shoulders was enjoying an unchallenged reign in the antidandruff category until Clear was launched in July of 2007. In just five months, Unilever’s shampoo had overtaken Head & Shoulders to grab 15.6% of the market share. In China, Unilever is a much smaller player than P&G, with total sales coming to around $1.2 billion. However, Clear was able to slice through the Chinese market and went from 0 to 3.3% market share in less than a year. Unilever now plans to bring Clear to the bigger Western markets in Europe and the US. In the world of consumer products that would be an anomaly- a brand that was developed and first launched in the emerging markets. It would serve as a whack to the face for other brands who blatantly export products from the US and Europe to developing markets.

The credit for surprising twist of fortune of Unilever goes to Chief Executive Patrick Cescau, who launched an ambitious restructuring program three years ago. He got rid of underperforming brands, divested the company’s frozen food business and stripped out layers of bureaucracy which included half the ranks of top management, who had kept the firm lagging for years. Cescau straightened out unnecessary complications with his “One Unilever Plan”. Brands now rely on a single formulation, one package design and a single marketing strategy, in contrast to the fragmented and hazy approach of the past.

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The European Union struggled to put up a show of unity over Kosovo, even as majority of the members agreed to recognize the breakaway province’s declaration of independence, Spain and Romania rubbished its action as illegal. France’s foreign minister, Bernard Kouchner announced President Nicolas Sarkozy’s decision that the time has come to end the Balkan troubles and the need of the hour is reconciliation. About 20 of the 27 member states in the EU including Italy, Germany and the UK were ready to recognize the Kosovars as independent. EU’s efforts to at least put up a show of unity failed as Spain made it clear from the start that it has no intention of recognizing Kosovo’s independence. The reason stated is that Kosovo “did not respect international law”. The statement brutally exposed the divide within the EU over legal basis of Kosovo’s secession. Spain, wary of the impact on its Basque and Catalan nationalist movements, is thought to be unhappy that Kosovo’s ethnic Alban leaders declined to postpone independence until after Spain’s March 9 general election.

EU foreign minister later agreed on a joint statement that Kosovo’s independence set no precedent for other disputes in Europe or beyond. In an attempt to appease Belgrade’s anger, they repeated an offer of eventual Union membership for Serbia – and all other Balkan countries. EU hopes that the lure of membership will calm searing passions in Serbia and other Balkan states. The Kosovo crisis has yet again exposed the glaring differences of national interest within the EU, as they did during the wars of the Yugoslav succession back in the 1990’s. Russia, a prime opponent of Kosovo’s secession and Serbia’s strongest diplomatic ally, says it violates international law as it was not agreed on with Serbia and also lacked approval of the United Nations Security Council. Within the EU, Spain’s stance is shared by Bulgaria, Cyprus, Greece and Slovakia. However, some are concerned about the impact on their own minorities. The Greek Cypriot government fears that the recognition of Kosovo may bolster the cause of Turkish Cypriot separatists. In spite of the internal turmoil, EU is still trying to put up at least a phony show of unity by planning to send a law and order mission to Kosovo over the next four months and replace the UN operation that has administered it since 1999.

Berlin is expected to recognize Kosovo at a cabinet meeting on Wednesday; this was stated by Germany’s foreign minister, Frank-Walter Steinmeier. Although, Dimitrij Rupel, foreign minister of Slovenia and who also holds the EU’s rotating presidency bravely claimed that “The EU once again survived this test of unity”, it’s pretty clear that things are far from calm within the union. As each state tries to protect its own individualistic interests the matter seems far from getting resolved anytime soon.

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