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Wednesday, February 22, 2006

A Very Interesting Morning

Well things really are getting interesting.

We have the news that the Chinese government is resisting US pressure to accelerate the flexibilisation of the renminbi:

Beijing has rebuffed renewed US demands for a faster acceleration of its currency, saying it would maintain its policy of “gradualism” in building a flexible system suited to the development of its own economy.

A statement published on the website of the central bank, the People’s Bank of China, part of its quarterly survey of the economy, said Beijing would maintain a “basically stable” renminbi.

At the same time with the Bernanke handover the US is now locked-in to some interest rate tightening regardless:

The Federal Reserve’s monetary policy body sees current interest rates as appropriate but is entertaining the possibility of further monetary tightening amid stronger economic data, official meeting minutes showed on Tuesday.

Meantime the Japan show trundles on. Danish blogger Claus Vistesen has an interesting and relevant post on this:

Is Japan really getting back on track ? (walled for non-subscribers) The Economist thinks that it is ....

"Japan's GDP grew at a surprisingly strong annualised rate of 5.5% in the fourth quarter of 2005. It looks like the economy may finally be leaving ten years of stagnation behind. But can its export-led growth last long enough to put domestic demand back on track?"

Over in Europe the game of chicken between the ECB, the Comission and the National Governments continues, with some interesting twists.

Spain is now firmly up and over the international radar, especially with the takeover bid from the German group Eon for the Spanish utility company Endesa (incidentally, Indian blogger has an important and interesting post, which is relevant to this, written in connection with the Mittal steel bid for the French steel company Arcelor).

Since the FT article on Eon-Endesa seems to move back-and-forth from under the firescreen, here is the rest of the piece below:

Wulf Bernotat, Eon chief executive, said he expected few anti-trust problems from the European Union as the companies’ markets did not overlap. He also hoped Spanish political opposition would not sink the deal.

He said: “We believe that the Spanish government should let Endesa’s shareholders decide.” Madrid had been aiming to forge a gas and electricity giant capable of competing with others in Europe.

But Fernando Moraleda, a Spanish government spokesman, said Madrid was convinced that in energy it was ”in the general interest of the nation to have a Spanish company”.

Many analysts believe Brussels and Madrid will find few grounds to reject the deal as Eon has no established presence in Spain. “We think it can’t be blocked,” said Graham Weale, head of the European energy group at Global Insight, the consultancy.

Eon is offering €27.50 per Endesa share, about 30 per cent above Tuesday’s value of Gas Natural’s share-heavy offer, announced last September. It will fund it through the more than €15bn of cash it has on its balance sheets plus new bank loans.

On Tuesday evening Endesa, Spain’s largest utility, said a preliminary assessment of the all-cash offer from Eon did not “adequately reflect the true value of Endesa”.

Bankers and industry executives said they did not expect a counterbid from Gas Natural, which could be hard-pressed to raise the additional funding. But they do believe other companies could act soon, among them Eon’s domestic rival RWE, which is expected to outline its acquisition strategy on Wednesday.

Many European utilities have bulging war-chests after benefiting from high energy prices.

The need to finance new investments means that further consolidation seems likely, bankers and industry executives said. European utilities are also looking to pick up new customers abroad as their home markets are deregulated.

Many analysts see between three and six main European energy utilities once the anticipated shake-out is complete. Earlier this week, Mr Bernotat said he expected to see just three dominant utilities across the continent, Eon among them.

On Tuesday Enel, the cash-rich Italian utility, said it was looking at several companies in Spain, France and eastern Europe, adding that Belgium’s Electrabel was among them.

Eon is advised by HSBC. Endesa’s advisers include JP Morgan, Deutsche Bank, Citigroup, Lehman Brothers, Credit Suisse, Merrill Lynch and BNP Paribas.