Copper Falls as Metal Inventories Increase to Six-Month High
By Millie Munshi
"Aug. 28 (Bloomberg) -- Copper fell after inventories monitored by the London Metal Exchange jumped to the highest in six months, easing supply concerns."
"Stockpiles gained 2,200 metric tons, or 1.3 percent, to 170,500 tons today, the highest since Feb. 6. Before today, copper dropped 5.9 percent this month as inventories gained 18 percent."
"The metal ``has eased back this morning following another stock increase,'' analysts at Barclays Capital including Gayle Berry in London said in a report."
"Copper futures for December delivery dropped 0.25 cent to $3.4425 a pound at 10:06 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price fell as much as 1.3 percent and gained as much as 0.7 percent. The metal reached a record $4.2605 on May 5."
"Copper for delivery in three months declined $10 to $7,640 a metric ton ($3.46 a pound) in London. Before today, the price gained 4.6 percent in the past 12 months."
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
"Last Updated: August 28, 2008 10:08 EDT"
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"Canada Stocks Rise, Led By Banks; National, Royal, TD Gain "
By John Kipphoff
"Aug. 28 (Bloomberg) -- Canadian stocks rose a third day, led by banks, after National Bank of Canada reported an unexpected 18 percent increase in fiscal third-quarter profit. The main stock index was poised for its longest winning streak in two months."
Financial stocks paced gains as Royal Bank of Canada also advanced on better-than-estimated earnings and Toronto-Dominion Bank climbed after avoiding any subprime-related writedowns and increasing its dividend. Commodity producers including Suncor Energy Inc. rose along with crude-oil and metals prices.
"The Standard & Poor's/TSX Composite Index added 0.8 percent to 13,636.75 at 9:54 a.m. in Toronto, for the first three-day gain since June 16. Canada's benchmark, which derives three- quarters of its value from financial and commodity stocks, has still dropped 10 percent from its June peak as commodities slumped on concern banks' credit losses would slow global growth and demand for resources."
"National Bank climbed 4 percent to C$50.43, the most in six weeks. Profit at the country's sixth-biggest bank by assets climbed 18 percent to C$286 million ($273.8 million), or C$1.73 a share, in the third quarter, from C$243 million a year earlier, on higher earnings from its consumer bank."
"National Bank was expected to report a 7.4 percent decline in profit to C$1.37 a share, RBC Capital Markets analyst Andre- Philippe Hardy estimated before in a report earlier this month."
Largest Lender
"Royal Bank added 3.3 percent to C$46.80 The country's largest lender said third-quarter profit fell 9.5 percent to C$1.26 billion ($1.21 billion), or 92 cents a share, from a record C$1.4 billion, on rising loan losses and additional writedowns on debt investments tied to U.S. mortgages."
"Royal Bank earned C$1.14 a share excluding one-time items, National Bank Financial analyst Robert Sedran said, beating his C$1.05 a share estimate."
"Toronto-Dominion gained 2.2 percent to C$60.62. Canada's second-biggest bank reported that third-quarter net income fell 9.6 percent to C$997 million, or C$1.21 a share, from C$1.1 billion, missing analysts' estimates as more borrowers fell behind on loans."
"Excluding one-time items, profit was C$1.43 a share, falling short of the C$1.45-a-share median estimate of analysts in a Bloomberg poll. The bank raised its quarterly dividend by 2 cents to 61 cents a share."
"An index of financial shares in the S&P/TSX rose 1.4 percent, the biggest gain as nine of 10 industry groups in the market advanced."
"Suncor Energy, the world's second-biggest oil-sands mining company, gained 1.3 percent to C$60.99."
"Barrick Gold Corp., the largest bullion producer, rose 1.5 percent to C$37.59."
"Crude oil and natural gas rose in New York as Royal Dutch Shell Plc, BP Plc and ConocoPhillips evacuated drilling rigs before the arrival of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina."
Gold advanced to the highest in more than two weeks as a weaker U.S. dollar and higher energy costs revived demand for commodities. Copper also gained.
"TMX Group Inc. fell 0.2 percent to C$34.49. Alpha Trading Systems, a new stock trading platform started by a group that includes Royal Bank and Toronto-Dominion Bank, plans to price its share trading fees as much as 55 percent less than those on TMX Group's Toronto Stock Exchange, the Globe and Mail reported."
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
"Last Updated: August 28, 2008 10:09 EDT"
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"Asian Currencies: Won Gains on Intervention, Peso Advances "
By Aaron Pan and Kim Kyoungwha
"Aug. 28 (Bloomberg) -- South Korea's won strengthened, leading gains among Asian currencies, on speculation the central bank will intervene to curb losses. The Philippine peso advanced as the central bank raised interest rates."
Korea's won rose for a second day after Vice Finance Minister Kim Dong Soo said the central bank will take action to prevent drastic moves in the currency when necessary. Seven of the 10 most-active Asian currencies outside of Japan rose today.
"``Market participants are unwilling to push the dollar higher given that ministry officials' rhetoric raised the possibility of intervention,'' said Jay Won, a currency dealer with Korea Exchange Bank in Seoul. ``Offshore players are selling the dollar, which is also adding to the won's advance.''"
"The currency rose 0.2 percent to 1,081.80 against the dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. It has fallen 13.5 percent this year, the worst performer in the region."
Central banks intervene in the currency market by selling or buying foreign exchange.
"Fund managers outside the nation sold more Korean shares than they bought for an eighth day, stock exchange data showed."
The Philippine peso rose for a second day as the central bank raised its key interest rate for the third time this year as expected. The decision came after local trading hours.
`Tightening Mode'
"Bangko Sentral ng Pilipinas is ``still on a tightening mode'' as inflation probably held near the fastest pace in more than 16 years this month, Deputy Governor Diwa Guinigundo said yesterday. The central bank increased the benchmark rate by a quarter-percentage point to 6 percent."
"``There might've been some market players who had to unwind their long-dollar positions before the rate decision,'' said Marcelo Ayes, senior vice president for treasury at Rizal Commercial Banking Corp. in Manila. ``If the 45.50 level is broken tomorrow, the peso may resume its uptrend toward 45.''"
"The local currency rose 0.2 percent to 45.630 per dollar, according to the Bankers Association of the Philippines. A long position is a bet an asset will rise."
Malaysia's ringgit traded near a nine-month low on speculation the central bank will tolerate a weaker currency to help revive exports amid signs economic growth is slowing.
Malaysian GDP
"The currency declined as economists in a Bloomberg News survey predicted gross domestic product expanded at the slowest in a year in the second quarter. Bank Negara Malaysia will release the report tomorrow, the same day Prime Minister Abdullah Ahmad Badawi presents the 2009 Budget in parliament."
"``Growth could have slowed given that the external sector has cooled and domestic demand was affected after the March general elections,'' said Irvin Seah, an economist at DBS Bank Ltd. in Singapore. ``It's not looking good for the ringgit and the central bank may want a weaker currency to help boost exports.''"
"The ringgit fell 0.1 percent to 3.3835 per dollar, versus 3.3790 yesterday, according to data compiled by Bloomberg."
"Taiwan's dollar was little changed near a six-month low, stabilizing on speculation the U.S., the world's biggest economy, will avert a recession."
"A U.S. government report yesterday showed durable goods orders unexpectedly increased in July. A stronger U.S. economy may help sustain Taiwan's exports, which account for about half of the island's gross domestic product."
`Facing Problems'
"``These numbers suggest the U.S. economy may not be as bad, but I wouldn't be too quick to say all is well,'' said Thio Chin Loo, a currency strategist at BNP Paribas SA in Singapore. ``Taiwan's trade balance shifted to a deficit in July and it's still facing problems with the economy. We wouldn't be surprised to see the Taiwan dollar hit NT$32 by the end of the year.''"
"The island's currency closed little changed at NT$31.479 against the U.S. dollar, compared with yesterday's close of NT$31.481, according to Taipei Forex Inc. It touched NT$31.571 on Aug. 25, the weakest level since Feb. 21."
"Elsewhere, the Singapore dollar strengthened 0.2 percent to S$1.4139 against the U.S. currency, Indonesia's rupiah gained 0.2 percent to 9,148 and Thailand's baht was little changed at 34.08. Vietnam's dong advanced 0.4 percent to 16,550."
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
"Last Updated: August 28, 2008 05:30 EDT"
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Oil Is Little Changed as Gustav Threatens U.S. Gulf Platforms
By Mark Shenk
Aug. 28 (Bloomberg) -- Crude oil was little changed after rising for three days on forecasts that Tropical Storm Gustav will threaten production platforms in the Gulf of Mexico.
"Exxon Mobil Corp. is preparing refineries along the coast as Gustav approaches. The storm may strengthen to a hurricane today and enter the Gulf on Aug. 31, according to the National Hurricane Center. The region is home to 26 percent of U.S. oil output and 14 percent of the country's gas production."
"``There's been no headline to explain prices coming off recently,'' said Tom Bentz, a broker at BNP Paribas in New York. ``This is probably just a short break. If the storm remains on this track, prices will start to rise again.''"
Crude oil for October delivery rose 4 cents to $118.19 a barrel at 10:32 a.m. on the New York Mercantile Exchange. Prices are up 65 percent from a year ago. Oil has dropped 20 percent from a record $147.27 a barrel reached on July 11.
Brent crude oil for October settlement rose 15 cents to $116.39 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
"Last Updated: August 28, 2008 10:37 EDT"
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U.S. Economy Grew Faster Than Previously Estimated (Update1)
By Courtney Schlisserman
"Aug. 28 (Bloomberg) -- The U.S. economy expanded at a faster pace than previously estimated in the second quarter, helped by surging exports and a smaller decline in inventories."
"The 3.3 percent annualized increase in gross domestic product from April through June was higher than forecast and compares with an advance estimate of 1.9 percent issued last month, the Commerce Department said today in Washington. The economy grew 0.9 percent in the first quarter."
"Record exports and the temporary stimulus from the tax rebates prevented the economy from stalling as housing slumped and companies cut expenditures. Consumer spending is now waning and slower growth abroad dims the outlook for foreign sales, signaling last quarter will be the year's highpoint."
"``Outside of trade, the economy is considerably weaker,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``When you look at the spending, it looks terrible for the second half of the year.''"
"The Labor Department said separately that initial claims for unemployment insurance dropped to 425,000 last week, matching economists' forecasts, from 435,000 the previous week. The level remains well above the 321,000 average of last year, and continues to indicate a weakening job market."
Treasuries Drop
"Treasuries dropped after today's reports, sending benchmark 10-year note yields up to 3.80 percent at 9 a.m. in New York, from 3.77 percent late yesterday. Futures on the Standard & Poor's 500 Stock Index rose 0.7 percent to 1,291."
"Economists had forecast the economy expanded 2.7 percent in the second quarter, according to the median of 78 estimates in a Bloomberg News survey. Projections ranged from 2.2 percent to 3.1 percent."
Last quarter's gain was the biggest since the third quarter of 2007.
"The smallest trade deficit in eight years was the biggest contributor to growth. The trade gap narrowed to a $376.6 billion annual pace and added 3.1 percentage points to growth, the most since 1980. Excluding trade, the economy would have expanded at a 0.2 percent pace after growing 0.1 percent in the first three months of the year."
The boost from trade may wane in the rest of the year as growth among some of the U.S.'s biggest trading partners slows. Europe and Japan both shrank last quarter.
Fed Forecast
"Private economists aren't the only ones taking a dimmer view. Federal Reserve staff also ``marked down'' the central bank's forecast for growth in the second half of 2008, according to minutes of the Federal Open Market Committee's Aug. 5 meeting released this week."
"Fed policy makers also said recent reports pointed to ``softer export demand,'' according to the minutes."
"Consumer spending, which accounts for more than two-thirds of the economy, grew at a revised 1.7 percent annual rate in the second quarter, compared with the 1.5 percent estimated last month and 0.9 percent for the first three months of the year."
"The longest expansion in consumer spending on record will probably end this year, according to economists surveyed by Bloomberg earlier this month. Retail sales fell in July for the first time in five months, led by a slump in auto purchases, according to Commerce data."
`In a Recession'
"``We are in a recession,'' Farooq Kathwari, chief executive officer at Ethan Allen Interiors Inc., said in an interview with Bloomberg Television this week. ``Our industry has been impacted. Conditions are still tough.''"
"The Danbury, Connecticut-based home-furnishings retailer said last month that sales fell 8.7 percent in the second quarter compared with the same period last year."
"A weakening labor market is one reason consumer spending is likely to slow after the government sent out about $92 billion in tax rebate checks. The U.S. has lost 463,000 jobs so far this year and wages haven't kept up with inflation, according to Labor Department data."
"``We don't have a lot of demand out there on the part of consumers, so there is a worry,'' Joel Naroff, chief economist at Commerce Bancorp Inc. in Holland, New Jersey, said in a Bloomberg Radio interview. ``What we're looking at is an economy that's bouncing around, but when you really average it out we're just muddling along -- still some growth but nothing special.''"
Weaker Salaries
"Smaller increases in paychecks are another reason Americans are likely to cut back. Wages and salaries increased by $52.5 billion in the first three months of the year, $20.2 billion less than previously estimated, according to today's revised estimates."
"The reduction caused total personal income to grow at a 3 percent annual pace in the first quarter, compared with a previous estimate of 3.7 percent."
"Today's revisions showed housing continued to slump and companies invested less in new equipment. Residential construction decreased at a 15.7 percent pace, more than previously estimated."
"The slide in residential construction has continued this quarter. Housing starts last month fell 11 percent and building permits also declined, the government said Aug. 19."
"A smaller decline in stockpiles contributed to the larger- than-forecast gain in growth. Inventories fell at a $49.4 billion annual rate from April through June, down from a $62.2 billion first estimate. Still, the draw-down subtracted 1.44 percentage points from growth."
"Today's report also included a first look at corporate profits for the second quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, decreased 2.4 percent to an annual rate of $1.56 trillion. Earnings were down 7 percent from the same time last year, the biggest decrease since the 2001 recession."
To contact the report on this story: Courtney Schlisserman in Washington Cschlisserma@bloomberg.net
"Last Updated: August 28, 2008 09:04 EDT"
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U.S. Economy: Growth Faster Than Initially Estimated on Exports
By Courtney Schlisserman and Timothy R. Homan
"Aug. 28 (Bloomberg) -- The U.S. economy expanded faster than previously estimated in the second quarter, helped by a surge in exports that will probably wane as Europe and Japan head toward recessions."
"Gross domestic product increased at a 3.3 percent annual pace, compared with the initial estimate of 1.9 percent, the Commerce Department said today in Washington. Trade contributed the most to U.S. growth in almost three decades."
The expansion is likely to weaken in the second half as consumers burdened with falling home values and dwindling job prospects rein in spending. Separate figures today showed the number of Americans collecting unemployment benefits reached a five-year high last week.
"``Outside of trade, the economy is considerably weaker,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``When you look at the spending, it looks terrible for the second half of the year.''"
The increase in GDP last quarter was bigger than the median estimate of a 2.7 percent gain in a Bloomberg News survey of 78 forecasters. The expansion was the fastest since the third quarter of 2007 and followed growth of 1.9 percent in the first three months of the year.
"Treasuries dropped after today's reports, sending benchmark 10-year note yields up to 3.80 percent at 10:18 a.m. in New York, from 3.77 percent late yesterday. The Standard & Poor's 500 Stock Index rose 0.7 percent to 1,290.95."
Jobless Claims
"The Labor Department said initial jobless claims dropped to 425,000 last week, matching economists' forecasts, from 435,000 the previous week. The level remains well above the 321,000 average of last year. The number of people staying on unemployment rolls rose to 3.423 million, the highest since November 2003."
"``The labor market may continue to weaken,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's become clear that second-half growth isn't going to be as strong as the first half, so businesses are going to finally start to trim payrolls a little more.''"
"The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The trade gap narrowed to a $376.6 billion annual pace and added 3.1 percentage points to growth, the most since 1980. Excluding trade, the economy would have expanded at a 0.2 percent pace after growing 0.1 percent in the first three months of the year."
The boost from trade may wane in the rest of the year as growth among some of the U.S.'s biggest trading partners slows. Europe and Japan both shrank last quarter.
Fed Forecast
"Private economists aren't the only ones taking a dimmer view. Federal Reserve staff also ``marked down'' the central bank's forecast for growth in the second half of 2008, according to minutes of the Federal Open Market Committee's Aug. 5 meeting released this week."
"Fed policy makers also said recent reports pointed to ``softer export demand,'' according to the minutes."
"Consumer spending, which accounts for more than two-thirds of the economy, grew at a revised 1.7 percent annual rate in the second quarter, compared with the 1.5 percent estimated last month and 0.9 percent for the first three months of the year."
"The longest expansion in consumer spending on record will probably end this year, according to economists surveyed by Bloomberg earlier this month. Retail sales fell in July for the first time in five months, led by a slump in auto purchases, according to Commerce data."
`In a Recession'
"``We are in a recession,'' Farooq Kathwari, chief executive officer at Ethan Allen Interiors Inc., said in an interview with Bloomberg Television this week. ``Our industry has been impacted. Conditions are still tough.''"
"The Danbury, Connecticut-based home-furnishings retailer said last month that sales fell 8.7 percent in the second quarter compared with the same period last year."
"A weakening labor market is one reason consumer spending is likely to slow after the government sent out about $92 billion in tax rebate checks. The U.S. has lost 463,000 jobs so far this year and wages haven't kept up with inflation, according to Labor Department data."
"``We don't have a lot of demand out there on the part of consumers, so there is a worry,'' Joel Naroff, chief economist at Commerce Bancorp Inc. in Holland, New Jersey, said in a Bloomberg Radio interview. ``What we're looking at is an economy that's bouncing around, but when you really average it out we're just muddling along -- still some growth but nothing special.''"
Weaker Salaries
"Smaller increases in paychecks are another reason Americans are likely to cut back. Wages and salaries increased by $52.5 billion in the first three months of the year, $20.2 billion less than previously estimated, according to today's revised estimates."
"The reduction caused total personal income to grow at a 3 percent annual pace in the first quarter, compared with a previous estimate of 3.7 percent."
"Today's revisions showed housing continued to slump and companies invested less in new equipment. Residential construction decreased at a 15.7 percent pace, more than previously estimated."
"The slide in residential construction has continued this quarter. Housing starts last month fell 11 percent and building permits also declined, the government said Aug. 19."
"A smaller decline in stockpiles contributed to the larger- than-forecast gain in growth. Inventories fell at a $49.4 billion annual rate from April through June, down from a $62.2 billion first estimate. Still, the draw-down subtracted 1.44 percentage points from growth."
"Today's report also included a first look at corporate profits for the second quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, decreased 2.4 percent to an annual rate of $1.56 trillion. Earnings were down 7 percent from the same time last year, the biggest decrease since the 2001 recession."
To contact the report on this story: Courtney Schlisserman in Washington Cschlisserma@bloomberg.net
"Last Updated: August 28, 2008 10:23 EDT"
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Germany's Jobless Rate Declines to Lowest in 16 Years (Update2)
By Brian Parkin
"Aug. 28 (Bloomberg) -- German unemployment fell more than economists expected in August, pushing the jobless rate to the lowest level in 16 years."
"The number of people out of work, adjusted for seasonal swings, dropped 40,000 to 3.2 million after falling 20,000 in July, the Federal Labor Agency in Nuremberg said today. The rate fell to 7.6 percent, the lowest since May 1992. Economists expected a decline of 10,000 and an unchanged rate of 7.8 percent, the median of 31 forecasts in a Bloomberg survey showed."
"The German economy, Europe's largest, shrank in the second quarter as companies cut back on investment, suggesting that payrolls may follow. German business confidence fell to a 36-month low in August. Still, the job market may not deteriorate as fast."
"``Unemployment will continue to decline, if at a weaker pace,'' said Gregor Eder, an economist at Dresdner Bank AG in Frankfurt. ``The development of the labor market is still very healthy with companies creating jobs. That's positive.''"
"The Labor Agency's IAB institute recorded 1.13 million job openings in the second quarter, 15,000 fewer than in the previous three-month period. Situations vacant will decline ``over the medium term,'' the IAB said on Aug. 11."
`Trailing Indicator'
"``The labor market is a trailing indicator,'' said Hans-Peter Kloes, a labor-market analyst at the IW Cologne economic institute. ``It lags about six months behind other economic indicators such as industrial production.''"
"Labor Agency Vice President Heinrich Alt sees a chance ``a bit above 50 percent'' of unemployment falling below 3 million in November, he said at a press conference in Nuremberg."
"Some companies will continue to expand their workforce this year and next. Germany's small and medium-sized companies will hire 400,000 more people over the next 12 months to meet export demand, Dresdner Bank AG economists said in an e-mailed note to clients on Aug. 19."
"Plasma television maker Loewe AG is hiring even as growth slows. ``You don't hire and fire in this environment, you wait to see when you can hire more,'' the Kronach-based company's Chief Executive Officer Frieder Loehrer said today. ``The economy's dipped somewhat, but it will pull up again and companies have to be prepared.''"
Solar Boom
"Jobs in Germany's solar industry, helped by subsidized domestic demand and export orders, are ``booming,'' said Thomas Krupke, chief executive of Berlin-based Solon AG, a maker of photovoltaic equipment. ``It's non-stop hiring.''"
"Solon will add another 60 staff to its 900 workers this year to help meet orders, 75 percent of which are from abroad."
"Still, evidence is mounting that Germany may face a recession. Germany's economy contracted for the first time in almost four years in three months through June and the economy of the euro region, destination for most of Germany's exports, shrank for the first time since the euro was introduced a decade ago."
"Rising oil and food prices that helped push inflation to 12- year high of 3.5 percent in July are sapping private consumption, creating an ``Achilles Heel'' for the economy, said Economy Minister Michael Glos said on Aug. 26."
"German consumer confidence is at a five-year low and retail sales dropped more than twice as much as economists expected. At the same time, the euro's 9 percent gain in the past year is taking its toll on foreign demand. Factory orders unexpectedly fell for a seventh month in June."
ECB Limit
Borrowing costs at a seven-year high may weigh on companies in the euro region as long as inflation remains at almost twice the European Central Bank's limit. ECB council member Axel Weber said this week there's no scope for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump.
The ECB raised its benchmark interest rate last month by a quarter point to 4.25 percent after inflation accelerated to twice the central bank's 2 percent ceiling.
"According to the latest comparable data of the Organization of Economic Cooperation and Development, Germany's jobless rate was 7.3 percent in June. France, Germany's main trading partner, reported 7.5 percent unemployment compared with 4.1 percent in Japan and 5.5 percent in the U.S. The OECD average that month was 5.8 percent."
"``At the large industrial companies we see a trend of ongoing job cuts,'' the Labor Agency's Alt said. ``But we see continued stable employment at medium sized companies.''"
To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net
"Last Updated: August 28, 2008 04:53 EDT"
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"European Retail Sales Fall for Third Month, PMI Shows (Update1) "
By Jennifer Ryan
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"Aug. 28 (Bloomberg) -- European retail sales declined for a third month in August after the fastest inflation in 16 years and the prospect of a recession eroded consumer confidence, the Bloomberg purchasing managers' index showed."
"While a measure of sales activity in the euro region increased to 47.7 from 46 in July, it's still the third month that the reading held below 50, the dividing line between growth and contraction. The survey of around 1,200 executives compiled for Bloomberg LP by Markit Economics showed retailers cut jobs for a fifth month."
"Europe's economy contracted in the second quarter and recent reports suggest it's struggling to resume growth as rising prices erode household spending power. With inflation at double the European Central Bank's 2 percent ceiling, council member Axel Weber said Aug. 26 that the ECB has no scope to encourage a recovery by cutting interest rates."
"``Inflation is squeezing disposable incomes and the outlook for consumer spending and for retailers is gloomy,'' said Ken Wattret, an economist at BNP Paribas SA in London. ``The ECB recognizes the downward risks to growth but it's not giving any indication it will respond while inflation is above the desired level.''"
"The German retail sales index dropped to 44.1 in August from 46.4 in the previous month, Markit said. The Italian gauge increased to 44.8 from 38.2 and the French measure rose to 53.7 from 51.3."
Recession Risk
"Today's report adds to evidence Europe is edging towards a recession, typically defined as two quarters of contraction. German business confidence fell to a three-year low last month while consumer sentiment slumped to the weakest since 2003. In France, the stock of new, unsold homes reached a record in the three months through June."
"``The latest contraction was largely attributed to continued caution amongst consumers with regard to discretionary spending, given the uncertain economic outlook,'' the Markit report said."
"Retailers are cutting workers as sales decline. Metro AG, Germany's largest retailer, said July 31 it had a second-quarter loss after shutting Real superstores, which missed profit goals as consumers shifted to discount grocers. Markit's index of employment was at 48.7 compared with 48.6 in the previous month."
Stubborn Inflation
Faster inflation is making it harder for policy makers to help consumers and companies. Oil rose above $147 for the first time in July while corn prices climbed to a record the previous month. Weber said inflation is the ``No. 1 worry for central bankers in the euro region.'' Vice President Lucas Papademos said yesterday the pace of price increases is ``stubbornly high.''
"Some companies are nevertheless benefiting from consumers' drive to cut costs. Casino Guichard-Perrachon SA, the biggest supermarket owner in Paris, said July 11 second-quarter sales rose as French shoppers went to its discount stores."
"Inflation pressures may also ease now that oil prices have fallen about 20 percent from their peak last month. Markit's measure of prices paid for goods for resale fell to 62.7 from 67.3, the biggest decrease since data begin in 2004."
"The ECB said today that M3 money supply, which it uses as a gauge of future inflation, rose 9.3 percent from a year earlier after increasing 9.5 percent in June. Loans to the private sector grew 9.4 percent in the year, down from 9.9 percent in June."
"For the Bloomberg retail indicator, Markit Economics recruited a panel of companies in Germany, France and Italy, which together make up around 80 percent of total euro-area retail sales by value. The panel includes large chain retailers as well as smaller stores."
To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
"Last Updated: August 28, 2008 04:42 EDT"
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Yuan Gains for Third Day as China to Curb Inflation; Bonds Rise
By Aaron Pan and Jiang Jianguo
Aug. 28 (Bloomberg) -- The yuan rose for a third day on speculation China is seeking to temper inflation through currency gains and as the dollar declined in Asia. Bonds advanced.
"China's currency gained after Xinhua news agency reported curbing inflation is a priority for the government for the rest of the year, citing National Development and Reform Commission Vice Chairman Zhu Zhixin. Seven of Asia's 10 most-active currencies outside Japan strengthened against the dollar as the currency dropped versus the euro."
"``There's been an appreciation in the yuan on the back of the dollar weakening,'' said Steven Chang, vice president for global markets at State Street Bank & Trust Co. in Hong Kong. ``China policy makers haven't changed their stance on maintaining yuan strength.''"
"The yuan rose 0.15 percent to 6.8275 per dollar at the 5:30 p.m. close in Shanghai from 6.8380 yesterday, according to the China Foreign Exchange Trade System."
The central bank set a stronger reference rate for today's trading of 6.8326. The yuan is allowed to trade by as much as 0.5 percent against the dollar either side of the reference rate.
"The central bank manages the exchange rate against a basket of currencies, including the yen and the euro, after scrapping a peg to the dollar in 2005."
Post-Olympics Slowdown?
The yuan has been little changed in recent weeks on speculation China will pursue a more moderate pace of appreciation to safeguard against a post-Olympics slowdown in the economy. The People's Bank of China said Aug. 15 it will ``fine-tune'' policies to strike a balance between maintaining growth and curbing inflation.
"Government bonds rose, pushing seven-year yields to the lowest in more than two months, on speculation inflation eased in August from a year earlier."
"The yield on the 4.01 percent note due May 2015 fell 2 basis points to 4.11 percent, the lowest since June 25, according to the China Interbank Bond Market. The price rose 0.09 per 100 yuan face amount to 99.44."
"``The August inflation rate may have slowed to about 5 percent because of declining food prices, so this is good news for the bond market,'' said Nie Shuguang, a fixed-income analyst at Industrial bank Co. in Shanghai. Inflation erodes the fixed payments on debt."
"Average vegetable prices were 7.9 percent lower than a year earlier last week and grain prices were little changed, the Ministry of Commerce said Aug. 26 on its Web site. Food costs account for about a third of China's consumer price index."
"China's annual inflation was 6.3 percent in July, the slowest pace in 10 months. The government is due to report August inflation on Sept. 11."
To contact the reporters on this story: Aaron Pan in Hong Kong at Apan8@bloomberg.net; Jiang Jianguo in Shanghai at jjiang@bloomberg.net.
"Last Updated: August 28, 2008 06:16 EDT"
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Brazil's Sabesp Plans to Borrow 300 Million Reais in Note Sale
By Laura Price
"Aug. 28 (Bloomberg) -- Companhia de Saneamento Basico do Estado de Sao Paulo - Sabesp, Brazil's biggest water utility, plans to sell 300 million reais ($185 million) of bonds due in 2013 and 2015, according to a regulatory filing."
"The Sao Paulo-based company will issue the debt in two parts and pricing will be set after investors have placed orders, according to the prospectus for the sale posted on the Web site of Brazil's securities and exchange regulator."
"HSBC Bank Brasil SA will manage the transaction with Banco Citibank SA, Caixa Economica Federal and BB Banco de Investimento SA, the prospectus said."
To contact the reporter on this story: Laura Price in Sao Paulo at lprice3@bloomberg.net
"Last Updated: August 28, 2008 07:27 EDT"
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"Italy Stocks Update: Monte Paschi, Autogrill, Pirelli, STMicro "
By Francesca Cinelli
"Aug. 28 (Bloomberg) -- Italy's S&P/MIB Index increased 132, or 0.5 percent, to 28,090. Futures expiring in September rose 109, or 0.4 percent, to 28,165."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Autogrill SpA (AGL IM), the world's biggest manager of airport restaurants, advanced 8.3 cents, or 1 percent, to 8.39 euros. ``As expected, Autogrill announced poor first-half results, but there were no new warnings,'' Guillaume Rascoussier, an analyst at Oddo Securities who rates the stock an ``add,'' wrote in a research report."
Natixis Securities lowered its price estimate on the stock to 9.5 euros from 10 euros and kept an ``add'' recommendation.
"Banca Monte dei Paschi di Siena SpA (BMPS IM), Italy's third-biggest bank, rose 4.1 cents, or 2.4 percent, to 1.77 euros. The board is scheduled to meet to discuss results. Results should be released tomorrow before the opening of the market. ``Indications on the capital-strengthening initiatives are welcomed,'' Manuela Meroni, an analyst at Banca Imi, wrote in a report."
Banking stocks were the best performers among the 18 industry groups in the Dow Jones Stoxx 60 Index today.
"Intesa Sanpaolo SpA (ISP IM), Italy's second-biggest bank, added 9.65 cents, or 2.8 percent, to 3.52 euros. The company reports first-half results. The lender announced the final terms of a new subordinated lower tier II bond issue of a maximum nominal amount of 2.5 billion euros targeted to the domestic market."
"Banca Italease SpA (BIL IM), an unprofitable Italian leasing company, added 13.2 cents, or 2.3 percent, to 5.81 euros. The company is scheduled to report results today. Mediobanca Securities kept a ``neutral'' recommendation on the stock with a price estimate of 5.8 euros as standalone fair value, ``bearing in mind that if the joint venture with VR Leasing goes ahead (disclosure is expected by early September), the fair market valuation could be 7.1 euros per share, taking into account the excess capital generated,'' analyst Francesco Solazzo wrote in a report."
"Eurotech SpA (ETH IM), an Italian maker of miniature computers for the aerospace industry, dropped 2.8 cents, or 0.7 percent, to 4.04 euros. Exane BNP Paribas cut its price estimate on the stock by 15 percent to 5.5 euros."
"Eutelia SpA (EUT IM), an Italian provider of voice, data and Internet services, dropped for a fifth session, losing 0.47 cents, or 0.7 percent, to 67 cents. The company is expected to release results tomorrow. ``We expect very poor results as the delay of orders should be replicated in second-quarter,'' Carola Bardelli, an analyst at Deutsche Bank AG, wrote in a note."
"Fiat SpA (F IM), Italy's largest manufacturer, slid 3.2 cents, or 0.3 percent, to 10.47 euros. Automobile stocks retreated in Europe after Toyota Motor Corp., the world's second-largest automaker, cut its 2009 sales forecast as high gasoline prices damp demand for sport-utility vehicles and pickup trucks in the U.S., its biggest market."
"Fondiaria-Sai SpA (FSA IM), Italy's second-largest insurer, gained 35.5 cents, or 1.9 percent, to 19.3 euros after losing 5.9 percent yesterday. UBS AG downgraded the stock to ``neutral'' from ``buy.'' Cheuvreux lowered its price estimate on the stock to 27.4 euros from 31.4 euros. Mediobanca Securities downgraded the stock to ``neutral'' from ``outperform.'' WestLB put its recommendation and price estimate under review. The brokerage previously rated the stock a ``buy.''"
"Impregilo SpA (IPG IM), Italy's biggest builder, surged 6.75 cents, or 1.9 percent, to 3.64 euros. The company releases first-half results. ``We expect that first-half consolidated turnover will be moderately positive for Impregilo,'' Cassa Lombarda analysts wrote in a note."
"IT Holding SpA (ITH IM), the owner of the Gianfranco Ferre SpA fashion house, sank 2.46 cents, or 5.2 percent, to 45.25 cents. Euromobiliare Sim cut its price estimate on the stock to 54 cents from 66 cents because of second-quarter results below expectations."
"Landi Renzo SpA (LR IM), the Italian maker of injection systems for alternative fuels, surged 11.25 cents, or 2.4 percent, to 4.86 euros. The company is scheduled to release results today. ``We expect the strongest quarter of the year to be reported this time around,'' Alessandro Falcioni, an analyst at UniCredit Markets & Investment Banking, wrote."
"Pirelli & C SpA (PC IM), Europe's third-largest tiremaker, dropped 1.1 percent to 46.5 cents after surging 4.7 percent yesterday. Euromobiliare Sim downgraded the stock to ``hold'' from ``buy'' on the back of recent bounce."
"Continental AG, Europe's second-largest car-parts maker, stuck to its 2008 earnings targets, even though business conditions are ``more challenging,'' Chief Financial Officer Alan Hippe told yesterday after the closing of the market."
"Prysmian SpA (PRY IM), an Italian cable maker, fell 34.6 cents, or 2.1 percent, to 16.21 euros. Exane BNP Paribas downgraded the stock to ``neutral'' from ``outperform'' because of limited upside in the short term on its 17 euro price target."
UniCredit Markets and Investment Banking increased its price estimate on the stock to 20.3 euros from 19.8 euros. The Royal Bank of Scotland kept a ``buy'' recommendation on the stock.
"Reno De Medici SpA (RM IM), Europe's second-largest maker of recycled cardboard used in food packaging, climbed 1.96 cents, or 7.1 percent, to 29.5 cents. The company said first- half net profit advanced to 12.7 million euros ($18.6 million) from 2.2 million euros."
"Societa Cattolica di Assicurazioni Scrl (CASS IM), an Italian cooperative insurer, surged 73 cents, or 2.3 percent, to 31.9 cents. The company released ``surprisingly strong second- quarter results,'' Gianantonio Villani, an analyst at Gruppo Banca Leonardo, wrote in a report."
"STMicroelectronics NV (STM IM), Europe's largest semiconductor maker, rose 19.6 cents, or 2.2 percent, to 9.03 euros. Worldwide sales of mobile phones reached close to 305 million units in the second quarter of 2008, a 11.8 percent increase over the second quarter of 2007, according to Gartner, Inc."
To contact the reporter on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: August 28, 2008 06:00 EDT"
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U.S. Stocks Rally as Economic Growth Tops Estimates; Banks Gain
By Lynn Thomasson
"Aug. 28 (Bloomberg) -- U.S. stocks climbed for a third day, led by manufacturers and financial companies, after growth in exports helped the economy expand faster than estimated in the second quarter."
"American International Group Inc., Caterpillar Inc. and AT&T Inc. climbed 2 percent each and helped lead gains in nine of ten industry groups in the Standard & Poor's 500 Index after the Commerce Department said gross domestic product grew at a 3.3 percent annual rate. Tiffany & Co., the world's second-largest luxury jewelry retailer, jumped the most in three years on profit that topped analysts' estimates."
"``You're getting stronger growth, and that is conceivably good for equities,'' said Alan Gayle, the Richmond, Virginia- based senior investment strategist at Ridgeworth Capital Management, which oversees about $70 billion. ``A number like this above 3 percent suggests that the economy is not as bad as a lot of the recent commentary has suggested.''"
"The S&P 500 gained 7.55 points, or 0.6 percent, to 1,289.21 at 10:28 a.m. in New York. The Dow Jones Industrial Average increased 93.31, or 0.8 percent, to 11,595.82. The Nasdaq Composite Index added 11.02 to 2,393.48. Three stocks rose for every two that fell on the New York Stock Exchange."
August Advance
The S&P 500 extended its August gain to 1.8 percent as the GDP report showed businesses are weathering rising inflation and more than $500 billion in subprime-related bank losses. The government's initial estimate of economic growth was 1.9 percent last month and economists in a Bloomberg survey on average projected 2.7 percent. The data follows an unexpected advance in durable goods orders that helped boost stocks yesterday.
"Three of the biggest gains in the S&P 500 today were MBIA Inc., Fannie Mae and Freddie Mac, which have all lost at least 22 percent this year."
"AIG, the largest U.S. insurer, climbed 43 cents to $20.43. Caterpillar, the biggest maker of bulldozers, increased $1.42 to $70.98. AT&T, the top U.S. phone company, added 71 cents to $31.91."
"Fannie Mae, the biggest U.S. mortgage-finance company, gained 5 percent to $6.81. Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares."
"Financial stocks in the S&P 500 climbed 1 percent, capping their first three-day advance since the middle of July."
Bond Insurers Gain
"MBIA, the largest bond insurer, jumped 21 percent for the top gain in the S&P 500 after agreeing to reinsure municipal bonds for Financial Guaranty Insurance Co. MBIA led bond insurers posting record losses after straying from the business of backing municipal bonds to guaranteeing collateralized debt obligations that have tumbled in value."
"Ambac Financial Group Inc., the bond insurer that lost about three-fourths of its market value this year, gained 65 cents to $5.88."
"Tiffany had the steepest gain since 2005, rising 12 percent to $44.45. The retailer posted profit that exceeded analysts' estimates on better-than-expected sales and predicted higher annual earnings than previously estimated."
"Coca-Cola, Brown Forman"
"Coca-Cola Co. lost 1.3 percent to $53.11 for the biggest of only four declines in the 30-stock Dow average. The world's biggest sodamaker was cut to ``neutral'' from ``outperform'' at Credit Suisse Group AG, which said rival PepsiCo Inc. is a better bet because it's further along with a restructuring."
"Brown-Forman Corp. fell the most in the S&P 500, losing 5.9 percent to $72.48. The maker of Jack Daniel's and Southern Comfort whiskey reported a profit decline and trailed analysts' estimates after writing down the value of dead agave plants used for making tequila."
Coca-Cola and Brown-Forman led the S&P 500 Consumer Staples Index to the only retreat among the 10 main industries in the index.
The S&P 500 is poised to complete only its third monthly advance since reaching a record in October. It is still down more than 13 percent this year.
"The S&P 500's August gain has been led by so-called consumer discretionary companies, which include retailers and hotel and restaurant chains. The S&P 500 Consumer Discretionary Index rallied 5.7 percent this month through for the best gain among 10 industries as of the close of trading yesterday."
Energy Concern
"The group was helped by an 18 percent retreat in oil prices from a July record. Limited Brands Inc., owner of the Victoria's Secret lingerie chain, has led the advance with a 23 percent gain after posting profit that topped analysts' estimates and predicting full-year earnings will exceed its earlier projections."
An advance in crude this week has threatened the rally in consumer shares as concern grows that Tropical Storm Gustav will cause the most damage to Gulf of Mexico energy facilities since Hurricane Katrina.
"An index of technology shares in the S&P 500 has had the second-best return in August with a 3.7 percent gain through yesterday, led by a 44 percent jump in Advanced Micro Devices Inc."
"Banks, brokerages and insurers have fared the worst in August, with the S&P 500 Financials Index down 5 percent in August through yesterday on concern a government bailout of Fannie Mae and Freddie Mac will wipe out shareholders. The two largest U.S. mortgage-finance companies fell more than 40 percent each in August through yesterday."
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
"Last Updated: August 28, 2008 10:29 EDT"
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"European Stocks Climb on U.S. Growth; CRH, Credit Agricole Gain "
By Adam Haigh
"Aug. 28 (Bloomberg) -- European stocks rose for a third day, led by exporters and banks, after the U.S. economy expanded more than previously estimated last quarter and Credit Agricole SA said a key measure of financial strength held steady."
"CRH Plc surged 3.8 percent and Siemens AG advanced 2 percent, leading gains by companies with at least 20 percent of their sales in the U.S. UBS AG, the European lender hardest hit by the collapse of America's subprime-mortgage market, climbed 5 percent. Credit Agricole, France's third-biggest bank, jumped 9.4 percent."
"The Dow Jones Stoxx 600 Index added 1.3 percent to 286.91 at 3:32 p.m. in London, trimming this year's decline to 21 percent. More than $13 trillion has been erased from global equity markets this year as credit-related losses and accelerating inflation threatened to push the U.S. into recession."
"``The probability of a recession seems cast away,'' said Jacques Porta, who helps manage $180 million at Ofivalmo Patrimoine in Paris. The U.S. figures ``are good news. It's a good surprise,'' he said."
"National benchmark indexes rose in all 18 western European markets. The U.K.'s FTSE 100 gained 1.2 percent, and Germany's DAX increased 1.5 percent. France's CAC 40 climbed 1.9 percent."
"CRH, the world's second-biggest maker and distributor of building materials, rallied 3.8 percent to 17.90 euros. The company gets about 49 percent of its revenue from the Americas, according to Bloomberg data."
"Siemens, the German engineering company that relies on the U.S. for almost 21 percent of its sales, climbed 2 percent to 74.81 euros."
GDP Report
"The U.S. economy grew 3.3 percent in the second quarter, surpassing last month's estimate of 1.9 percent, the Commerce Department said. Record exports and a smaller decline in inventories helped boost growth. Economists had predicted a 2.7 percent rate, according to the median estimate in a Bloomberg News survey."
"The data shows ``a fairly resilient economy and some recovery towards the end of the year,'' said Felix Lanters, Amsterdam-based head of portfolio management at Theodor Gilissen Bankiers, which oversees $13 billion in assets. ``Anything that points towards a normalization of the environment probably helps the most distressed parts of the market,'' the financials."
"UBS, the biggest Swiss bank, climbed 5 percent to 23.98 francs. Barclays Plc, the U.K.'s third-largest bank, gained 5.2 percent to 347.25 pence."
Credit Agricole
"Credit Agricole advanced 9.4 percent to 14.45 euros after saying its Tier 1 capital ratio held steady. The bank raised 5.9 billion euros last month and lifted the Tier 1 capital ratio to 8.9 percent as of June 30. It remained at that level at the end of the second quarter, the company said today."
"``Investors are hanging onto the news about solvency, that's the good news,'' said Amandine Gerard, a fund manager at Richelieu Finance, which oversees $6.2 billion in Paris."
The Stoxx 600 Banks Index has dropped 31 percent this year as the world's largest financial firms reported $507 billion in asset writedowns and credit losses and raised more than $353 billion to replenish capital.
"Analysts estimate banks' earnings will decline 24 percent in 2008, according to data compiled by Bloomberg News."
"``We would naturally be buying selectively into the financials as they have been beaten up,'' said Stephen Docherty, Glasgow-based head of global equities at Aberdeen Asset Management, which has $194 billion. He has an overweight position globally on banks."
MBIA
"In the U.S., MBIA Inc., the largest bond insurer, agreed to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., signaling its ability to win new business after losing its top AAA rating."
Fannie Mae Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares.
"Natixis SA, the French bank seeking 3.7 billion euros in new capital, sank 1.6 percent to 5.60 euros as the bank reported a net loss of 1.02 billion euros in the second quarter, wider the 669 million-euro median loss estimate of nine analysts surveyed by Bloomberg."
"Swiss Life Holding tumbled 9.3 percent to 203.2 francs. Switzerland's biggest life insurer will miss its 2008 profit target as impairments and investment losses cut first-half earnings, the company said. Profit from operations, which excludes a one-time gain from asset sales, plunged 63 percent to 227 million Swiss francs ($208 million) in the first half. The insurer booked net capital losses and impairments of 1.2 billion francs."
"Ahold, Essilor"
"Royal Ahold NV slid 4.2 percent to 8.32 euros. The Dutch owner of the U.S. Stop & Shop chain reported second-quarter operating profit dropped 14 percent to 235 million euros ($347 million), less than the 260 million-euro estimate of eight analysts in a Bloomberg survey."
Essilor International SA climbed 9.7 percent to 36.42 euros. The world's largest maker of eyeglass lenses reported net income rose 9 percent to 198.3 million euros as it sold more of its products in emerging markets such as Brazil and Argentina. That beat the 192.2 million-euro median estimate of 14 analysts in a Bloomberg News survey. Essilor had reported profit of 181.7 million euros in the year-earlier period.
"BT Group Plc climbed 3.6 percent to 171.3 pence. Goldman Sachs Group Inc. raised its recommendation on the U.K.'s largest phone company to ``buy'' from ``neutral,'' saying risks to the share price are now discounted into the price."
"In the U.K., the prospect of a recession and tighter mortgage lending discouraged home buyers, sending house prices to the biggest annual decline in almost two decades in August, Nationwide Building Society, Britain's fourth-biggest mortgage lender, said today."
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
"Last Updated: August 28, 2008 10:45 EDT"
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Cnooc Shares Rise on Record Profit; PetroChina Drops (Update3)
By Winnie Zhu and Wang Ying
"Aug. 28 (Bloomberg) -- Cnooc Ltd., China's third-largest oil company, rose to the highest in more than a month in Hong Kong trading after first-half profit climbed to a record, beating estimates, because of higher output and oil prices."
"The oil producer's shares advanced as much as 6.4 percent to HK$12.36, the highest since July 15, and closed at HK$11.96. PetroChina Co., the nation's biggest oil company, fell 3.3 percent to close at HK$9.96 after posting its steepest semi- annual profit decline in more than six years on refining losses."
"Cnooc, which doesn't run refineries, said yesterday profit surged 89 percent to 27.54 billion yuan ($4 billion), more than triple the earnings growth of Exxon Mobil Corp. and Royal Dutch Shell Plc. PetroChina, overtaken by Exxon as the world's most valuable company during the half, said net income fell 35 percent after government fuel-price caps undermined crude gains."
"``Cnooc earnings are much higher than the street consensus on strong second-quarter production growth, good cost control and pricings,'' Graham Cunningham, a Hong Kong-based oil analyst at Citigroup Inc., said in a research report today. ``The second-quarter production surged 11.8 percent, the strongest growth since 2005, which alleviates market concern over its full-year target.''"
Record Crude
Crude prices reached a record $147.27 a barrel on July 11. Prices have dropped 18 percent since then and are still 66 percent higher than a year ago.
"Total oil and gas production climbed 8 percent to the equivalent of 92 million barrels of oil, Cnooc said yesterday. It said on Jan. 29 it plans to increase crude oil and natural gas output by as much as 18 percent to between 195 million and 199 million barrels of oil equivalent this year."
"PetroChina's refining business posted a loss of 59 billion yuan between January and June this year, compared with a year- earlier profit of 3.9 billion yuan, the company said yesterday."
"``We don't expect enough of a turnaround though to turn positive on PetroChina, and maintain our view that earnings will continue to be relatively weak,'' JPMorgan Chase & Co. analyst Brynjar Eirik Bustnes said in a research note today. ``Cash flow could become a problem and require raising cash.''"
"PetroChina's first-half net income dropped to 53.6 billion yuan, the company said yesterday."
"Exxon's earnings climbed 16 percent in the first six months while Shell's profit rose 29 percent, according to data compiled by Bloomberg. The companies struggled to boost output as countries from Kazakhstan to Venezuela cut access to oil."
To contact the reporters on this story: Winnie Zhu in Hong Kong at wzhu4@bloomberg.netWang Ying in Hong Kong at wang30@bloomberg.net;
"Last Updated: August 28, 2008 04:42 EDT"
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U.K. Stocks Gain on U.S. Economy Report; Wolseley Shares Rise
By Alexis Xydias
"Aug. 28 (Bloomberg) -- U.K. stocks advanced to the highest this month, led by companies that sell their products in the U.S. after a report showed the world's largest economy grew faster than expected last quarter."
"Wolseley Plc, the world's biggest distributor of plumbing and heating equipment, and Invensys Plc, the maker of Whirlpool washing machine controls, climbed."
"The benchmark FTSE 100 Index rose 66.60, or 1.2 percent, to 5,594.7 at 2:17 p.m. in London. The FTSE All-Share Index climbed 1.2 percent and Ireland's ISEQ Index gained 2.5 percent."
"```The economic numbers are certainly slightly encouraging,'' said Patrick Evershed, a director at New Star Asset Management Ltd. in London. ``The stock market is welcoming what may be a bit of a breather in the economy.''"
Wolseley jumped 6 percent to 442.5 pence. Invensys climbed 3.6 percent to 277.75 pence. Both companies count North America as their biggest markets.
"The U.S. economy grew 3.3 percent in the second quarter, faster than previously estimated, helped by surging exports and a smaller decline in inventories, the Commerce Department said today."
Bodycote Plc jumped 8.1 percent to 227 pence. The U.K. supplier of metal-strengthening services to Ford Motor Co. said it agreed to sell its testing division for $765 million and return cash to investors.
"Kazakhmys Plc fell 2.2 percent to 1,309 pence. Kazakhstan's biggest copper producer posted a 23 percent drop in first-half profit to $608.4 million, after cold weather and repairs cut output at two smelters."
Severn Trent Declines
"Severn Trent Plc, the U.K.'s second-biggest water company, declined 2 percent to 1,377 pence and United Utilities Group Plc, the U.K.'s largest publicly traded water company, lost 1.5 percent to 710.5 pence."
"Goldman Sachs Group Inc downgraded the shares to ``sell'' from ``neutral,'' saying both look ``overpriced'' relative to the utilities sector."
The following stocks also rose or fell in London and Dublin. Stock symbols are in parentheses:
U.K. Stocks:
"Amec Plc (AMEC LN), which provides services for the world's largest energy companies including Exxon Mobil Corp., rose 32 pence, or 3.9 percent, to 855.5. The company said first-half profit rose 34 percent after it won contracts from oil and gas producers."
Irish Stocks:
"Irish Life & Permanent Plc (IPM ID) jumped 53 cents, or 9 percent, to 6.45 euros. Ireland's largest mortgage lender rose for a third day after yesterday saying it has no plans to raise capital from investors."
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
"Last Updated: August 28, 2008 09:23 EDT"
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"French Stocks: Accor, Carrefour, Credit Agricole, Provimi, SEB "
By Adria Cimino
"Aug. 28 (Bloomberg) -- France's CAC 40 Index added 7.46, or 0.2 percent, to 4,380.54 at 12:02 p.m. in Paris, gaining for a third day. The SBF 120 Index also advanced 0.2 percent."
The following shares rose or fell in Paris. Stock symbols are in parentheses.
"Accor SA (AC FP) sank 1.41 euros, or 3.1 percent, to 43.58, falling for a second day, after forecasting a slowdown in profit growth. Second-half profit excluding currency swings and disposals will rise about 10 percent, slowing from the 25 percent pace in the first half as fewer people use hotels in the ``less favorable economic environment,'' Chief Financial Officer Jacques Stern said."
"Carrefour SA (ACA FP) slid 1.34 euros, or 3.9 percent, to 33.13 euros, falling for a second day. Europe's largest retailer fell after La Tribune reported some analysts are concerned the company may cut its 2008 profit target tomorrow, when it presents first-half results. Spokeswoman Helene Saint- Raymond told Bloomberg the retailer won't comment before tomorrow's earnings report."
"Credit Agricole SA (ACA FP) gained 79 cents, or 6 percent, to 14 euros, the most in three weeks, even as France's third- largest bank by market value said second-quarter profit dropped 94 percent to 76 million euros ($112 million). The stock gained after the company said its Tier 1 capital ratio, a key measure of financial strength, held steady."
"Essilor International SA (EF FP) jumped 2.85 euros, or 8.6 percent, to 36.05, rising the most since 2003. The world's largest maker of eyeglass lenses said first-half profit rose 9 percent to 198.3 million euros, surpassing analysts' estimates, as it sold more of its products in emerging markets such as Brazil and Argentina."
"High Co. (HCO FP) jumped 46 cents, or 6.3 percent, to 7.76 euros, the biggest gain in seven months. The marketing and communications consulting company said first-half profit excluding gains from asset sales last year, rose 13 percent to 6.72 million euros. The company raised its full-year sales growth target to 6 percent from 5 percent."
"Manitou SA (MTU FP) tumbled 1.47 euros, or 7.3 percent, to 18.72, falling the most in four months. The French maker of forklift trucks said first-half net fell 12 percent 48.5 million euros. Gilbert Dupont cut its recommendation on the stock to ``add'' from ``buy.'' The company sees full-year net income falling 10 percent to 15 percent."
"Natixis SA (KN FP) retreated 43 cents, or 7.6 percent, to 5.26 euros, the biggest drop in about two weeks. The French bank seeking 3.7 billion euros in new capital reported a second-quarter loss of 1.02 billion euros on writedowns tied to U.S. bond insurers. The loss was bigger than analysts estimated."
"Provimi SA (VIM FP) soared 2.49 euros, or 16 percent, to 18 for the biggest gain since 2001. The maker of animal nutrition products said first-half net income increased nearly threefold to 50 million euros."
"Groupe SEB SA (SK FP) increased 1.08 euros, or 3.1 percent, to 35.80, rising for the first time this week. The world's largest maker of countertop kitchen appliances said operating profit rose 81 percent to 94 million euros, or 1.08 euros a share."
-- Reporting by Valentine Piedelievre in London. Editor: David Whitehouse.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: August 28, 2008 06:07 EDT"
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German Stocks Advance on U.S. Economic Growth; Banks Increase
By Stefanie Haxel and Henrietta Rumberger
Aug. 28 (Bloomberg) -- German stocks climbed the most this week after a report showed the U.S. economy grew faster than previously estimated.
"Deutsche Boerse AG snapped five days of losses on speculation Europe's largest exchange by market value may sell a stake in its Clearstream SA settlement unit. Deutsche Postbank AG led financial shares higher as France's Credit Agricole SA said a key measure of financial strength held steady and MBIA Inc., the biggest U.S. bond insurer, agreed to back $184 billion in municipal bonds."
"The DAX Index gained 73.69, or 1.2 percent, to 6,394.72 as of 3:35 p.m. in Frankfurt. DAX futures expiring in September increased 1.1 percent. The HDAX Index of the country's 110 biggest companies added 1.1 percent."
"``The better-than-expected GDP data in the U.S. helps the market, as do the latest news from the financial sector,'' said Folker Hellmeyer, chief analyst at Bremer Landesbank Kreditanstalt. ``The growth rate is even more surprising as the crises on the financial market, the housing market, the labor market and the car market have worsened in the second quarter.''"
"The 3.3 percent annualized increase in gross domestic product from April through June was higher than forecast and compares with an advance estimate of 1.9 percent issued last month, the Commerce Department said today in Washington. The economy grew 0.9 percent in the first quarter."
"The benchmark index for German equities is down 21 percent this year on concern higher oil prices, accelerating inflation and more than $500 billion in credit-related losses will curb consumer spending and slow global economic growth."
Deutsche Boerse
"Deutsche Boerse rallied 3.20 euros, or 5.3 percent, to 63.23, the steepest advance since Aug. 5."
"``There has been rumor in the market that Deutsche Boerse may plan to sell its stake in Clearstream,'' Stefan Soellner, a trader at Deutsche Postbank AG in Frankfurt said today."
"The Frankfurt-based exchange has held talks with investors, including sovereign wealth funds, about the sale of a stake and could return some of the proceeds to shareholders, three people with knowledge of matter said last month."
"Postbank, Germany's biggest consumer bank by clients, added 1.29 euros, or 3 percent, to 44.68. Commerzbank AG, the country's second-largest lender, increased 40 cents, or 2 percent, to 20.48 euros. Bigger rival Deutsche Bank AG advanced 1.29 euros, or 2.3 percent, to 58.06."
`Good News'
"Credit Agricole, France's third-largest bank, said its Tier 1 capital ratio, a key measure of financial strength, held steady and MBIA agreed to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., winning new business after losing its top AAA rating."
"``This is generally good news and investors are currently willing to acknowledge rays of hope,'' said Ansgar Krekeler, a trader at WGZ Bank in Dusseldorf."
"Allianz SE climbed 4.17 euros, or 3.8 percent, to 113.42. Europe's largest insurer plans to hold an extraordinary supervisory board meeting on Aug. 31, spokeswoman Gesa Walter said by telephone today. She declined to give further details."
"Allianz may decide by the end of the week whether to sell its Dresdner Bank unit to Commerzbank AG or China Development Bank, three people with knowledge of the matter said this week. They declined to be identified because the talks are private."
"Infineon Technologies AG, Europe's second-largest maker of semiconductors, jumped 29 cents, or 5.1 percent, to 5.95 euros."
The following stocks also rose or fell in German markets. Symbols are in parentheses.
"Air Berlin Plc (AB1 GY) added 15 cents, or 3.9 percent, to 4.04 euros, the highest in more than a week. Europe's third- biggest discount airline said second-quarter profit gained 38 percent to 8.3 million euros ($12.3 million) as sales growth offset higher fuel costs."
"Aixtron AG (AIX GY) surged 35 cents, or 5.1 percent, to 7.22 euros, snapping a three-day slide. The maker of machines to coat semiconductors gained on speculation Taiwanese cable maker Walsin Lihwa Corp. may bid for the company."
"``The rumor Walsin Lihwa may make an offer for Aixtron is boosting the stock,'' said Thomas Nagel, a trader at Equinet AG in Frankfurt."
"Deutsche Post AG (DPW GY) climbed for a third day, adding 24.5 cents, or 1.6 percent, to 15.80 euros. Europe's biggest postal service received 1 billion euros from the German government over a court ruling that the company won in July, Reuters reported, citing an unidentified company spokeswoman."
"Fielmann AG (FIE GY) added 2.39 euros, or 4.8 percent, to 52.44, the steepest increase in more than two months. Europe's largest chain of optical stores said second-quarter profit rose 85 percent to 28.3 million euros, helped by demand for discount eyeglasses."
"GfK AG (GFK GY) advanced 39 cents, or 1.6 percent, to 24.60 euros, the highest in more than three weeks. The market research company that dropped its proposed merger with Taylor Nelson Sofres Plc yesterday said second-quarter profit rose 15 percent, paced by revenue from the retail and technology industries."
"MTU Aero Engines Holding AG (MTX GY) jumped the most in almost three weeks, climbing 1.63 euros, or 7.4 percent, to 23.73 euros. Merrill Lynch & Co. added shares of the largest independent provider of jet-engine maintenance to its list of ``most preferred'' stocks."
To contact the reporters on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.
"Last Updated: August 28, 2008 10:00 EDT"
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"U.K. House Prices Drop Most Since 1990, Retail Index Plunges "
By Svenja O'Donnell
Aug. 28 (Bloomberg) -- U.K. house prices declined at the fastest annual pace in almost two decades and an index of retail sales plunged to a 25-year low in August as Britain's economy edged closer to a recession.
"The average value of a home fell 10.5 percent to 164,654 pounds ($301,500), the biggest drop since the final quarter of 1990, Nationwide Building Society said today. A gauge of retail sales fell to minus 46 from minus 36 the previous month, the Confederation of British Industry said in a separate report. That's the lowest since its survey began in July 1983."
"Today's reports indicate Britain is heading for its first recession since the early 1990s after stagnating in the second quarter as higher living costs hurt spending and the credit squeeze ripples through the economy. As the outlook worsens, economists at banks including Societe Generale SA and Bank of America Corp. now forecast the Bank of England will be forced to set aside inflation concerns and cut interest rates this year."
"``The big issue is how long and how severe'' the U.K.'s recession is going to be, said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. ``We're in it. It shouldn't be news anymore.''"
U.K. government bonds rose. The yield on the two-year gilt dropped 3 basis points to 4.46 percent at 12:30 p.m. in London.
"House prices declined 1.9 percent from a month earlier, the 10th consecutive decline in values, Nationwide said. Meanwhile, retailers' pessimism deepened to the lowest on record, with the quarterly index of stores' business situation falling to minus 38 from minus 17 in May, today's report showed. The CBI survey was conducted between July 29 and Aug. 13."
Brutal Recession
"``The CBI figures look even worse that what we saw in the troughs of the last recession, and that was brutal,'' said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London."
"The U.K. had five straight quarters of contraction starting in the third quarter of 1990. Home values lost 13 percent of their value in three years and unemployment almost doubled, rising to 9.9 percent in April 1993. The jobless rate was 2.7 percent in July."
"The latest data are a further blow to Prime Minister Gordon Brown, who is battling to regain popularity with voters and quell talk of challenges to his authority from within the ruling Labour Party. He said on Aug. 20 that the government will announce measures to revive the economy next month."
Cutting Lending
Conservative Treasury spokesman George Osborne said today that ``what began as a fall in prices is fast becoming a housing crash.'' Bank of England Governor Mervyn King said this month that home values face ``a significant adjustment'' after a decade-long boom.
"British banks have curtailed lending after the U.S. subprime mortgage collapse ricocheted through the global economy, sparking more than $500 billion in writedowns and credit losses. Home-loan approvals held close to the lowest in at least 11 years in July, the British Bankers' Association said Aug. 26. Banks granted 22,448 mortgages last month, down 65 percent from a year earlier."
"``There seems to be no easing in the pace of decline'' in the housing market, said Walker. ``We're forecasting a recession this year, things are going to get tougher.''"
"The pound has weakened as prospects for the economy deteriorate. The currency, which touched a 26-year high of $2.1162 in November, has dropped 7 percent against the dollar this month and traded at $1.8335 today."
"The Bank of England has refrained from cutting rates since April as it struggles to curb inflation, which King forecasts will reach 5 percent in coming months, while averting a recession at the same time. As evidence of slowing growth mounts, economists predict their dilemma will get easier."
"Societe Generale economists Brian Hilliard and Bijal Shah on Aug. 26 forecast policy makers may cut rates as soon as November as the economy is ``weakening rapidly and inflation is likely to peak in October, before collapsing in 2009.''"
"They forecast the bank will cut its benchmark to 3.5 percent by ``late summer'' next year, which would match the lowest since the 1950s. The next interest-rate decision is on Sept. 4"
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
"Last Updated: August 28, 2008 07:36 EDT"
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"Ruble May Strengthen 3% by Year-End, Renaissance Says (Update1) "
By Emma O'Brien
"Aug. 28 (Bloomberg) -- The ruble may gain 3 percent against its dollar-euro basket by the end of 2008 as high oil prices and Russia's current-account surplus offset investor concerns over the conflict with Georgia, Renaissance Capital analysts said."
"The currency is set for its biggest monthly drop versus the basket since its introduction in 2005 as the five-day war with neighboring Georgia cause investors to sell Russian assets. The country's $38 billion current-account surplus and this year's 24 percent jump in oil prices will lure buyers back to the world's largest energy supplier, said Alexei Moiseev, head of fixed- income research."
"``I don't see any way that the situation in Georgia will prevent Russia from exporting energy or affect the current- account surplus,'' Renaissance's Moscow-based Moiseev said. ``All the good fundamentals are still there.''"
"Russia's currency was at 29.8597 to the basket by 6:03 p.m. in Moscow, from 29.8483 yesterday. Bank Rossii, Russia's central bank, keeps the ruble within a trading band against the basket to limit the effect of its fluctuations on the competitiveness of local exports. The basket is made up of about 55 percent dollars and 45 percent euros."
"The ruble gained 0.1 percent to 24.5774 per dollar today, and fell 0.2 percent to 36.3073 per euro."
"The currency will probably end the year at 29 to the basket, Moiseev said, changing a previous year-end forecast of 29.40."
Stable Outlook
"Oil and gas activities make up about 20 percent of Russia's gross domestic product and generate more than 60 percent of total export revenue, according to TD Securities Ltd."
"Fitch Ratings is unlikely to change Russia's BBB+ debt rating, the third-lowest investment-grade ranking, or its ``stable'' outlook any time soon, Edward Parker, an emerging- markets credit analyst at Fitch in London, said in an interview."
"The conflict with Georgia only adds ``a layer of political risk'' to investing in Russia, a country in its 10th year of economic growth and with the world's third-largest international reserves, Parker said yesterday."
"As much as $25 billion of capital has flowed out of Russia since the start of the Georgia conflict on Aug. 7, analysts at BNP Paribas SA, France's largest bank, said in a note today."
"Above-target inflation will also contribute to a stronger ruble, Moiseev said."
Bank Policy
"Bank Rossii has been widening the ruble's trading band to the basket since mid-May to subdue price growth that was at 14.7 percent in July, compared with the government's 11.8 percent target. Each 1 percentage point increase in the ruble to the basket reduces inflation by 0.3 percentage point, according to the central bank's calculations."
"A strengthening currency helps reduce prices on imported goods. While Bank Rossii has raised its key interest rates four times this year in a bid to halt gains in consumer prices, it isn't an effective way of controlling inflation in Russia because the country doesn't have a fully fledged consumer-credit market."
"``The ruble will appreciate because they really have no other means to fight inflation,'' Moiseev said. The currency will gain ``as the dust settles over the coming weeks,'' he said."
To contact the reporter on this story: Emma O'Brien in Moscow on eobrien6@bloomberg.net
"Last Updated: August 28, 2008 10:06 EDT"
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Sinopec Group No Longer Considering Imperial Bid (Update1)
By Stephen Cunningham and Archana Chaudhary
"Aug. 28 (Bloomberg) -- China Petroleum & Chemical Corp., China's second-biggest oil company, said it's not interested in making a bid for Imperial Energy Plc, which India's biggest explorer has agreed to buy."
"Sinopec Group, as China Petroleum is known, is ``no longer considering making an offer for Imperial,'' according to a statement distributed by the Regulatory News Service today."
"The Chinese company said on Aug. 26 it was doing work on a possible counteroffer for Imperial Energy, which India's Oil & Natural Gas Corp. agreed to buy for 1.4 billion pounds ($2.57 billion) to tap Siberian deposits and make up for dwindling production at home. The South Asian nation's explorers have been outbid by Chinese rivals as the two most populous nations compete for energy assets globally."
"``Sinopec were seen as one of the more aggressive potential buyers,'' Richard Rose, an analyst from Oriel Securities Ltd., said by phone from London today. ``The only likely competitors now are the Russian companies but our view is that ONGC will strike a deal with one of the Russian state companies post the acquisition.'' Rose has a ``buy'' recommendation on Imperial Energy."
"Imperial Energy fell 34 pence, or 2.85 percent, to 1,160 pence at 12:25 p.m. London time after Sinopec announced it did not intend to make an offer."
"Su Shulin, the chairman of Sinopec, said preliminary work was being done on a bid for Imperial Energy. The company hasn't got any other formal offer, Imperial Energy spokesman Evgeniy Chuikov said then."
"Reserves, Output"
"The U.K. explorer, which operates primarily in the Siberian region of Tomsk, had 920 million barrels of oil equivalent of proven and probable reserves as of December 2007, according to an audit by DeGolyer and MacNaughton cited on Imperial Energy's Web site."
"Imperial Energy said in April it pumped 7,000 barrels a day in the first quarter. The company plans to produce 25,000 barrels of oil a day by the end of the year and expects to start output at the Kiev Eganskoye field on the east side of the Ob River in September."
"Korea National Oil Corp. has no interest in bidding for Imperial Energy, a KNOC official said Aug. 26, declining to be named."
"ONGC's cash offer of 1,250 pence a share is 61.9 percent more than Imperial Energy's stock price on July 11, the day before the London-based company said it received a bid, according to a regulatory filing."
"ONGC shares fell 7.4 rupees, or 0.7 percent, to 999.25 rupees in Mumbai trading today. The shares have declined 19 percent so far this year."
"India is looking to invest in oil projects in Russia, Kazakhstan, Iran and Africa as the government expects economic growth to accelerate to as much as 10 percent by 2012, fueling demand for vehicles and electricity. The country imports more three-quarters of its oil requirements."
To contact the reporters on this story: Stephen Cunningham in London at scunningha10@bloomberg.com; Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.
"Last Updated: August 28, 2008 08:20 EDT"
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Hong Kong's Exports Expanded 11.1 Percent in July (Update1)
By Nipa Piboontanasawat
"Aug. 28 (Bloomberg) -- Hong Kong's exports grew 11.1 percent in July from a year earlier, rebounding from the first drop in more than two years the previous month."
"Overseas sales rose to HK$265.1 billion ($34 billion), the government said today on its Web site, after slipping 0.6 percent in June. That compared with the 5.5 percent median estimate of 12 economists surveyed by Bloomberg News."
"``Despite the strong export performance in July, the outlook in the rest of the year continues to be clouded by uncertainties in the global economic environment,'' the government said in the statement. ``The weakness in the U.S. economy is expected to continue to drag down Hong Kong's export performance.''"
"A global slowdown, a rising yuan and higher production costs in China are cooling demand for exports shipped through Hong Kong, located at the southern border of the world's fastest-growing major economy."
"Today's number ``doesn't imply a reversal of the weakening trend,'' said Joanne Yim, chief economist at Hang Seng Bank Ltd. in Hong Kong. ``Hong Kong's exports face strong headwinds from the heightened risk of a global slowdown.''"
The rebound in July was helped as China's shipments increased 26.9 percent in July from a year earlier after gaining 17.2 percent in June.
"Imports into Hong Kong climbed 15.4 percent in July from a year earlier to HK$284.6 billion, resulting in a trade deficit of HK$19.5 billion for last month, the government said."
Economic Growth Cools
"Hong Kong's economy grew 4.2 percent in the second quarter, the slowest pace in almost five years, as exports and domestic consumption cooled."
"The expansion will probably slow to between 4 percent and 5 percent this year from 6.4 percent in 2007, the government forecasts."
"Moody's Economy.com today cut its estimate for Hong Kong's 2008 economic growth to 5 percent from 5.8 percent, citing weaker-than-expected expansion in the second quarter and the global slowdown."
"``The Hong Kong economy will experience a sharp deceleration this year,'' said Sherman Chan, a Sydney-based economist at Moody's Economy.com."
"Exports to China rose 13 percent in July from a year earlier and shipments to the U.S. dropped 1 percent, the government said. Overseas sales to Japan increased 9 percent."
"For the first seven months of 2008, Hong Kong's exports rose 9.4 percent from a year earlier and imports climbed 11.1 percent, the government said."
To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net
"Last Updated: August 28, 2008 04:51 EDT"
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Spain May Suffer From ECB Loan Curbs as Economy Cools (Update1)
By Ben Sills and Esteban Duarte
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"Aug. 28 (Bloomberg) -- Spain's economy, brought to the brink of a recession by surging global credit costs, may find money even harder to come by when the European Central Bank tightens its lending practices."
"Spain's banks have stored up 89 billion euros of their own asset-backed securities, more than any euro-region country, because the ECB accepts them as collateral in auctions, according to UniCredit SpA. Now the central bank wants to change the rules, ECB council member Yves Mersch said in an interview on Aug. 23, a move that may leave Spain holding the bag."
"``This may affect negatively the profitability of Spanish banks and their ability to lend,'' said Willem Buiter, a professor at London School of Economics and a former Bank of England policy maker. ``It could lead to slower growth.''"
"Spain's banks have relied on cheap money from the ECB to help provide credit to consumers and companies even as the economy is buffeted by a real-estate downturn. Without the ECB, the country would be more dependent on foreign investors, who are demanding higher returns before committing funds."
"ECB officials have agreed to adjust collateral rules in response to some banks' attempts at ``gaming the system,'' Mersch told Bloomberg News at the Federal Reserve's annual retreat in Jackson Hole, Wyoming. Axel Weber, another council member, said in an interview published yesterday in Frankfurt that the ECB must ensure its rules are ``not abused.''"
Fitch Warning
"The share of asset-backed bonds in the collateral deposited with the ECB jumped by a third last year. What's more, the quality of the assets underlying those bonds has deteriorated, Fitch Ratings said in a report in May. Spanish banks are pooling ``higher risk'' mortgages and consumer loans to back the bonds, Fitch said."
"``We see bonds being issued just to forward them directly to the ECB,'' said Kornelius Purps, a fixed-income strategist in Munich at UniCredit, Europe's fourth-largest bank."
"Holders of asset-backed securities can get money 39 percent cheaper at central-bank auctions than through investors. A Spanish mortgage-backed bond rated at the highest credit rating trades with a spread of about 2.8 percentage points to the euro interbank offered rate, or Euribor. The resulting rate of 7.76 percent compares with an average rate of 4.74 percent at yesterday's ECB auction for three-month money."
"Since the credit squeeze began a year ago, Spanish institutions raised their monthly borrowing from the ECB by 31 billion euros to a record 49.4 billion euros, according to data compiled by Bloomberg based on central-bank figures. The increase is three times the size of Prime Minister Jose Luis Rodriguez Zapatero's fiscal stimulus package aimed at averting a recession."
`Delicate Situation'
"``The economy is in a very delicate situation,'' said Jose Luis Martinez, a strategist at Citigroup Inc. in Madrid, who predicts a recession in Spain in the second half of the year. ``One reason for that is the tighter credit conditions and anything which exacerbates that is bad news.''"
"Spain's economy grew 0.1 percent in the second quarter, the slowest in 15 years. The euro region's gross domestic product shrank for the first time since the introduction of the single currency in 1999."
"One option for ECB policy makers is to reduce the amount of money that can be borrowed for every euro of asset-backed collateral, Natacha Valla, chief economist of Goldman Sachs Group Inc. in Paris, said in a report after Mersch's comments."
Spanish Debt
"Buiter said the ECB may make it harder for banks to use as collateral bonds backed by loans they themselves granted. Banco Popular Espanol SA, Spain's no. 3 lender, tripled its holdings of assets eligible in ECB auctions to 15.2 billion euros since December 2006. The bank faces 7 billion euros of debt maturities over the next 18 months."
"Spain's economy doubled in size over the past decade as the decline in borrowing costs brought by euro membership spurred construction and consumer spending. That spree saw Spain run up the world's second-biggest current-account deficit after the U.S., leaving businesses and consumers reliant on foreign lenders."
"With household debt reaching 130 percent of incomes, consumption was already slowing when the global credit crunch began. The turbulence triggered a collapse in the housing market as investors became more reluctant to provide financing to Spanish lenders. Home sales fell by 30 percent in June from a year earlier and mortgage lending slumped 37 percent, the National Statistics Institute in Madrid said today."
"``If the ECB restricts the possibilities for using asset- backed bonds in refinancing operations, the market spread will widen again,'' said Sylvain Broyer, an economist at Natixis in Frankfurt. ``Such a tightening will hurt the part of the euro-zone economy which is weakest right now.''"
To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.netEsteban Duarte in Madrid at eduarterubia@bloomberg.net;
"Last Updated: August 28, 2008 07:06 EDT"
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Brazil Real Rises as U.S. Growth Seen Boosting Local Exports
By Adriana Brasileiro
Aug. 28 (Bloomberg) -- Brazil's real rose for a third day after better-than-estimated economic growth in the U.S. raised speculation that demand for exports and local financial assets will increase.
"The real climbed 0.2 percent to 1.619 per dollar at 10:10 a.m. New York time, compared with 1.6219 yesterday. Brazil's real has advanced 9.9 percent this year, the biggest gain among the 16 most-actively traded currencies tracked by Bloomberg News."
"``The U.S. GDP data was good, it makes investors more optimistic that things may not be so bad going forward,'' said Mario Battistel, foreign-exchange director at Sao Paulo-based brokerage Fair Corretora de Cambio e Valores."
The 3.3 percent annualized increase in the U.S. gross domestic product from April through June reported by the Commerce Department in Washington today was higher than the 2.7 percent Bloomberg median economists' forecast and better than an advance estimate of 1.9 percent issued last month.
Battistel said the real will probably continue gaining in the short term as some of the highest yields in the world make Brazilian fixed-income assets an attractive investment.
"Brazil's real interest rate, or the 13 percent target lending rate minus annual inflation of 6.37 percent, is 6.63 percent. Turkey has the world's highest real interest rate at 7.55 percent."
"The yield on Brazil's zero-coupon bonds due in January 2010 rose 5 basis points, or 0.04 percentage point, to 14.85 percent, according to Banco Votorantim."
To contact the reporters on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net;
"Last Updated: August 28, 2008 10:11 EDT"
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Latin America Currencies: Chilean Peso Gains to a Two-Week High
By Andrea Jaramillo
Aug. 28 (Bloomberg) -- Chile's peso gained to the highest in two weeks as speculation the central bank will keep raising interest rates increased the appeal of the nation's fixed-income securities.
Central bank President Jose De Gregorio said yesterday further interest-rate rises may be necessary to slow inflation.
"Chile's peso strengthened 0.6 percent to 516.5 per dollar at 10:10 a.m. New York time, from 519.82 yesterday. It earlier touched 514.95, the highest since Aug. 14."
"The yield on the nation's peso bond due March 2013 rose 1 basis point, or 0.01 percentage point, to 8.26 percent, according to Bloomberg prices."
"Chilean policy makers lifted interest rates by a half- percentage point in each of the last two monthly meetings, bringing it to 7.75 percent. They will raise it a quarter-point on Sept. 4, according to the median forecast in a Bloomberg survey."
To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
"Last Updated: August 28, 2008 10:19 EDT"
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"Gold Rises as Dollar, Oil Spark Investor Demand; Silver Gains "
By Pham-Duy Nguyen
Aug. 28 (Bloomberg) -- Gold rose to the highest in more than two weeks as a weaker dollar and higher energy costs revived demand for the precious metal. Silver also gained.
"UBS AG issued a ``strong tactical buy recommendation,'' the first in a year. The dollar fell as much as 0.6 percent against a weighted basket of six currencies before paring losses. Crude oil climbed for a fourth straight day, nearing $120 a barrel. Gold and oil reached records this year as the dollar fell to an all-time low against the euro."
"``Gold looks very strong,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``The dollar is very vulnerable and stalling out. And a lot of people think crude can go to $150.''"
"Gold futures for December delivery rose $13.80, or 1.7 percent, to $847.80 an ounce at 8:56 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $849.30, the highest since Aug. 11."
"Silver futures for December delivery rose 48.7 cents, or 3.6 percent, to $14.055 an ounce on the Comex."
"Before today, silver fell 9.1 percent this year, while gold dropped 0.5 percent."
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: August 28, 2008 09:14 EDT"
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Brazil Stocks Gain as Steelmakers Rally; Mexico's Bolsa Rises
By Alexander Ragir
Aug. 28 (Bloomberg) -- Brazilian stocks gained for a second day as steelmakers rallied on strong industry earnings and an improved outlook for metal prices.
Gerdau SA led advances for steelmakers after the biggest Indian and Chinese producers reported higher-than-estimated profit. Cia. Vale do Rio Doce rose to the highest this month as Deutsche Bank AG said it expects iron ore prices to climb 20 percent next year. Eletropaulo Metropolitana SA led gains on the Bovespa index after the utility won a court decision that allowed them to pay out a 360 million reais ($223 million) dividend.
"The Bovespa index advanced 625.32, or 1.1 percent, to 56,144.56 at 10:08 a.m. New York time. Latin America stocks rose after the U.S. economy grew more than estimated in the second quarter. The MSCI Latin America index rose 1.1 percent. Mexico's Bolsa gained 0.9 percent. Chile's Ipsa climbed 0.5 percent."
"Gerdau, Latin America's biggest steelmaker, added 3.4 percent to 30.70 reais. Cia. Siderurgica Nacional SA, Brazil's third-biggest steelmaker, climbed 3.1 percent to 57.20 reais."
"India's Tata Steel Ltd. reported a better-than-expected 60 percent gain in profit on higher prices, while Baoshan Iron & Steel Co., China's biggest, posted a 20 percent profit gain."
Vale climbed 1.6 percent to 39.13 reais after Deutsche Bank reiterated its ``buy'' rating and said price increases next year were ``intact.''
"Cia. de Concessoes Rodoviarias, Brazil's biggest toll-road operator, and Banco do Brasil SA, the largest bank, jumped after JPMorgan Chase & Co. said these companies will benefit from Brazil's growing agriculture production."
Agriculture Leader
"``Brazil is a leader in global agriculture and should be key to future supply groth,'' wrote JPMorgan analysts Debbie Bobovnikova and Diogo Miura in a note to clients, which cited CCR and Banco do Brasil as beneficiaries of this growth."
"CCR, as the toll-road company is known, gained 1.3 percent to 29.81 reais. Banco do Brasil jumped 2.6 percent to 24.01 reais."
"Eletropaulo gained 3.9 percent to 31 reais. The Sao Paulo- based company won a court decision reversing an earlier cancellation of the dividend, Eletropaulo said."
"Petroleo Brasileiro SA gained 1.9 percent to 35.85 reais. OGX Petroleo e Gas Participacoes, the oil company controlled by billionaire Eike Batista, rose 4.5 percent to 585 reais. Crude oil for October delivery gained 1.5 percent to $119.89 a barrel on the New York Mercantile Exchange."
"Latin American stocks climbed after the U.S. economy expanded at a faster pace than previously estimated in the second quarter, helped by surging exports."
"The 3.3 percent annualized increase in gross domestic product from April through June was higher than forecast and compares with an advance estimate of 1.9 percent issued last month, the Commerce Department said. The world's biggest economy grew 0.9 percent in the first quarter."
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.
"Last Updated: August 28, 2008 10:11 EDT"
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Emerging-Market Bond Spreads Narrow After Report on U.S. Growth
By Lester Pimentel
"Aug. 28 (Bloomberg) -- Emerging-market bond yields narrowed relative to Treasuries after a report showed better-than- expected economic growth in the U.S., the biggest buyer of developing nations' exports."
"The extra yield investors demand to own emerging-market debt rather than Treasuries shrank 5 basis points, or 0.05 percentage point, to 3.05 percentage points at 9:25 a.m. in New York, according to JPMorgan Chase & Co. The so-called spread is the smallest since Aug. 22."
"Investor demand for higher-yielding assets picked up following the higher than anticipated 3.3 percent annualized increase in U.S. gross domestic product in the second quarter, the Commerce Department said today in Washington. Economists forecast a 2.7 percent economic expansion, according to the median of 78 estimates in a Bloomberg News survey."
"``There's better risk appetite after the stronger growth number in the U.S.,'' said Siobhan Morden, a Latin American debt strategist with Royal Bank of Scotland in New York."
"The risk of owning Argentina's bonds, among the highest- yielding debt in emerging markets, declined for a third day. Five-year credit-default swaps based on the country's debt fell 7 basis points to 7.93 percentage points, according to Bloomberg data. That means it costs $793,000 to protect $10 million of the country's debt from default."
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent."
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net
"Last Updated: August 28, 2008 09:26 EDT"
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U.K. 10-Year Notes Advance as House Prices Drop Most Since 1990
By Lukanyo Mnyanda and Andrew MacAskill
"Aug. 28 (Bloomberg) -- U.K. 10-year notes rose, pushing the yield to near the lowest in four months, after a report showed house prices in Britain posted their biggest annual drop in almost two decades."
"The notes headed for their second monthly gain and the pound dropped to the lowest level since April against the euro as Nationwide Building Society, the U.K.'s fourth-biggest mortgage lender, said the average value of a home fell in August by the most since 1990. Two-year yields have dropped 27 basis points this month as investors cut bets the Bank of England will lift interest rates."
"``We are being drip-fed weaker growth data, so Nationwide's report reinforces a story we are already familiar with,'' said Richard McGuire, a senior fixed-income strategist in London at RBC Capital Markets, part of Royal Bank of Canada. ``It adds to growing expectation we will see a rate cut, boosting gilts.''"
"The yield on the 10-year gilt dropped as much as 7 basis points to 4.43 percent, the lowest since April 16, and was at 4.97 percent. The 5 percent security due March 2018 rose 0.07, or 70 pence per 1,000-pound ($1.8323) face amount, to 103.90. Yields move inversely to bond prices."
"The yield on the two-year note, which is more sensitive to interest-rate expectations, rose 2 basis points to 4.53 percent, after earlier declining to 4.44 percent, the lowest since May 13. It may fall to 4.35 percent in a month, McGuire said."
Plunging Prices
"U.K. house prices fell 10.5 percent in August from a year earlier, the first double-digit percentage drop since 1990, Nationwide said. Economists had forecast a 9.6 percent decline."
"Activity in the housing market has also faltered. Loans approved for house purchases held near the weakest level in a decade last month, slumping 65 percent in the year, and their value fell to the least since 1998, the British Bankers' Association said."
"The housing and mortgage data reinforce speculation economic growth may slow enough for the Bank of England to cut its benchmark interest rate, currently at 5 percent. Bonds stayed higher as the Confederation of British Industry said today its gauge of retail sales fell to a 25-year low."
"The gauge dropped to minus 46, the lowest since its survey began in July 1983, the CBI said. The survey was conducted between July 29 and Aug. 13."
"The U.K. currency fell to 80.61 pence per euro, the lowest level since April 17, and was at 80.52, from 80.23 yesterday. It slipped to $1.8328 from $1.8356, a decline of 7.6 percent this month. The pound is headed for the biggest monthly loss since October 1992, when it sank 12 percent."
Pound `Vulnerable'
"``Sterling continues to look vulnerable as the bad news continues,'' said Paul Robson, a London-based currency strategist at the Royal Bank of Scotland Group Plc, the second-largest U.K. bank. ``The weaker-than-expected house price numbers mean there is an expectation the Bank of England will cut this year rather than early next year.''"
"Investors have been paring bets on higher rates, with the implied yield on the March short-sterling futures contract dropping 31 basis points in the past month to 5.25 percent today."
"U.K. bonds have outperformed Treasuries and European bonds the past two months as evidence mounted the economy is headed for a recession and banks, including Deutsche Bank AG, changed their forecasts to predict lower borrowing costs. Societe Generale economists Brian Hilliard and Bijal Shah on Aug. 26 forecast policy makers may cut rates as soon as November."
"Ten-year gilts yielded 69 basis points more than Treasuries of a similar maturity today, compared with 117 basis points on Aug. 2, which was the most this year."
"Gilts have returned 3.8 percent since June 27, compared with 2.7 percent on European bonds and 1.9 percent on Treasuries, according to Merrill Lynch & Co.'s EMU Direct Government, U.K. Gilts and U.S. Treasury Master indexes."
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: August 28, 2008 10:42 EDT"
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"European Two-, 10-Year Yield Spread Narrows to Least in 6 Weeks "
By Agnes Lovasz
Aug. 28 (Bloomberg) -- The difference between European two- and 10-year government bond yields narrowed to the least in six weeks as traders reduced bets the region's central bank will lower interest rates.
"The spread shrank as two-year notes underperformed, with the yield rising to the highest level in a week, after reports showed euro-region money-supply growth slowed less than economists forecast in July and the jobless rate in Germany, Europe's biggest economy, fell to the lowest level in 16 years. European Central Bank council members including Axel Weber signaled yesterday lower interest rates are unlikely."
"``The hawkishness of policy makers has taken investors by surprise and today's data is adding to this,'' said Kornelius Purps, a fixed-income strategist in Munich at UniCredit, Europe's fourth-largest bank. ``The ECB isn't going to cut rates any time soon. We are pricing everything out again. This is the main driver for the bund market today and it's flattening the curve.''"
"The yield on the two-year note rose 6 basis points to 4.13 percent by 12:46 p.m. in London, after falling to as low as 4.04 percent. The price of the 4.75 percent note fell 0.11, or 1.1 euros per 1,000-euro ($1,478) face amount, to 101.02."
"The yield on the 10-year German bund rose 1 basis point to 4.17 percent, leaving the spread with two-year yields at 4 basis points, the least since July 21, from 9 basis points yesterday. Yields move inversely to bond prices."
"Short-dated notes dropped after an ECB report showed M3 money-supply growth, which it uses as a gauge of future inflation, slowed to 9.3 percent from 9.5 percent in June. That's the weakest expansion since November 2006. Economists expected the rate to decline to 9 percent, the median of 26 forecasts in a Bloomberg News survey shows."
Growth Signs
"The number of people out of work in Germany, adjusted for seasonal swings, dropped 40,000 to 3.2 million after falling 20,000 in July, the Federal Labor Agency in Nuremberg said today. The rate fell to 7.6 percent, the lowest since May 1992."
"Bunds fell yesterday, sending the 10-year yield up from near the lowest level since mid-May, after Weber said investors' expectations of lower rates were ``premature.'' The ECB may even need to raise borrowing costs again once the economy emerges from its slump, he said in an interview."
"ECB policy maker Lucas Papademos said in Buenos Aires yesterday there's a risk of a wage-price spiral which, if it happens, would ``require a stronger degree of monetary tightening.''"
"ECB executive council member Lorenzo Bini Smaghi said cutting rates would boost inflation, according to a mid-July interview with Italian magazine Conservatori Contemporanei published yesterday."
Futures Climb
"Traders reduced bets the central bank will lower interest rates next year to spur economic expansion. The implied yield on the March Euribor futures contract rose 4 basis points to 4.82 percent, paring its drop in the past month to 17 basis points."
"European bonds returned 3.3 percent this quarter, compared with a 1.9 percent gain for U.S. Treasuries, according to Merrill Lynch & Co.'s EMU Direct Government and U.S. Treasury Master indexes."
"Bonds pared losses late yesterday after a government report showed the German inflation rate fell to 3.3 percent in August, from 3.5 percent the previous month, using a harmonized European Union method. Consumer prices in six German states fell as oil prices retreated from a record."
Policy makers left the main interest rate at 4.25 percent on Aug. 7 while ECB President Jean-Claude Trichet said growth will be ``particularly weak.''
"Bonds also fell as Italy sold 2 billion euros of floating- rate notes maturing in 2015, 4 billion euros of 4.25 percent notes due 2011 and 2.5 billion euros of 4.5 percent bonds expiring 2018 at a government auction today."
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
"Last Updated: August 28, 2008 08:15 EDT"
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Canada Current Account Surplus Widens on Commodities (Update1)
By Alexandre Deslongchamps
"Aug. 28 (Bloomberg) -- Canada's current account, the broadest measure of international trade, grew to the highest in a year in the second quarter as prices for exported commodities such as oil and natural gas rose."
"Receipts from outside Canada exceeded payments sent abroad by C$6.76 billion ($6.47 billion), after a revised C$4.46 billion first-quarter surplus, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg forecast an C$8 billion surplus from April to June, the median of 20 estimates, after the initially reported first-quarter surplus of C$5.6 billion."
"The report indicates commodity exports are helping the economy weather slower growth in the U.S., Canada's main trading partner, lessening the need for the central bank to cut interest rates to stimulate spending. Economic growth in Canada will be 1 percent this year, the slowest since 1992, the central bank said last month."
"The surplus in goods trade grew to C$16.4 billion, the most since the fourth quarter of 2005, Statistics Canada said. Natural gas appreciated 33 percent during the quarter, and oil gained 25 percent, boosting the value of sales even as they declined in volume terms. Sales of coal more than doubled on high global demand."
The Canadian dollar fell 0.1 percent to C$1.0471 per U.S. dollar at 8:43 a.m. in Toronto from C$1.046 yesterday. One Canadian dollar buys 95.55 U.S. cents.
Auto Exports
"Canadian automotive exports fell for a fifth straight three-month period to the lowest since the fourth quarter of 1996, Statistics Canada said."
"While companies' sales abroad continue to be crimped by Canada's high currency, the so-called loonie has weakened about 11 percent from a record 90.58 Canadian cents per U.S. dollar reached on Nov. 7."
"The deficit in travel narrowed for a second straight quarter to C$3.15 billion, as Canadians took fewer trips across the U.S. border."
"The deficit in investment income widened for a second straight quarter to C$3.39 billion, the agency said."
"Canada's current account -- the most complete measure of trade because it includes exports and imports of goods and services, transfers and investment income -- has slumped from a record C$12.3 billion surplus two years ago."
To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.
"Last Updated: August 28, 2008 08:52 EDT"
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Chile July Industrial Output Rises Less Than Expected (Update1)
By Sebastian Boyd
Aug. 28 (Bloomberg) -- Chile's industrial production rose less than expected in July after shrinking in the two previous months.
"Output expanded 3.0 percent in July from the same month a year earlier, the National Statistics Institute said today in Santiago. Production rose less than the 4.3 percent median forecast of 12 economists in a Bloomberg survey."
"Industrial sales rose 2.1 percent in the same period, less than median estimate of seven analysts for a 4.1 percent rise."
"The country's jobless rate was unchanged at 8.4 percent. The peso strengthened for a second day, rising 0.8 percent to 515.75 per dollar at 9:44 a.m. Santiago time."
To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net
"Last Updated: August 28, 2008 09:54 EDT"
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"Euro Little Changed on Oil Gain This Week, ECB Rate Speculation "
By Ye Xie and Gavin Finch
Aug. 28 (Bloomberg) -- The euro was little changed versus the dollar as a 3 percent increase in crude oil this week led traders to raise bets that the European Central Bank will maintain borrowing costs at a seven-year high to curb inflation.
The 15-nation euro appreciated to near a record against the pound after ECB policy makers Axel Weber and Lucas Papademos said yesterday the central bank remains focused on fighting inflation. South Africa's rand strengthened versus the dollar as commodities including gold and platinum increased.
"``Oil prices dictate some of the future activities of the dollar,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``The recovery of the dollar is stalling a bit.''"
"The euro traded at $1.4724 at 10:53 a.m. in New York, from $1.4727 yesterday. Europe's currency traded at 161.18 yen, compared with 161.27. Against the pound, the euro advanced 0.3 percent to 80.48 pence after touching 80.61 pence, the highest since April 17. It reached 80.99 pence on April 16, the strongest since the euro's 1999 debut. The dollar traded at 109.42 yen, from 109.49."
"Crude oil for October delivery traded at $118.22 a barrel, compared with $114.59 on Aug. 22. It was little changed today after rising as much as 2 percent. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep."
Dollar `Stalling'
"South Africa's rand increased 0.5 percent to 7.7124 per dollar as gold advanced 1.7 percent to $847.80 an ounce and platinum added 2.1 percent to $1,473.50 an ounce. The precious metals are South Africa's largest exports."
"The New Zealand dollar climbed 0.2 percent to 70.31 U.S. cents as commodity prices rose. Sales of commodities make up 70 percent of New Zealand's overseas shipments. The Australian dollar appreciated 0.7 percent to 86.47 U.S. cents after the Bureau of Statistics said second-quarter capital spending increased 5.7 percent, almost three times the median forecast of 23 economists surveyed by Bloomberg News."
"ECB policy makers may need to raise borrowing costs once the economic outlook ``brightens'' toward the end of the year and in 2009, said Weber, who heads Germany's central bank, in an interview yesterday in Frankfurt. Papademos, the ECB's vice president, said in a speech in Buenos Aires that there's a risk of a wage-price spiral that would ``require a stronger degree of monetary tightening.''"
ECB Rate Outlook
"Traders reduced bets that the central bank will cut its 4.25 percent main refinancing rate next year. The implied yield on the Euribor futures contract expiring in September 2009 rose 7 basis points, or 0.07 percentage point, to 4.53 percent today, up 17 basis points since the start of the week."
"``We are still feeling the impact of hawkish comments from various ECB officials,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago."
An annual inflation rate of 4 percent in the nations using the euro is twice the ECB's target of just below 2 percent. The yield advantage of two-year German government debt over comparable-maturity Treasuries widened to 1.44 percentage points from a two-month low of 1.54 on Aug. 13.
The Commerce Department reported a 3.3 percent annualized increase in gross domestic product from April through June that was higher than the previous estimate of 1.9 percent. The economy grew at a 0.9 percent pace in the first quarter.
The U.S. currency has gained 8 percent from a record low of $1.6038 per euro set on July 15 as the European economy shrank in the second quarter and crude oil declined 20 percent from its all-time high reached last month.
"The six-week advance of the ICE futures exchange's Dollar Index may stall at 77.85, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London who uses charts to predict price movements. The index, which gauges the greenback against the currencies of six major U.S. trading partners, declined 0.5 percent to 76.71. It reached an eight-month high of 77.619 on Aug. 26."
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net
"Last Updated: August 28, 2008 10:55 EDT"
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Canadian 10-Year Bond Falls the Most in 3 Weeks on U.S. Data
By Chris Fournier
Aug. 28 (Bloomberg) -- Canada's 10-year government bond fell the most in more than three weeks as the economy in the U.S. grew faster than forecast.
The security declined for the first time this week. The U.S. is Canada's largest trading partner.
"``We are getting a pretty notable sell-off in the Canadian 10-year,'' said Eric Lascelles, chief economist at TD Securities Inc. in Toronto. ``Canadian bonds are selling off for the same reason the U.S. ones are -- strong GDP.''"
"The yield on the 4.25 percent bond maturing in June 2018 climbed 3 basis points, or 0.03 percentage point, to 3.56 percent at 9:59 a.m. in Toronto. It was the biggest increase since Aug. 5. The price dropped 23 cents to C$105.68."
The Commerce Department in Washington said U.S. gross domestic product expanded at a 3.3 percent annual rate last quarter. Economists had forecast economic growth of 2.7 percent.
"``Recession? What recession?'' said Carlos Leitao, chief economist at Laurentian Bank Securities Inc. in Montreal. ``The U.S. economy is growing very strongly. The view that will come out of this is that the worst is behind us.''"
The yield on the two-year government bond was little changed at 2.76 percent.
"Canada's dollar was little changed at C$1.0457 per U.S. dollar, from C$1.0459 yesterday. One Canadian dollar buys 95.62 U.S. cents."
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
"Last Updated: August 28, 2008 09:59 EDT"
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"Indian Rupee Falls as Importers Buy Dollars, Funds Sell Stocks "
By Anoop Agrawal
Aug. 28 (Bloomberg) -- India's rupee declined on speculation importers bought dollars to pay month-end bills.
"The currency is headed for a monthly decline on concern slowing growth, 16-year high inflation and equity losses will result in capital outflows. A government report tomorrow may show Asia's third-biggest economy expanded at the slowest pace in almost three years in the second quarter. A four-day advance in crude oil prices also spurred speculation refiners will increase dollar purchases to import the commodity."
"``Dollar demand at the end of the month end and outflows from the equity markets persisted,'' said Vikas Babu a currency trader at state-owned Andhra Bank in Mumbai. ``The rupee lost whatever support it had.''"
"The rupee weakened to 43.7735 against the dollar at the 5 p.m. close in Mumbai, from 43.7535 yesterday, according to data compiled by Bloomberg."
"The economy expanded 8 percent in the three months through June, the slowest since September 2005, according to the median forecast of economists in a Bloomberg survey. Another report may show today that wholesale prices jumped 12.78 percent in the week ended Aug. 16 from a year earlier, the biggest gain since June 1992."
"India's average oil import costs increased to $8 billion a month this year, from $5.5 billion in 2007, trade ministry data show, as the price of the commodity surged 67 percent in the past year."
Central Bank
Overseas investors sold $7.3 billion more local shares than they bought this year as the benchmark stock index slumped 31 percent. They were net sellers of local stocks on all but five of the 16 trading days this month.
The rupee rose earlier on speculation the central bank will seek to bolster the currency to curb inflation.
"The Reserve Bank of India may have purchased the rupee as its decline this week to 44.15 a dollar, the lowest level since March 2007, threatened to boost import costs."
"``There was discomfort after the rupee fell past 44 per dollar, which gave rise to speculation the central bank will intervene,'' said Parthasarthi Mukherjee, treasurer of Axis Bank Ltd. in Mumbai. ``The rupee will not weaken now.''"
"Central banks intervene in currency markets by arranging purchases or sales of foreign exchange. The Reserve Bank of India doesn't comment on daily rupee movements and its foreign- exchange operations, according to Mumbai-based spokeswoman Alpana Killawala."
"India's foreign-exchange reserves fell for a fifth week through Aug. 15, the longest stretch of declines since November 2000, indicating the central bank sold dollars to support the rupee."
"India's foreign-currency reserves dropped to $286 billion in the week ended Aug. 15, from a record $306.2 billion in May, according to data provided by the central bank."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
"Last Updated: August 28, 2008 08:16 EDT"
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"U.S. Initial Jobless Claims Fall 10,000 to 425,000 (Update2) "
By Timothy R. Homan
"Aug. 28 (Bloomberg) -- The number of Americans collecting unemployment insurance rose to the highest level in almost five years, a sign companies remain reluctant to hire."
"The number of Americans filing first-time claims for unemployment benefits decreased by 10,000 to 425,000 in the week ended Aug. 23, from a revised 435,000 the prior week. The number of people staying on rolls rose to 3.423 million, the highest since November 2003."
"Companies are trimming staff and freezing hiring plans as demand softens, forcing workers to stay on government assistance. Rising unemployment heightens job-security concerns and contributes to a slowdown in consumer spending, which accounts for more than two-thirds of the economy."
"``The labor market may continue to weaken,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's become clear that second half growth isn't going to be as strong as the first half, so businesses are going to finally start to trim payrolls a little more.''"
"Another government report showed the U.S. economy expanded at a faster pace than previously estimated in the second quarter, helped by surging exports and a smaller decline in inventories."
GDP Growth
"The 3.3 percent increase in gross domestic product from April through June was higher than forecast and compares with an advance estimate of 1.9 percent issued last month, the Commerce Department said today in Washington. The economy grew at a 0.9 percent pace in the first quarter."
"Economists had forecast unemployment claims would fall to 425,000 from a previously reported 432,000 in the prior week, according to the median of 41 projections in a Bloomberg News survey. Estimates ranged from 410,000 to 450,000."
"The four-week moving average of initial claims, a less volatile measure than the weekly figure, dropped to 440,250 from 446,250, today's report showed."
"So far this year, weekly claims have averaged 375,400, compared with 321,000 for all of 2007."
The jump in claims that began in the middle of July can be attributed to the government's extension of jobless benefits under the spending bill signed by President George W. Bush in June. The government hasn't been able to quantify the program's impact on initial claims.
"The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 2.6 percent from 2.5 percent. Thirteen states and territories reported an increase in claims, while 40 had a decrease. These data are reported with a one-week lag."
Payrolls Report
"Economists forecast the Labor Department will report on Sept. 5 that the U.S. lost jobs in August for an eighth straight month. Payrolls fell by 51,000 in July, bringing the total decline this year to 463,000, as the jobless rate rose to 5.7 percent from 5.5 percent the prior month."
"Abbott Laboratories, the fourth-largest U.S. drugmaker, said last week that it plans to cut 1,000 jobs and transfer some operations to Europe to reduce expenses."
"Rising prices and lower job and wage prospects may weaken consumer spending through the rest of the year. U.S. retail sales declined in July for the first time in five months, the Commerce Department said Aug. 13."
Consumers also are pessimistic about the job market. The Conference Board's confidence index for August released this week showed the share of people saying jobs are hard to get increased to the highest level since October 2003.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
"Last Updated: August 28, 2008 09:36 EDT"
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"Treasuries Fall as Auction Looms, GDP Growth Exceeds Forecast "
By Dakin Campbell and Lukanyo Mnyanda
"Aug. 28 (Bloomberg) -- Treasuries fell as the U.S. prepares to sell $22 billion of debt and a government report showed gross domestic product grew faster than it forecast, fueling speculation the Federal Reserve will raise interest rates."
"``Today's data confirms our belief that bond yields are headed higher,'' said Ajay Rajadhyaksha, the head of fixed- income strategy at Barclays Capital in New York, one of 19 primary dealers that trade with the central bank. ``If you think about what the Fed seems to be banking on, it is that inflation will start moderating because the economy is weakening. The chances of that happening seem less likely.''"
"The yield on the benchmark 10-year note rose 4 basis points, or 0.04 percentage point, to 3.80 percent at 10:08 a.m. in New York, according to BGCantor Market Data. The 4 percent security due in August 2018 fell 10/32, or $3.13 per $1,000 face amount, to 101 20/32. Two-year notes' yields climbed 5 basis points to 2.38 percent."
The five-year securities being sold today yield 3.10 percent in pre-auction trading.
"The auction will be the biggest since February 2003. At the last sale, on July 24, investors bid for 2.46 times the amount of debt offered. The average for the past 10 auctions is 2.21. The government sold a record $32 billion of two-year debt yesterday, drawing bids for 2.18 times the amount on offer."
`Quite Expensive'
"``The Treasury market is quite expensive, and yields look too low,'' said Kornelius Purps, a fixed-income analyst in Munich at Unicredit Markets and Investment Banking, a unit of Italy's largest lender. ``Investors don't dare to aggressively price in the view the Fed will raise interest rates.''"
"The yield on 10-year Treasuries may rise to 4.3 percent by year-end, Purps said. That's more than the 3.98 percent average estimate of banks and securities firms surveyed by Bloomberg, with the most recent forecasts given the heaviest weightings."
Futures on the Chicago Board of Trade show a 66 percent chance the Fed will increase its target rate by at least a quarter-percentage point by the end of the first quarter next year. Policy makers next meet Sept. 16.
"``The market will continue to focus on the economic weakness and any rise in yields will be short-lived,'' said Michael Markovic, a senior fixed-income strategist in Zurich at Credit Suisse Group, Switzerland's second-biggest bank."
"The 10-year yield may drop to 3.7 percent in the next two weeks, he said."
"GDP, Jobs"
"Gross domestic product increased at a revised annual rate of 3.3 percent in the second quarter, from an advance rate of 1.9 percent in the first quarter, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of 78 economists was for a rise of 2.7 percent."
"Initial jobless claims decreased to 425,000 in the week ended Aug. 23 from a revised 435,000 the prior week, the Labor Department said."
"The difference in yields between U.S. 10-year government notes and similar-maturity German bunds, a benchmark for European debt, was 40 basis points, after widening yesterday to 41, the most since Aug. 1. Bunds fell yesterday after European Central Bank policy makers Axel Weber and Lucas Papademos said rates may have to rise as the economy recovers."
"Demand for U.S. Treasuries may be buoyed because money managers need bonds to match monthly changes in the benchmark indexes they use to gauge performance, said Tsutomu Komiya, an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan's second-largest brokerage."
`Good as Gold'
New securities are added to bond market indexes each month. The Treasury issued 10- and 30-year debt in August.
"``Demand from investors will increase'' as August comes to a close, said Komiya, who helps oversee the equivalent of $88.7 billion. Prices may decline in September, he said."
"Japanese investors sold a record net 1.42 trillion yen ($13 billion) of overseas securities last week, the most since at least 2001, government data show. The sales come as speculation grows that the U.S. will have to take over Fannie Mae and Freddie Mac, the two largest mortgage-finance companies, so- called government sponsored agencies."
"``Japanese investors have been constant sellers of agency debt,'' said Hideo Shimomura, who oversees the equivalent of $4 billion as a chief fund manager at Mitsubishi UFJ Asset Management Co."
"Fannie Mae Chief Executive Daniel Mudd replaced three top deputies to restore investor confidence after record losses and a 90 percent drop in the shares, the Washington-based company said in a statement yesterday."
"``You could see a flight to the safe haven of Treasuries to a greater extent'' said James Caron, head of U.S. interest-rate strategy at primary dealer Morgan Stanley in New York. ``Treasury paper today seems as good as gold.''"
To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: August 28, 2008 10:12 EDT"
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"U.S. Stock Futures Little Changed as Oil Climbs, Insurers Gain "
By Sarah Jones and Michael Patterson
Aug. 28 (Bloomberg) -- U.S. stock-index futures were little changed as concern higher oil prices will hurt profits at consumer companies offset a rally in insurers spurred by MBIA Inc.'s agreement to back $184 billion in municipal bonds.
"General Motors Corp. and Home Depot Inc. fell after crude climbed for a fourth day. Sears Holdings Corp., the biggest U.S. department-store company, dropped on profit that trailed analysts' estimates. American International Group Inc. and Ambac Financial Group Inc. rose as MBIA won new business even after losing its top credit rating."
"Futures on the Standard & Poor's 500 Index expiring in September slipped 0.4, or less than 0.1 percent, to 1,281.7 at 8:08 a.m. in New York. Dow Jones Industrial Average futures were unchanged at 11,497. Nasdaq-100 Index futures fell 1.25 to 1,900.5."
"``My concern is that we still have not yet seen all of the bad news come to the table,'' James Bevan, who helps oversee about $10 billion as London-based chief investment officer at CCLA Investment Management, said in an interview with Bloomberg Television. ``I'd be much happier attempting to buy the S&P 500 at 1,150,'' or about 10 percent lower than yesterday's closing price, he said."
The S&P 500 has rallied 3.8 percent over the past month on oil's decline and speculation that the worst of the subprime crisis is nearing an end. Reports today on U.S. gross domestic product and jobless claims will provide clues on the pace of economic growth.
Home Depot
"Home Depot, the biggest home-improvement chain, declined 8 cents to $27.09. GM lost 10 cents to $10.10."
"Crude oil, gasoline and natural gas rose on a forecast Tropical Storm Gustav will be the most damaging since Hurricane Katrina as it moves toward production platforms in the Gulf of Mexico. Crude prices, 66 percent higher than a year ago, have dropped 19 percent from a record $147.27 a barrel on July 11."
Sears dropped 34 cents to $86.64. The company reported second-quarter profit that fell more than analysts estimated after shoppers trimmed spending on appliances and clothing.
Coca-Cola Co. declined 51 cents to $53.28. The world's biggest sodamaker was downgraded to ``neutral'' from ``outperform'' by Credit Suisse Group AG.
MBIA Deal
MBIA jumped $1.47 to $13.45 after agreeing to reinsure municipal bonds for Financial Guaranty Insurance Co. MBIA led bond insurers posting record losses after straying from the business of backing municipal bonds to guaranteeing collateralized debt obligations that have tumbled in value.
"AIG, the largest U.S. insurer, added 12 cents to $20.12. Ambac, the bond insurer that lost about three-fourths of its market value this year, gained 75 cents to $5.99."
"Fannie Mae, the biggest U.S. mortgage-finance company, gained 40 cents to $6.88. Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares."
U.S. stocks climbed yesterday after orders for durable goods unexpectedly advanced in July and analysts said new investments by Fannie Mae and Freddie Mac will boost their earnings.
"A government report today may show the U.S. economy grew in the second quarter at a faster pace than previous projected, led by a jump in exports, according to economists. The Commerce Department's report is due at 8:30 a.m. in Washington."
"Separately, initial jobless claims will remain near a six- year high, indicating the job market has weakened, economists forecast a Labor Department report at the same time will show. Applications fell to 425,000, from 432,000 a week earlier, according to the survey median. Claims totaled 457,000 in the week ended Aug. 1, the most since March 2002."
For Related News:
To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.
"Last Updated: August 28, 2008 08:10 EDT"
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European Money-Supply Growth Slows Less Than Forecast (Update2)
By Gabi Thesing
Aug. 28 (Bloomberg) -- European money-supply growth slowed less than economists forecast in July.
"M3 money supply, which the European Central Bank uses as a gauge of future inflation, rose 9.3 percent from a year earlier after increasing 9.5 percent in June, the Frankfurt-based bank said today. That's the weakest growth since November 2006. Economists expected the rate to decline to 9 percent, the median of 26 forecasts in a Bloomberg News survey shows."
"``Money-supply and loan growth to corporates is not coming down fast enough for the ECB's liking,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London. ``The bank will see it as confirmation that domestic inflation pressures still persist and its next move is more likely to be a hike than a cut.''"
"While ECB President Jean-Claude Trichet said on Aug. 7 that the nine interest-rate increases since December 2005 had contributed to a slowdown in money-supply growth, he added that ``the strong underlying pace of monetary expansion'' still signals inflation risks. Policy makers kept the benchmark rate at 4.25 percent this month, a seven-year high, on concern that inflation running at twice the ECB's limit may push up wages and prices."
"M3 is the broadest gauge of money supply and includes cash- in-circulation, some forms of savings and money-market holdings. The M3 growth rate has exceeded 4.5 percent, the level the ECB still deems non-inflationary, every month since May 2001, reaching a 28-year peak in October"
Inflation Risks
"The three-month average of the M3 growth rate fell to 9.6 percent from 10 percent, the ECB said. Loans to the private sector grew 9.4 percent in the year, down from 9.9 percent growth in June. The annual growth rate of M1 weakened to 0.5 percent from 1.4 percent in June."
"The annual rate of growth in loans to non-financial corporations eased to 13.2 percent from 13.6 percent growth in June. That is still more than three times the growth rate the ECB might feel comfortable with, Cailloux said."
"If inflation risks increase, the ECB may need to raise interest rates further, policy makers Lucas Papademos and Axel Weber said this week, even in the face of faltering economic growth."
"A 66 percent increase in the price of oil over the past year has pushed euro-region inflation to 4 percent, eating into consumers' income and boosting companies' bills."
Wage Demands
"IG Metall, Germany's largest trade union, whose wage accords affect 3.2 million workers, has said it will demand a bigger pay increase this year than last year's 6.5 percent claim. Wage negotiations between metal workers and employers in Europe's largest economy will commence next month."
ECB executive board member Juergen Stark told Sueddeutsche Zeitung earlier this week that he already sees ``broad-based second-round effects emerging.''
"The euro-area economy contracted 0.2 percent in the second quarter from the first and is at risk of a ``genuine recession,'' as a stronger currency hurts exports, house prices fall and inflation erodes wages, Standard & Poors said yesterday."
"Still, ``I don't expect inflation to come down necessarily just with weaker growth,'' ECB council member Weber said in an interview published yesterday. ``If the economic outlook brightens somewhat again toward the end of the year and next year, which I still expect, we'll have to see if action is necessary.''"
Papademos told delegates at a conference in Buenos Aires that the emergence of a wage-price spiral would ``require a stronger degree of monetary tightening.'' He also said ``there is ``little evidence'' that a credit market crisis which has pushed up bank lending costs globally has ``significantly'' affected the euro area.
"The comments prompted investors to reduce bets that a cooling economy will force the ECB to lower borrowing costs. The yield on the Eonia forward contract for May, which had fully priced in a 25 basis-point rate cut to 4 percent yesterday morning, was at 4.12 percent today."
For Related News: Search for central bank stories: NSE MONETARY POLICY <GO> Stories on ECB interest rates: STNI ECBACTION <GO> Stories related to the ECB: NI ECB <GO> Euro-region economic stories: TNI ECO EUROP <GO>
"Last Updated: August 28, 2008 06:03 EDT"
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