6 MAY 2011
TRANSPORTsecretary PhilipHammond has branded the latestround of Tube strikes “highly irrespon-sible” and said the union’s behaviour will lead to tougher industrial laws. The RMT union, headed up by BobCrow, has announced six strike days. They will down tools for between nineand 24 hours between 16 and 20 May and again from 13 to 17 June.Hammond told parliament: “Noone in this government is spoiling fora fight with the unions but the unionsappear to be spoiling for a fight withLondon.“I say to the RMT and other unionsthat this kind of irresponsible strikeaction, where an alternative, properremedy is available, is only strengthen-ing the hand of those including themayor who are calling for tougherindustrial relations laws.”Boris Johnson has slammed theaction, calling on the government to bring in tough laws to stamp out fur-ther strikes.He said: “There is a great deal of sense in reform of the union law andthe government needs to get a moveon.. London Underground is one of the indispensable networks for one of the greatest cities in the world. I don’tthink it should be held to ransom by asmall minority of union hotheads.”CITY VIEWS: PAGE 13
Commodities crash was predictable
SO Goldman Sachs was right after all. The bank everybody loves to hatecalled the top of the commodities mar-ket three weeks ago; yesterday, its pre-diction came true, with the declines inkey commodities seen in recent dayssuddenly turning into an almighty crash. The price of oil plunged especial-ly dramatically, with Brent crude los-ing $12 yesterday, or 10 per cent, totrade at around $109 a barrel. The most shocking slump has beensuffered by silver: just a few days ago, it was trading at around $50; it is now back down to $35, having suffered itssteepest crash since the 1980s. Since 29 April, silver has crashed 23.3 per cent,LME tin is down 9.8 per cent, palladi-um has lost 10.4 per cent, gold 4.5 percent and brent crude 9.1 per cent. Inthe US last night, the price of a barrelof oil was back below $100. It’s dramat-ic and highly significant stuff.It is excellent news for consumersand companies that use raw materials;relentless and increasingly unbearablepressures on costs and prices will now be reduced, at least if commoditiesremain weaker. But few economistsare celebrating. The main driver of thecorrection was weaker economic data.Markets were especially rattled by weekly US jobless claims that jumpedto an eight-month high and the newsthat the country’s productivity growthslowed in the first-quarter. Other badfigures included all three main UK activity surveys: the purchasing man-agers indices for manufacturing, con-struction and services all showed weaker (but still positive) growth in April. Another reason for the sharp fallis mounting fears that China’s mone-tary tightening will hit demand fromthe world’s top buyer of commodities;a growing number of other countriesare starting to hike interest rates(though the Bank of England onceagain declined to do so yesterday); andmany investors are beginning torealise that many commodity pricesare completely out of line with reality. Jeffrey Currie, Goldman’s influen-tial 45-year-old head of commodity research, announced that he would beclosing his erstwhile ultra-profitablelong commodities trade made up of a basket of crude oil, copper, cotton, soy- bean and platinum. He also quit hislong copper and platinum positions,arguing that the risk was now toohigh. His move was revealed on 12 April; many shrugged it off as non-sense. Barely two weeks later, thesepundits have egg on their face.Presumably we will now hear all sortsof demented conspiracy theories abouthow Goldman controls the world – butthe simple truth is that Currie calledthe market right. The primary drivers of commodity price bubbles are excessive liquidity:too much money chasing too few raw materials. Central banks are alwaysthe main creators of liquidity: either via excessively low interest rates orquantitative easing – or through themanipulation of exchange rates andthe accumulation of cash piles thatput downwards pressure on yields. There is still plenty of liquidity in theglobal economy – but prices of key commodities such as oil had becomeso elevated that they had started tochoke off demand. With global growthstarting to slow after its astonishingpost-recession rebound, investors haveat last realised that they allowed them-selves to get carried away. It is ironic, of course, that speculators are always blamed when commodity prices soar,even when other, larger forces are real-ly responsible – yet they are neverthanked when prices collapse.
firstname.lastname@example.org Follow me on twitter: @allisterheath
THE future of the coalition govern-ment is hanging in the balance asNick Clegg prepares himself for a cer-tain defeat in the referendum on thealternative vote due to be announcedtonight. Voters are expected to rejectchange in favour of the traditionalfirst-past-the-post system, a crushingdisappointment for Clegg who hadpledged electoral reform as a key plank of the coalition accord.Former Liberal Democrat leaderLord Ashdown warned that PrimeMinister David Cameron’s refusal todisassociate himself from a “regi-ment of lies” poured out by the no-to- AV campaign would have long-termconsequences for the coalition,including the terms on which it even-tually ends.“So far the coalition has been lubri-cated by a large element of goodwilland trust. It is not any longer,” he toldthe Guardian.
Clegg’s AV hopes vanish
Nick Clegg faces almost certain referendum defeat once votes are counted tonight
NEWS | IN BRIEF
AIG loses $1bn in first quarter
Bailed-out insurer AmericanInternational Group (AIG) lost more than$1bn (£609m) from its ongoing opera-tions in the first-quarter, as the companytook a huge charge for the terminationof its credit facility with the FederalReserve. AIG reported a loss from con-tinuing operations of $1.18bn comparedwith a profit on the same basis a yearearlier of $2.09bn. Its Chartis unit alsoracked up $864m in catastrophe lossesrelated to the 11 March earthquake inJapan. The company, one of the top for-eign insurers in Japan, had previouslywarned of substantial quake charges.
Sir David Michels to quit M&S
Marks & Spencer is undergoing a board-room reshuffle, with deputy chairmanSir David Michels and non-executivedirector Lady Patten both steppingdown. Michels, who has served fiveyears on the board, will leave after histerm ends in February while Patten, whohas been with M&S since 2006, will goafter the firm’s annual meeting in thesummer. M&S said it has appointed asenior executive from Mars and a direc-tor from John Lewis.
Floor, Centurion House,24 Monument Street, London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334Email: email@example.com www.cityam.com
Business Features Editor
Head of Distribution
This newspaper adheres to the system of self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the Editor’sCode of Practice, a copy of which can be found at www.pcc.org.uk
Printed by Newsfax International,Beam Reach 5 Business Park,Marsh Way, Rainham, Essex, RM13 8RS
If you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or firstname.lastname@example.org
Transport secretaryPhilip Hammond saysBob Crow’s strikes willeventually lead totougher union laws
JAGUAR TO INVEST £5BN
Jaguar Land Rover is investing £5bnover the next five years to catch up onquality with BMW, Mercedes-Benzand Audi – the three German compa-nies that dominate the luxury end of the automotive business globally. Themoney will be spent mainly on prod-uct development and new equipmentat JLR’s three UK plants with some of it likely to cover new investments at aplanned factory in China.
CARREFOUR CHIEF STRUGGLES
When Lars Olofsson, Carrefour chief executive, unveiled plans to overhaulthe group’s financial structure inearly March, he spoke of “providingCarrefour with more momentum”and creating value for shareholders.In the nine weeks since theannouncement it has fallen 13 percent amid increasingly publicinvestor dissent.
CARLYLE FACES CHINA QUESTIONS
Carlyle, the US private equity group,is facing questions over its invest-ments in two Chinese companiesthat have been accused of fraud andsuspended from trading on stock exchanges in Hong Kong and New York. The scrutiny comes at anunwelcome time for Carlyle, as themanager of some $106bn in fundsseeks to burnish its reputationahead of a planned initial publicoffering.
INTEL WANTS MOBILE GRIP
The revolution in chip designannounced by Intel this week is being seen as an attempt to see off athreat from Arm Holdings, the UK chip designer, which challenges itsdominance in microprocessors. The world’s biggest chipmaker by saleson Wednesday unveiled a break-through 3D structure for its next-generation processors that the UScompany estimated could give it athree-year lead over competitors.
PROSECUTOR RAILS AT DISASTROUSPLANS TO DISMANTLE THE SFO
Ministers’ plans to break up theSerious Fraud Office have beenattacked by a top prosecutor as a“dangerous” move that will under-mine Britain’s ability to fight fraud. Vivian Robinson, QC, the SFO’s gener-al counsel who resigned last week, warns today that the “disastrous”plans would disrupt more than 100fraud cases currently on the books.
NUCLEAR WORKERS VENTURE INTOREACTOR NO 1 AT FUKUSHIMA
Two nuclear workers, cocooned inprotective suits and breathing fromair packs, have become the firsthumans to venture into the still dan-gerously radioactive No 1 reactor atFukushima Dai-ichi since the March11 earthquake and tsunami in Japan. The team was restricted to just 40minutes exposure time.
VIRGIN TEAMS UP WITH SPOTIFY
Virgin Media has teamed up withSpotify and will finally launch itsmuch-delayed digital subscription- based music service “imminently”. According to a senior music industry executive, Spotify and Virgin Mediahave finalised a deal to launch a sub-scription music service and it will golive soon.
HAGUE EXPELS LIBYAN DIPLOMATS
William Hague, the Foreign Secretary,ordered the explusion of two Libyandiplomats from its London embassy ashe travelled to Rome to demand heav-ier military bombardment of ColMuammar Gaddafi’s regime. Haguecalled for the beginning of a finalpush to topple the beleagured regimein Tripoli, more than seven weeksafter a UN Security Council resolutionauthorised military action to protectcivilians.
ADIDAS BOOSTS SALES OUTLOOK FORTHE FULL YEAR
German sportswear and equipmentmaker Adidas said it will continue toraise prices to offset higher raw mate-rial costs and sees a potentially signif-icant knock to its profit from thecatastrophe in Japan, as it reported a25 per cent jump in first quarter netprofit and raised its sales guidance.“Japan is eating into our profit,” chief executive Herbert Hainer said.
YEN SURGE RAISES INTERVENTIONSPECULATION
The Japanese yen surged yesterday toits strongest level against the dollarsince the world’s biggest economiesintervened to stop its rise two monthsago.The move in early trading inEurope and the US, which sent thedollar below ¥80, stoked speculationthat Japan could act again to tame itscurrency.
WHAT THE OTHER PAPERS SAY THIS MORNING