Brazil takes on poacher turned gamekeeper

Jobs have been to the forefront of financial markets over the past few weeks - from the surprising appointment of Arminio Fraga as President of the Central Bank of Brazil, to last Friday's US payroll data which, at 245,000, was higher than most estimates (although not higher than the rumours which plagued the market last Thursday evening and Friday morning).

As well as those announcements was the regrettable announcement of job losses at Apple's Cork plant, news that December 1998 was a record year for layoffs in the US (despite those strong payroll numbers) and the stunning information that both the chairman and deputy of BMW have left the company. Oh, and there was Glenn Hoddle of course.

I know I've said before that very few "surprise" announcements in financial markets are really a surprise, but Fraga's appointment to the Central Bank of Brazil was completely unexpected since Francisco Lopes had only been in the job for three weeks.

The market was cautiously welcoming of the new president but there are still major concerns about Brazil's future since interest rates continue to climb and the real continues to decline. The government has assured investors that Brazil will neither default on debt - there's about 30 billion real (#14.9 million) in domestic debt maturing shortly - nor restructure it. But it wasn't going to let the real float either. . .

Anyway, the most interesting thing about Arminio Fraga is that he used to manage a $1 billion (#880 million) fund for that well-known guru, George Soros. Apparently the fund was one of the best performing emerging market funds over the past five years, although that doesn't necessarily mean it made any money - just that it may not have lost as much as anyone else.

More interestingly, Soros himself had commented that the Brazilian real was "probably undervalued" at the World Economic Forum at Davos a day or so before Mr Fraga's appointment. Mr Soros recommended that the G7 countries should ally themselves with commercial banks and act as a global lender of last resort to Brazil. They should, he suggested, add to the $41.5 billion International Monetary Fund package already in place for Brazil. It's not many central bank presidents that have Mr Soros batting on their side before they even take office.

It will be interesting to see whether Mr Fraga - who is a dual US and Brazilian citizen - continues to be supported by his former mentor, and whether he can persuade the banks to hand over the cash. And especially whether he can easily fit into the role of poacher turned gamekeeper.

Meanwhile, in the US, the numbers continue to confound those who feel that there must be some impact some day from both Asian and emerging market crises. The unemployment rate has stayed steady at 4.3 per cent - like the payroll numbers, lower than analysts' forecasts. I can't help feeling bemused by the fact that we look at .01 of a percentage point and feel that a move up or down could be highly significant at any given moment, but we do. And, since the analysts' expectation was 4.4 per cent, people pursed their lips at the number and shook their heads about the unbelievable strength of the US economy. The bond market didn't like it, of course, but the bond market never likes low unemployment.

All the same, the December layoff figures (provided by the employment consulting firm Challenger, Gray & Christmas - what a brilliant name) might temper some of the enthusiasm for US jobs. Apparently 103,166 people were let go in December 1998 which is the highest number of layoffs since 1994.

A lot of those losses come from mergers and acquisitions which are expected to continue during 1999. However, there are strong expectations that new jobs will continue to be created which can offset losses in areas like automotive, electronics and industrial. Although - for those of us in the financial services sector - the fact that there were 11,234 people let go in the financial services industry isn't exactly music to our ears.

As far as BMW is concerned, there may well be more people to go following the departure of Bernd Pischetsrieder and Wolfgang Reitzle. The company is now seen as vulnerable to a take-over bid and a number of high-profile names, such as GM and Ford, have been thrown into the ring.

Our friends in Britain will worry about GM and Ford because the likelihood of them being interested in the Rover plants is fairly slim. At the time when BMW bought out Rover, I was a happy driver of a nifty little Rover coupe which was my pride and joy. It was a brilliant car, very un-Rover-like in its appearance and handling and I was sorry when the time came to let it go. However, it's interesting that I replaced it with a German car - smaller all round, including the engine, but definitely a greater thunk when you close the doors. And I haven't had any trouble with my little A3 either. (The scrape on the wing doesn't count, that was my fault - I shouldn't have been trying to park in the underground carpark of Superquinn in Blackrock. That place is a complete nightmare.)

On the subject of retailing again, I continue to watch the British retail sector with a great deal of interest. I'm not sure the Bank of England's recent rate cut will immediately help (that was another surprise by the way, most people had been betting on 25 basis points, not 50).

Sainsbury was the object of my investigations this week since it released its trading statement for the 19 weeks to January 30th. I was particularly interested to see how it got on because its recent advertisement with John Cleese drives me nuts. It looks cheap and tacky and (to me anyway) makes me think that the store is brash - somewhere to rush in and out of rather than to linger.

And guess what? One of Sainsbury's aims was to maintain quality but highlight value. However, it says that the impact of the campaign has been that customers visit the stores more frequently and in greater numbers, but the average spend and transaction size has fallen.

So, the message is, if you advertise something as cheap and cheerful, then people will expect to spend less. And that's exactly what happens.

But if things go wrong at Sainsbury, will it be the management or the staff who get the chop first? Or will it just change the advertising agency?

Sheila O'Flanagan is a fixed-income specialist at NCB Stockbrokers