Commentaries

Anglo dresses interims up as a defence

    Anglo American hasn’t yet received a formal bid from Xstrata. But the miner’s interim results read very much like a defence document.     The highlights alone give a pretty good idea of what chief executive Cynthia Carroll and new chairman John Parker will focus on if Xstrata does eventually pounce.     Anglo’s case hinges on four things.     First, that its plan to cut $2 billion of costs by 2011 is ahead of target. Second, that it is getting on top of its $11 billion net debt, and third, that progress is being made in restructuring its problem child Anglo Platinum <AMSJ.J>. Lastly, Anglo acknowledges that it is an objective to reinstate the dividend.     Added to these elements, lest they appeared to have too defensive a flavour, is the promise of growth, largely through its Minas-Rio iron ore project in Brazil and its Los Bronces copper development.     Of these, cost savings are a crucial point of contention in the Xstrata debate, with the rival miner’s chief executive Mick Davis confident he can squeeze a further $1 billion out of a combination with Anglo, taking the total to $3 billion.     Anglo isn’t making any promises beyond those already given but the tone of the language — which includes talk of being ahead on “asset optimisation”, procurement and job reductions — hints that it may be able to find more savings on its own, without handing anything to Xstrata.     So far the market seems largely happy to let Carroll stick to her plan — highlighting Anglo’s leading position in platinum, diamonds and iron ore alongside its cost cutting success. But investors might ask more searching questions in the event that Xstrata did come back offering a premium.

Global market cross-currents, Fed in focus

With the big event for the week – the outcome of the Federal Reserve’s Federal Open Market Committee – not due until Wednesday, global markets are left to focus on number of cross currents that are weighing on the stocks and oil and bolstering government bonds and the dollar.

The World Bank, which warned that the prospects for global economy continued to be “unusually uncertain,” downwardly revised its 2009 outlooks for Japan,  the Euro Zone, and the United States. The organization expects global output to shrink by 2.9% this year , worse than an initial estimate of 1.7%.

Then there’s the reemergence of merger Monday madness. Over the weekend, Xstrata said it’s exploring a merger of equals with mining rival Anglo American, though talks are said to be preliminary.

Meanwhile, commodities are on their back foot with copper getting knocked down to a two-week low after data showed that China was chewing up the metal at a slower than expected rate. Oil also slipped back below $70 per barrel on a firmer dollar.

US Treasurys are up, with the 10-year benchmark rising 16/32 to yield 3.72% – a level that Ben Bernanke and other policymakers must feel relieved about as they prepare for the their two-day policy meeting that begins Tuesday. Two weeks ago, the yield made a run for 4%, but failed to breach the level that has become an important psychological line in the sand for investors.

The market is very much focused on what, if anything, the Fed says about its Treasury purchases. The bank has already commited to buy up $300 billion of US government securities as it attempts to keep interest rates low and the financial system stable.  Some would like the Fed to commit to even larger purchases, while others would like to see some sign that policymakers are planning to eventually unwind the trillions of dollars they’ve pumped into the system.

Stay tuned.