"Euro Rises From Six-Month Low Against Dollar on Weber, Oil Gain "
By Ye Xie and Gavin Finch
Aug. 27 (Bloomberg) -- The euro rose from a six-month low versus the dollar as European Central Bank council member Axel Weber said discussion about a reduction in interest rates is ``premature'' and crude oil prices increased for a third day.
The currency also advanced on speculation its largest monthly decline against the greenback since its 1999 debut was too big to sustain. The yen fell from a three-month high against the euro and dropped versus South Africa's rand as an unexpected increase in orders for U.S. durable goods encouraged investors to sell Japan's currency and buy higher-yielding assets.
"``In order for the euro to go lower, the market has to see an indication of ECB rate cuts, which require inflation to come lower,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. ``We are finding equilibrium.''"
"The 15-nation euro climbed 0.5 percent to $1.4723 at 4:04 p.m. in New York, from $1.4653 yesterday, when it touched $1.4571, the lowest level since Feb. 14. The dollar traded at 109.60 yen, unchanged from yesterday. The yen fell 0.5 percent to 161.37 per euro, from 160.64. It strengthened beyond 160 yesterday for the first time since May 12."
"Sterling fell to a two-year low versus the dollar and dropped against the euro on bets a deepening slump in the nation's housing market may force the Bank of England to cut interest rates. The pound declined as much as 0.6 percent to $1.8286, the lowest since July 2006. Against the euro, the British currency dropped as much as 0.8 percent to 80.31 pence, the weakest since June 9."
Krone Advances
"Norway's krone advanced versus the dollar for the first time in four days, climbing 0.8 percent to 5.3706, as a report showed unemployment was near the lowest level since at least 1989. The seasonally adjusted jobless rate rose to 2.6 percent in the three months ended in July, from 2.4 percent in April, which was tied for the l9-year low."
"The yen dropped 0.7 percent to 14.13 versus the South African rand and 0.5 percent to 9.89 South Korean won as the boost in U.S. durable goods led investors to resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 12 percent in South Africa and 5.25 percent in South Korea."
"Bookings for U.S. goods made to last several years increased 1.3 percent in July after a revised gain of the same amount in the previous month, the Commerce Department reported today. The median forecast of 76 economists in a Bloomberg News survey was for no change in durable goods orders."
ECB Rate
"The euro advanced as traders reduced speculation that the ECB will cut its 4.25 percent main refinancing rate next year. The implied yield on the Euribor futures contract expiring in September 2009 rose 14 basis points, or 0.14 percentage point, to 4.46 percent, after falling 6 basis points yesterday. The yield averaged 18 basis points above the ECB's benchmark from 1999 to August 2007."
"Policy makers may need to raise borrowing costs once the economic outlook ``brightens'' toward the end of the year and next year, said Weber, who heads Germany's Bundesbank, in an interview in Frankfurt."
ECB council member Klaus Liebscher said in a speech in Berlin that ``vigilance is more necessary than ever'' regarding inflation. Annual inflation of 4 percent in the countries using the euro is twice the ECB's target of just below 2 percent.
Crude Oil Gains
"Crude oil for October delivery rose 1.8 percent to $118.36 a barrel on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production. 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."
"The ICE futures exchange's Dollar Index chart is forming a double top, a ``catalyst'' that may push the U.S. currency lower, said Toru Tokoyoda, head of foreign-exchange sales in Tokyo at Lehman Brothers Holdings Inc."
"The index, which compares the greenback against the currencies of six U.S. trading partners, fell 0.3 percent to 77.059. It rose to 77.413 on Aug. 19, dropped to 76.022 on Aug. 21 and then increased yesterday to a second peak, the eight- month high of 77.619."
"A double top occurs when a security makes two successive peaks, often indicating a trend's reversal. The distance between the peaks and the lowest point of the double top may indicate the next support level, where buy orders are concentrated."
"The euro has fallen 8 percent from a record of $1.6038 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 currency has dropped 5.8 percent against the dollar in August, the biggest monthly decline since the European currency began trading."
"``We had this sharp move from $1.60 to below $1.48,'' said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``There's not enough compelling reason to push it much lower.''"
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 27, 2008 16:08 EDT"
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European Bonds Decline; Weber Says No Scope for Rate Reductions
By Agnes Lovasz
Aug. 27 (Bloomberg) -- European government notes declined after European Central Bank council member Axel Weber said there's no scope for interest-rate cuts as inflation remains the bank's main concern.
"The drop in prices pushed the yield on the 10-year bund, Europe's benchmark debt security, up from near the lowest since mid-May. Weber said investors' expectations of lower rates were ``premature'' and the bank may even need to raise borrowing costs again once the economy emerges from its slump."
"``Weber was hawkish as ever,'' said Marius Daheim, a senior bond strategist in Munich at Bayerische Landesbank, Germany's second-biggest state-owned bank. ``It does strike me how strongly the market reacted to these comments. The market has recently traded quite one-sidedly on the recession story. Weber probably wanted to counter overly optimistic expectations for rate cuts.''"
"The 10-year note yield climbed 6 basis points to 4.17 percent as of 1:37 p.m. in London. The 4.25 percent note due July 2018 fell 0.48, or 4.8 euros per 1,000-euro ($1,473) face amount, to 100.61."
The yield on the two-year note rose 10 basis points to 4.08 percent. Yields move inversely to bond prices.
"Bonds extended their drop after a U.S. report showed durable goods orders unexpectedly rose in the world's largest economy. The 1.3 percent gain in bookings of goods meant to last several years matched the previous month's revised increase, the Commerce Department said today in Washington."
Rate Bets
Traders have reduced bets the ECB will lower interest rates next year to spur economic expansion. The implied yield on the March Euribor futures contract rose 6 basis point to 4.76 percent. It has declined 24 basis points in the past month.
"The difference in yield, or spread, between two- and 10-year notes narrowed to 9 basis points, from 12 basis points yesterday, as short-maturity debt underperformed longer-dated bunds."
Two-year notes rose earlier before a report that may show inflation in Germany slowed in August as energy prices eased.
"Inflation probably reached 3.4 percent, from 3.5 percent in July, using a harmonized European Union method, according to a Bloomberg survey. Consumer prices in four German states fell this month as oil prices retreated from a record."
"``The consumer-price index for the whole of Germany is expected to show a decline,'' said Jens Peter Soerensen, chief bond analyst in Copenhagen at Danske Bank A/S. ``Inflation is likely to have peaked as commodity prices have leveled off. In the short run we may see some range trading before the next leg down in bond yields.''"
Oil Declines
The inflation figures for all of Germany will be released later today by the Federal Statistics Office in Wiesbaden. Oil prices have retreated 20 percent from a record of $147.27 a barrel while a faltering economy makes it more difficult for companies to boost prices.
"European bonds returned 3.7 percent this quarter, compared with a 1.8 percent gain for U.S. Treasuries, according to Merrill Lynch & Co.'s EMU Direct Government and U.S. Treasury Master indexes."
"``Monetary policy at the moment is roughly where it should be,'' Weber, 51, said in an interview in his office in Frankfurt yesterday. ``I don't expect inflation to come down necessarily just with weaker growth. Inflation is still the No. 1 worry for central bankers in the euro region.''"
Bonds were supported earlier even after separate reports showed import-price inflation in Germany accelerated to the fastest pace in almost eight years in July and Italian consumer confidence rebounded from a 15-year low in August.
Ifo Report
"Import prices rose 9.3 percent in the year, the statistics office said. That's the biggest gain since November 2000. The Rome-based Isae Institute's index, calculated from a survey of 2,000 families, climbed to 99.5, from 95.8 in July."
"Bonds rallied yesterday after a report showed business confidence in Germany fell to the lowest level in three years in August, increasing the likelihood the European Central Bank will lower interest rates. The German economy, Europe's largest, contracted in the second quarter, according to a separate report."
"``The euro-region economy is struggling at the moment and downside risks are intensifying,'' said Soerensen. ``This should continue to put downward pressure on yields.''"
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.''
"Gains for bonds may be limited before Italy sells 1.5 billion euros of inflation-linked bonds due September 2012 and September 2023 at an auction today. The country also plans to sell 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 tomorrow."
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
"Last Updated: August 27, 2008 08:48 EDT"
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Gold Futures Rise on Demand for Inflation Hedge; Silver Drops
By Pham-Duy Nguyen
"Aug. 27 (Bloomberg) -- Gold rose for a second straight day as energy costs surged and the dollar weakened against the euro, boosting the appeal of the precious metal as a hedge against inflation. Silver fell."
"Crude-oil prices extended this week's rally, nearing $120 a barrel in New York, on concern storms may disrupt U.S. petroleum production in the Gulf of Mexico. The dollar weakened against the euro for the first time in four sessions. Gold reached a record in March as oil and the euro headed to all- time highs in July."
"``Gold is up on the weakness of the dollar and potential hurricanes,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. ``A dollar or two more in oil, and gold has new legs.''"
"Gold futures for December delivery rose $5.90, or 0.7 percent, to $834 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $841.40, the highest this week. The metal rose 0.3 percent yesterday."
"Silver futures for December delivery fell 11 cents, or 0.8 percent, to $13.568 an ounce on the Comex. The metal has fallen 9.1 percent this year, while gold dropped 0.5 percent. Until silver trades above $14, the metal will be vulnerable to declines, analysts at Scotia Capital USA said yesterday in a report."
Gustav Strengthening
"Crude-oil climbed as much as 2.9 percent to $119.63 a barrel. Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico and may become the strongest storm since 2005, when hurricanes Katrina and Rita shut refineries and platforms, AccuWeathercom.com said on its Web site. Crude-oil futures reached a record $147.27 a barrel on July 11."
"``Storm-watch is on top of the agenda,'' said Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal."
"Some investors may also buy gold as a safe haven from potential turmoil in financial markets, McGhee of Integrated said."
"The U.S. Federal Deposit Insurance Corp. may have to tap Treasury Department funds to carry it through an anticipated wave of bank failures, the Wall Street Journal reported, citing FDIC Chairman Sheila Bair. The FDIC on Aug. 26 said its ``problem list'' of banks rose 30 percent in the second quarter to 117."
"Since the second quarter of 2007, banks worldwide have posted $505.2 billion in credit losses. Gold peaked on March 17 at $1,033.90 an ounce after Bear Stearns Cos. collapsed."
"``Gold is benefiting from systemic fear,'' McGhee said. ``Systemic fear is what's kept gold off its lows.''"
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: August 27, 2008 14:05 EDT"
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U.S. Economy: Durable Goods Orders Unexpectedly Rise (Update2)
By Timothy R. Homan
"Aug. 27 (Bloomberg) -- Orders for U.S. durable goods unexpectedly increased in July, indicating that growing demand from abroad is still helping companies weather a slump in domestic spending."
"The 1.3 percent gain in bookings of goods meant to last several years matched the previous month's rise, the Commerce Department said today in Washington. The gains may have been aided by foreign demand for automobiles, aircraft and telecommunications gear as exports climbed to a record."
"The boost from exports, which kept the U.S. expanding last quarter, may wane because the European and Japanese economies are now contracting, while the dollar is rallying. Federal Reserve officials anticipate trade gains will fade, minutes of their Aug. 5 meeting showed yesterday."
"Manufacturing ``is essentially afloat on a trade lifeboat,'' said Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York. ``With growth now showing convincing signs of slowing with some of our major trading partners, we think that capital- equipment spending is going to slow in the latter part of the year.''"
"Treasuries fell immediately after the report and recovered later in the day, while stocks rose. Benchmark 10-year notes yielded 3.76 percent at 4:07 p.m. in New York, from 3.78 percent late yesterday. The Standard & Poor's 500 Stock Index increased 0.8 percent to close at 1,281.66."
Economists' Forecasts
"Economists projected orders would be unchanged after a previously reported 0.8 percent increase in June, according to the median of 76 forecasts in a Bloomberg News survey."
"Excluding transportation equipment, orders rose 0.7 percent after a 2.4 percent increase. Those bookings were projected to fall 0.7 percent, after an originally reported 2 percent gain in June."
"Today's report indicates stronger growth in the third quarter than economists previously anticipated. Morgan Stanley analysts now project a 0.8 percent annualized gain in gross domestic product in the period, up from 0.4 percent previously."
"Tomorrow, the Commerce Department is also forecast to raise its estimate of second-quarter GDP growth to 2.7 percent, from 1.9 percent before, due to stronger exports."
"3M Co., whose product range makes it an economic bellwether, and Cummins Inc., the maker of more than a third of North America's heavy-duty truck engines, are among companies benefiting from demand abroad."
Foreign Demand
"About two-thirds of 3M's revenue comes from overseas, where sales increased three times faster than in the U.S. last quarter. Columbus, Indiana-based Cummins said on July 30 that sales of power-generation equipment climbed 22 percent in the second quarter on demand from the Middle East, Latin America and China. International sales accounted for 61 percent of the quarter's revenue."
"``The impact from global weakening so far on U.S. manufacturers remains modest,'' Aaron Smith, an economist at Moody's Economy.com, said in an interview with Bloomberg Television. Because of domestic weakness, the economy may still slow or contract ``while simultaneously still having very modest weakness in manufacturing and capital spending,'' he said."
"Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, increased 2.6 percent, the most since April. Shipments of those items, used in calculating GDP, rose 0.6 percent following a 0.4 percent gain that was smaller than previously estimated."
Stimulus Package
"Capital spending incentives included in the $168 billion economic stimulus package enacted in February have probably also lifted orders, Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York, wrote in a note today. That effect will fade, he predicted."
"``Companies simply have no basis to expand their productive capacity'' given ``the weakness of the U.S. economy,'' he said."
"The waning impact of federal tax rebates already contributed to the first decline in retail sales in five months, Commerce Department figures showed Aug. 13."
"Factories are faring better than in past downturns. The Institute for Supply Management's manufacturing index for July fell to 50, the dividing line between growth and contraction, from 50.2 a month earlier. During the 2001 recession it averaged 43.5."
"Regional figures this month were mixed. The New York Fed's general economic index rose in August to 2.8, the highest level since January, from minus 4.9 a month earlier. The Philadelphia Fed said last week that manufacturing in the region shrank in August for a ninth straight month."
Broad-Based Gain
"Gains in orders for metals, machinery, communications gear, automobiles and aircraft all contributed to the increase in demand last month."
"Orders for transportation equipment rose 3.1 percent, led by a 28 percent jump in airplane bookings. Demand for automobiles climbed 1.2 percent."
"The gain in autos may have reflected a continued rebound following the end of a strike at American Axle & Manufacturing Holdings Inc., the largest axle supplier for General Motors Corp. GM said June 16 it had returned to full production."
"Such gains are unlikely to continue as sales slump. Auto- industry figures this month showed purchases of cars and light trucks in the U.S. fell in July to a 12.5 million annual rate, the lowest level since March 1993, as consumers faced record gas prices."
"Some manufacturers are trimming staff to offset high energy costs. Alcoa Inc., the world's third largest aluminum producer, said last week that it will lay off 300 employees in Texas starting Aug. 31. The cuts come as a result of ``uneconomical power prices,'' the New York-based company said in a statement."
"Commodity costs have retreated since mid-July, easing cost pressures. Crude oil futures dropped below $112 a barrel on Aug. 15 after peaking at $147 on July 11."
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
"Last Updated: August 27, 2008 16:08 EDT"
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"Cocoa Rises to Three-Week High as Dollar Slips, Pound Advances "
By Ron Day
Aug. 27 (Bloomberg) -- Cocoa rose to a three-week high in New York as the British pound's gain against the dollar trimmed the price for buyers using the U.K. currency.
"The dollar fell after European Central Bank council member Axel Weber said there's no scope for interest-rate cuts. Cocoa was the second-biggest gainer in the Reuters/Jefferies CRB Index of 19 commodities, after natural gas. The index advanced for a third straight day."
"Cocoa futures for December deliver rose $89, or 3.1 percent, to $2,973 a metric ton at 9:11 a.m. on ICE Futures U.S., the former New York Board of Trade. Earlier, the price reached $2,986, the highest for a most-active contract since Aug. 4."
To contact the reporter on this story: Ronald Day in New York at rday1@bloomberg.net.
"Last Updated: August 27, 2008 09:24 EDT"
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Lockhart Says Fed Rate Consistent With Inflation Drop (Update2)
By Scott Lanman and Steve Matthews
"Aug. 27 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank's interest-rate stance is ``consistent'' with slowing inflation, while signaling readiness to raise borrowing costs if needed."
"``Current Fed policy is consistent with an easing in overall inflation given the dynamics of the economy,'' Lockhart said in a speech today in Atlanta. At the same time, ``I am mindful of today's elevated risks and am prepared at any point to change tactics to ensure inflation expectations do not become unanchored.''"
"Policy makers agreed on Aug. 5 that their next change in rates would be an increase, according to minutes of their meeting released yesterday. A number of officials concerned at rising risks of inflation favored an increase earlier than traders expected, the minutes also showed. Lockhart will vote on rates for the first time in 2009."
"``Although recent measures of inflation are higher than I would like to see, I would say that recent price increases are more likely to be transitory than persistent,'' Lockhart said in the speech at Georgia State University's economic forecasting conference. Inflation expectations ``may have risen modestly -- but not by a material degree,'' he said."
"The Fed left its benchmark lending rate unchanged at 2 percent for the second straight meeting on Aug. 5, after 3.25 points of reductions over the past year. Traders see a 79 percent chance the central bank won't raise rates again this year, based on futures prices. A month ago, traders were placing 75 percent odds on an increase."
`Medium Term'
"Fed Chairman Ben S. Bernanke said last week inflation should ease later this year and in 2009, while warning that policy makers will act if price increases don't slow over the ``medium term.''"
"Lockhart said in an Aug. 15 interview he prefers to keep interest rates unchanged for now, while policy makers will likely debate whether to raise them in coming months."
"Lockhart, 61, joined the Atlanta Fed in March 2007 and previously worked at Citigroup Inc. for 17 years."
"His speech today focused on inflation without giving a broader economic outlook. Economists expect annualized rates of growth of 1.2 percent in the third quarter, according to the median estimate in a Bloomberg Survey."
"Answering audience questions, Lockhart said his ``best guess is that home prices will continue to decline,'' with an additional fall ranging from 10 percent to 15 percent."
`Positive Signs'
"Recent news on Fannie Mae and Freddie Mac, the mortgage- finance companies recording high credit losses, has shown ``positive signs,'' Lockhart said. He declined to elaborate."
"Freddie Mac sold $2 billion in short-term debt this week, and shares in both companies have gained. Still, ``it's a fluid situation,'' he said."
"``The banking system is encountering a lot of strain and some banks are in difficult circumstances,'' Lockhart told reporters after his speech. ``It is worrisome but it is not surprising.''"
"The world's largest financial institutions, buffeted by the collapse of the U.S. subprime mortgage market, have reported $503 billion in writedowns and credit losses since the beginning of last year."
"The consumer price index rose 5.6 percent for the 12 months ending in July, which Lockhart said was a ``high and worrisome number.''"
Sub-Zero Rate
"The Fed's preferred benchmark, the personal consumption expenditures price index, minus food and energy, has been at 2 percent or higher since March 2004. Adjusted for the so-called core PCE rate, the real federal funds rate is slightly below zero, the lowest since November 2004."
"While core-inflation measures ``can be useful tools,'' Lockhart said that ``I ultimately care about the trend rate of overall inflation, which I believe is ultimately the appropriate object of monetary policy.''"
"``No matter how you measure it, the aggregate inflation we are experiencing in the United States at the moment is uncomfortably high,'' Lockhart said."
"Crude oil has dropped to $117.62 a barrel from its record $147.27 on July 11. The decline will help reduce broader inflation pressures, Lockhart said. ``But the underlying global supply pressures remain tight, and demand pressures remain relatively high,'' he said. ``As such, any relief will likely be only partial.''"
"``Certainly if oil prices can stabilize around $115 or lower, it is going to have a positive effect'' on curbing inflation, Lockhart told reporters. A recent strengthening in the U.S. dollar, ``which we hope will hold, has helped'' to curtail inflation."
"The Fed shouldn't raise interest rates in response to higher energy prices because monetary policy can't affect supply and demand in global oil markets, and such actions would probably do more harm by reducing Americans' real incomes, Lockhart said."
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Steve Matthews in Atlanta at smatthews@bloomberg.net.
"Last Updated: August 27, 2008 10:42 EDT"
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Fannie Rises as Merrill Calls Bailout Talk Premature (Update1)
By Bryan Keogh and Alexis Xydias
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Aug. 27 (Bloomberg) -- Fannie Mae and Freddie Mac rose in New York stock trading after successful debt sales and a Merrill Lynch & Co. analyst report helped to suppress speculation that the companies have an imminent need for a government bailout.
"``It is still premature to consider a Treasury sponsored recapitalization, in our view, as capital depletion would not likely occur for several quarters on our estimates,'' Merrill analysts Kenneth Bruce and Cyrus Lowe in San Francisco wrote in a report today. ``This suggests that the shares are overly- discounting a possible catastrophic event.''"
"Fannie sold $1 billion each of three-month and six-month notes today and Freddie raised $1 billion, offering buyers extra yields relative to benchmarks rates that while wider than before, remained lower than a year ago. Investors have been watching the debt sales for any ``tell-tale'' signs that Washington-based Fannie and McLean, Virginia-based Freddie can't fund themselves, UBS AG analysts in New York including William O'Donnell wrote in a report."
"Fannie added 63 cents, or 11 percent, to $6.25 at 2:30 p.m. in New York Stock Exchange composite trading, the biggest gain in at least three weeks. Freddie climbed 58 cents, or 15 percent, to $4.55. Both companies had lost more than 85 percent of their market value this year because of losses and the prospects for a government bailout that would likely wipe out shareholders."
"It's not clear that Fannie and Freddie ``need a capital injection,'' Bruce and Lowe said in separate reports. Still ``policy makers may be forced by the controversy playing out in the market to consider various options to stabilize'' the firms."
Clarity
"The analysts cut their price estimate on Fannie shares to $5 from $9, and on Freddie's to $3 a share from $5.75, because the lack of clarity over the government's plan to help the companies will continue to weigh on the shares."
"Congress created Fannie and Freddie to expand homeownership and provide market stability. They make money by buying mortgages from banks, funding their purchases with low-cost debt, and by guaranteeing home-loan securities. The companies have about $200 billion of debt maturing through Sept. 30."
"The two mortgage-finance companies ``will likely be plagued by poor visibility into the future of credit losses and the uncertainty surrounding the possible public policy actions that could jeopardize shareholders,'' the analysts wrote. ``Risks of further contraction in the mortgage market are as unpalatable as a high-profile bail-out.''"
"Both stocks are rated ``underperform'' at Merrill, the reports said."
Just Enough
"Fannie sold $1 billion of three-month notes at a yield of 2.58 percent, the company said. That's about 89 basis points more than U.S. Treasuries and 23 basis points less than the three- month London interbank offered rate, compared with 76 basis points and 31 basis points in a sale last week."
"Fannie also sold $1 billion of six-month debt today at a yield of 2.87 percent, about 93 basis points above Treasury bills and 28 basis points below six-month Libor, compared with 88 basis points and 31 basis points last week. A basis point is 0.01 percentage point. Three-month Libor is currently set at 2.81 percent, while six-month Libor is at 3.12 percent."
"Freddie raised $1 billion of one-month debt at a yield of 2.28 percent, or 66 basis points more than Treasuries and 18 basis points less than one-month Libor, separate data shows. The spread was the highest versus Libor in a monthly auction since July 2007. Against Treasuries, the spread was lower than in June."
"Today's spreads were wide enough to attract demand, yet narrow enough to dim speculation that the government-sponsored enterprises will be forced to turn to Treasury Secretary Henry Paulson for support."
To contact the reporters on this story: Bryan Keogh in New York at bkeogh4@bloomberg.netAlexis Xydias in London at axydias@bloomberg.net.
"Last Updated: August 27, 2008 14:39 EDT"
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German Inflation Slows From Fastest Pace in 12 Years (Update1)
By Gabi Thesing
"Aug. 27 (Bloomberg) -- Inflation in Germany, Europe's largest economy, eased from a 12 year-high in August after oil prices retreated from a record."
"Prices rose 3.3 percent from a year earlier using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today. Economists expected the pace of inflation to slow to 3.4 percent from 3.5 percent, according to the median of 23 forecasts in a Bloomberg News survey. From the previous month, prices fell 0.4 percent."
"A 21 percent decline in the price of oil from a July record has eased pressure on companies to pass on higher costs and left consumers with more money to spend. Still, the European Central Bank kept its benchmark interest rate at 4.25 percent earlier this month and President Jean-Claude Trichet said inflation will moderate ``only gradually'' next year."
"``Inflation will have peaked, but for the ECB it is way too early to signal the all clear,'' said Laurent Bilke, an economist at Lehman Brothers International in London. ``The governing council is still concerned about pipeline pressures and wage negotiations.'' Bilke expects the ECB will keep its key rate at a seven-year high until the end of 2008."
"ECB Governing Council member Axel Weber told Bloomberg News in an interview published today said the ``inflation outlook hasn't markedly changed in the short term,'' and that ``action'' may be necessary once the economy emerges from its slump."
ECB Rates
"The ECB this month kept rates unchanged to fight so-called second-round effects, or consumers and companies seeking compensation for higher costs by pushing up salaries and prices. The Frankfurt-based bank aims to keep inflation just below 2 percent."
ECB Executive Board member Juergen Stark told Sueddeutsche Zeitung in an interview published yesterday that he already sees ``broad-based second-round effects.''
"Adding to the ECB's concerns are wage talks in Germany's metal industry that kick off next month. IG Metall, the country's largest trade union whose pay deals affect 3.2 million workers, wants more than the 6.5 percent increase it demanded last year."
"Crude oil prices are still up 57 percent from a year earlier, sapping the spending power of consumers and companies. The July oil-price spike has pushed German producer prices to a 27-year high and wholesale prices to the highest rate in 26 years, while import prices rose the most in eight years."
`Absolute Necessity'
Trichet said on Aug. 7 that there is an ``absolute necessity to avoid the materialization'' of inflation risks stemming from pipeline pressures.
"Still, with the economy cooling, companies may find it more difficult to pass on higher costs. The economies of the euro region and Germany both shrank between March and June and data since then has raised the possibility of a recession."
"German business confidence declined to a three-year low in August and Consumer optimism slumped to the lowest level in five years, the Nuremberg-based GfK AG market research company said yesterday."
"Under a national measure, the inflation rate declined to 3.1 percent in August from 3.3 percent as consumer prices fell 0.3 percent on the month."
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net; Gabi Thesing in Frankfurt at gthesing@bloomberg.net.
"Last Updated: August 27, 2008 10:26 EDT"
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Emerging-Market Bond Yield Spreads Narrow on U.S. Economic Data
By Lester Pimentel
Aug. 27 (Bloomberg) -- Emerging-market bonds yields narrowed relative to Treasuries after a report showing orders for U.S. durable goods increased in July indicated the world's largest economy keeps growing.
"The extra yield investors demand to own developing nation debt rather than Treasuries shrank 5 basis points, or 0.05 percentage point, to 3.04 percentage points at 10:54 a.m. in New York, according to JPMorgan Chase & Co. The so-called spread narrowed the most since Aug. 11."
Emerging-market bonds snapped two days of losses as the U.S. Commerce Department said bookings of goods meant to last several years rose 1.3 percent last month. The median of 76 economists surveyed by Bloomberg projected orders would be unchanged. The U.S. is the biggest buyer of developing nations' exports.
"``We're seeing tightening in spreads triggered by better indicators coming from the U.S.,'' said Luis Costa, an emerging- markets debt strategist at Commerzbank AG in London."
"The risk of owning Argentina's bonds declined for a second day after La Nacion reported, without saying how it obtained the information, that the government is considering reopening its 2005 restructuring of $95 billion in defaulted debt to holdouts. Cabinet Chief Sergio Massa denied the report, telling reporters in Buenos Aires today that the government has no plans to make a new offer."
"Five-year credit-default swaps based on the country's debt fell 3 basis points to 8.01 percentage points, according to Bloomberg data. That means it costs $801,000 to protect $10 million of the country's debt from default."
`Skeptical'
"``It would be great if they did'' reopen the settlement, said Cathy Elmore, who manages $700 million of emerging-market debt at WestLB Mellon Asset in London. ``I'm pretty skeptical. They have held out for so long.''"
"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."
Merrill Lynch & Co. analyst Pablo Goldberg said in a research note that it was ``premature'' to think the government is considering reopening the exchange.
"``A reopening is one of the least costly changes the government can do, as we do not believe it will hurt its popularity at all if well dressed,'' Goldberg wrote. ``However, it would require a significant change in the way the Kirchners have been operating.''"
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net
"Last Updated: August 27, 2008 10:54 EDT"
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"U.S. Stocks Gain on Durable Goods; Fannie Mae, Freddie Mac Rise "
By Eric Martin
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Aug. 27 (Bloomberg) -- U.S. stocks rose for a second day after orders for durable goods unexpectedly advanced in July and analysts said new investments by Fannie Mae and Freddie Mac will boost their earnings.
"Alcoa Inc. and Boeing Co. each climbed about 2 percent after the Commerce Department report bolstered expectations that the economy is recovering. Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies, rallied more than 11 percent each. Crude's advance of more than $1 a barrel pushed up 31 of 39 energy producers in the Standard & Poor's 500 Index."
"The S&P 500 added 10.33 points, or 0.8 percent, to 1,281.84 at 3:03 p.m. in New York, with all 10 of its industries gaining. The Dow Jones Industrial Average climbed 98.93, or 0.9 percent, to 11,511.8. The Nasdaq Composite Index increased 26.64 to 2,388.61. Four stocks advanced for each that fell on the New York Stock Exchange."
"``As long as businesses are optimistic, we have a good chance of pulling out of this weak period in the economy in fairly short order,'' said Peter Jankovskis, who helps manage $1.5 billion at OakBrook Investments in Lisle, Illinois. The durable goods data ``was a very strong report, and the market has acted appropriately.''"
Durable Goods Growth
"The 1.3 percent gain in durable goods orders defied economist forecasts for an unchanged reading in July. Stock futures fell before the Commerce Department report as a third day of gains in oil spurred concern that crude's rebound from a more than 20 percent tumble since July will threaten profits at consumer, transportation and technology companies."
"Alcoa, the world's third-largest aluminum producer, climbed 66 cents to $32.27. Boeing, the second-biggest commercial airplane maker in the world, added $1.12 to $64.58. AT&T, the biggest U.S. phone company, advanced 63 cents to $31.25."
"Fannie Mae added 60 cents to $6.22, while Freddie Mac gained 59 cents to $4.56. The mortgage-finance companies may get the biggest profits on new investments since at least 1998. The current-coupon mortgage bonds Fannie and Freddie buy yield about 40 basis points, or 0.40 percentage point, more than what they pay to borrow by selling benchmark bonds, Citigroup Inc. said in a report. The difference exceeded 20 basis points only twice in the 10 years through 2007 -- in 1998 and 2003."
"Fannie, which tumbled 37 percent last week, has risen for five straight days for its longest streak of gains in a year."
`Great Confidence'
"Merrill Lynch & Co. gained 97 cents, or 4 percent, to $25.07. Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, said it has ``great confidence'' in Merrill's Chief Executive Officer John Thain and plans to raise its stake."
"Temasek, the U.S. bank's biggest shareholder, received U.S. antitrust approval yesterday to raise its stake to between 13 percent and 14 percent."
"``Once we get through this credit crisis and rebuild confidence, things should get better,'' Kelli Hill, a portfolio manager at Ashfield Capital Partners in San Francisco, which manages $4 billion, said in an interview with Bloomberg Television. ``There are still opportunities within the market.''"
"Goldman Sachs Group Inc. dropped 90 cents to $155.01. Morgan Stanley analyst Patrick Pinschmidt cut his estimate for Goldman's third-quarter earnings to $1.65 a share from his earlier $3 estimate. The New York-based bank may mark down so-called principal investments by $525 million, he said in a note to clients."
"Exxon Mobil Corp. rose 69 cents to $80.64, while Chevron Corp. climbed 92 cents to $86.71. Crude oil rose on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production."
Refiners Rally
"Valero Energy Corp., Tesoro Corp. and Sunoco Inc., the biggest U.S. petroleum refiners, rose more than 4 percent and made up the three top advances in the S&P 500 Energy Index. The gains came as profit margins on processing oil into gasoline and heating oil, the so-called crack spread, advanced 13.5 percent, sending the measure to its biggest two-day increase since March."
Valero increased $1.64 to $35.24. Tesoro climbed $1.74 to $18.31. Sunoco jumped $2.26 to $42.62.
"Amylin Pharmaceuticals Inc. lost $6.92, or 25 percent, to $20.32 after four more patients taking the diabetes drug Byetta died from pancreatitis. Byetta, available in the U.S. since June 2005, is Amylin's leading product, with global sales that rose 25 percent in the second quarter to $194.7 million from a year earlier."
"No definite relationship between Byetta and the additional deaths has been proved, and the Food and Drug Administration was aware of them when it made its announcement last week, Amylin Chief Executive Officer Dan Bradbury said by telephone yesterday."
Drugmakers Slump
"Health-care companies had the smallest gain among 10 S&P 500 industries, rising less than 0.1 percent. Pfizer and Bristol- Myers Squibb Co. declined after saying their experimental blood thinner apixaban worked no better than an older pill in a study, causing them to delay seeking U.S. regulatory approval. Bristol- Myers dropped 60 cents, or 2.7 percent, to $21.38 and Pfizer declined 20 cents, or 1 percent, to $19.08."
The S&P 500 is up 1.2 percent in August after falling in June and July. The benchmark index for U.S. equities has posted only two monthly gains since reaching a record in October and is down almost 13 percent this year.
For Related News:
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
"Last Updated: August 27, 2008 15:05 EDT"
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Polish Central Bank Leaves Benchmark Rate Unchanged (Update2)
By Monika Rozlal
Aug. 27 (Bloomberg) -- Poland's central bank left the benchmark interest rate unchanged for a second month as it assesses whether eight increases in the past 16 months were enough to keep inflation at bay.
"The Narodowy Bank Polski in Warsaw kept its seven-day reference rate unchanged at 6 percent, in line with expectations of all 17 economists in a Bloomberg survey. Further policy tightening may be needed to bring inflation down to the target, the bank said in a statement after its meeting."
"Slowing industrial output and retail sales indicate economic growth is slowing, easing pressure on inflation after the rate rose to an eight-year high of 4.8 percent in July. The economy may have grown an annual 5.6 percent in the second quarter, the weakest pace since the end of 2005, according to the median forecast of 10 economists."
"`There is clearly no majority on the Monetary Policy Council to support the policy tightening as central bankers can't see enough arguments to raise rates,'' said Jacek Wisniewski, the chief economist at Raiffeisenbank Bank in Warsaw. ``We believe that interest rates will remain unchanged until the end of this year.''"
The zloty weakened as much as 0.4 percent to 3.34 against the euro after the decision and traded at 3.3330 at 4:05 p.m. in Warsaw. The yield on the government's bond maturing in April 2013 dropped 2 basis points to 6.027 percent.
Struggling With Wages
"The bank said today that recent data showed the economy was ``gradually slowing,'' while wage growth remained fast. The inflation rate will stay above the central bank's 1.5-3.5 percent target range in the coming months, policy makers forecast."
"Rate setters have been struggling for 10 months to bring the inflation rate, close to a 7-year high of 4.8 percent in July, down to its 2.5 percent target midpoint. Inflation has accelerated because of rising global fuel and food prices and consumer demand."
"``Central bankers are likely to await the August peak inflation figure as well as second-quarter GDP data before making the next move,'' said Jaroslaw Janecki, the chief economist at Societe Generale in Warsaw."
"Janecki said July's inflation rate and an expected 5 percent rate for August, along with double-digit wage growth and lower productivity, ``set the tone for future rate hikes.''"
Hot Labor Market
"Still, rate setter Andrzej Wojtyna said the central bank shouldn't delay higher rates because the economy is unlikely to slow significantly and there are no signs of a cooling in the labor market."
"Industrial output rose at a slower pace for a second month in July after the zloty's strength hurt exports, while accelerating inflation curbs demand. The Finance Ministry reiterated a 5.5 percent economic growth forecast for this year."
"Post rate-decision statements by the central bank ``won't be less hawkish than they were a month ago,'' said Maciej Reluga, the chief economist at Bank Zachodni WBK in Warsaw."
"Reluga expects at least one more interest rate increase this year, with the first one to come no earlier than in September, while other economists agreed that evidence is not persuasive enough to indicate an easing of monetary policy."
"``The Monetary Policy Council will not step back from its restrictive bias, as inflation is far above the central bank's 2.5 percent target and risks coming from the global economy are still at hand,'' said Ryszard Petru, chief economist at Bank BPH in Warsaw."
"The Lombard rate, which the central bank charges to commercial banks borrowing overnight with government securities as collateral, was kept at 7.5 percent. The discount rate, a reference rate for some bank loans, was also left unchanged at 6.25 percent."
To contact the reporter on this story: Monika Rozlal in Warsaw at mrozlal@bloomberg.net.
"Last Updated: August 27, 2008 10:19 EDT"
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South African Bonds Advance on Bets Inflation Near Peak at 13%
By Garth Theunissen
Aug. 27 (Bloomberg) -- South African government bonds snapped six-days of declines as traders bet consumer-price growth in the continent's largest economy is nearing a peak.
"The gains pushed two-year yields to the lowest level in six days after a government report showed inflation accelerated in July at the fastest pace since the measure was introduced in 1998. The CPIX rate, which excludes mortgages, quickened to an annual 13 percent from 11.6 percent in June, Pretoria-based Statistics South Africa said today. It was the 15th consecutive month that it exceeded the central bank's 6 percent ceiling and higher than the 12.9 percent median estimate of 22 economists surveyed by Bloomberg News."
"``The market is of the view interest rates have peaked, while inflation is very near to topping out,'' said George Glynos, managing director of Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions in Johannesburg. ``People are looking through the current spike in inflation.''"
"The yield on the 13 percent note due August 2010, which is more sensitive to interest-rate expectations, fell 19 basis points to 9.73 percent by 4:17 p.m. in Johannesburg. The yield on South Africa's benchmark 13.5 percent security due September 2015 extended its decline, dropping 16 basis points to 9.13 percent. Yields move inversely to bond prices."
`Surprising Rally'
"``It's quite surprising to see them rallying after another really strong inflation number,'' said Luis Costa, an emerging- markets debt strategist in London at Commerzbank AG, Germany's second-biggest lender. ``It suggests investors are buying bonds because they think inflation expectations are going to improve in the next six-months.''"
"Inflation, which has exceeded the central bank's 3 percent to 6 percent target range since April 2007, may begin to slow as a 17 percent plunge in oil prices since the start of July helps ease price pressures. The Reserve Bank left its main interest rate at 12 percent on Aug. 14, after six increases since June last year curbed consumer spending."
"The inflation rate will probably average 13 percent this quarter and slow ``significantly'' by the first quarter of 2009, central bank Governor Tito Mboweni said at the Aug. 14 monetary policy committee meeting."
"Statistics South Africa said July 1 inflation may fall next year when it implements new product weightings in the basket of goods used to calculate price growth in order to reflect changes in spending habits. Investec Asset Management, South Africa's second-biggest private money manager, said inflation may slow as much as 2.2 percentage points in the January 2009 data when the new weightings are due to be implemented."
"``The market obviously feels the impact of the new inflation basket is going to be significant,'' said Costa."
"South Africa's rand rose 0.7 percent to 7.7560 per dollar in Johannesburg, compared with 7.8112 yesterday. It gained to 11.4174 per euro, from 11.4458."
To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
"Last Updated: August 27, 2008 10:26 EDT"
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"German Stocks Retreat as Oil Gains; Daimler, Lufthansa Decline "
By Stefanie Haxel
"Aug. 27 (Bloomberg) -- German stocks fell as oil advanced for a third day, damping the earnings outlook for automakers and airlines."
"Daimler AG, the world's second-largest maker of luxury cars, and Deutsche Lufthansa AG led a retreat among shares sensitive to swings in crude prices. A report showed an unexpected decline in U.S. inventories and Tropical Storm Gustav is forecast to enter the Gulf of Mexico, home to more than a fifth of U.S. production. Infineon Technologies AG, Europe's second-largest chipmaker, fell the most in five weeks. Foxconn International Holdings Ltd. said profit fell more than estimated."
"The DAX Index retreated 19.49, or 0.3 percent, to 6,321.03. DAX futures expiring in September lost 0.6 percent as of 5:49 p.m. in Frankfurt. The HDAX Index of the country's 110 biggest companies retreated 0.2 percent."
"``Storm Gustav is certainly a factor weighing on the market today, however, the trading volume is still very low therefore volatility is still very high,'' Oliver Opgen-Rhein, a trader at HSBC Trinkaus & Burkhardt in Dusseldorf, said in a Bloomberg Television interview."
"Germany's benchmark index for equities has swung between gains and losses in the past week, falling three times in five days. Stock prices may drop further, according to options traders on the Eurex derivatives exchange. The VDAX-New Index, which measures the cost of insuring against declines in Germany's benchmark index for equities, added 0.7 percent to 21.87 after rising as much as 4.6 percent during the day."
"Stocks recouped some losses after separate reports showed inflation in Germany, Europe's largest economy, eased from a 12- year high in August as oil prices retreated and orders for U.S. durable goods unexpectedly increased in July."
"Hurricane, Gulf Platforms"
"The DAX Index is down 22 percent this year on concern high oil prices, accelerating inflation and more than $500 billion in credit-related losses worldwide will slow global economic growth."
"Daimler dropped 60 cents, or 1.5 percent, to 40.11 euros. Lufthansa, Europe's second-largest airline, sank 14 cents, or 1 percent, to 14.40 euros. Henkel AG & Co. KGaA, the producer of Loctite glue and Persil detergent, lost 33 cents, or 1.2 percent, to 26.34 euros."
"Crude oil climbed for a third day in New York, trading above $118 a barrel. Gustav is expected to increase back to a hurricane before reaching the Gulf platforms. Jet-fuel prices in northwest Europe have risen 30 percent this year, Bloomberg data shows."
"Infineon plunged 46 cents, or 7.5 percent, to 5.66 euros, the steepest slide since July 22."
"Foxconn, the world's biggest contract maker of mobile phones, reported first-half profit declined 56 percent to $142.2 million on higher production costs and increased development expenses. Analysts estimated profit of $217 million, according to the median in a Bloomberg survey."
"Infineon had about 34 percent of its revenue in the Asia Pacific region in 2007, Bloomberg data shows."
"TUI AG declined 33 cents, or 2.4 percent, to 13.25 euros. CA Cheuvreux lowered its share-price estimate for Europe's biggest travel company 19 percent to 12.50 euros."
"The market for Singapore's Neptune Orient Lines Ltd., which is considering a bid for TUI's Hapag-Lloyd shipping unit, is deteriorating, Frankfurt-based analyst Juergen Kolb wrote in a report today."
"Declining container volume on North American routes and falling freight rates on Asian routes are ``in any case no good news,'' he added. Kolb rates TUI shares ``underperform.''"
The following stocks also rose or fell in German markets. Symbols are in parentheses.
"Deutsche Forfait AG (DE6 GY) increased 30 cents, or 4.8 percent, to 6.60 euros, the steepest gain almost six months. The financial services company said first-half net income climbed 46 percent to 3.2 million euros ($4.7 million)."
"GfK AG (GFK GY) rallied 99 cents, or 4.3 percent, to 24.21, the biggest advance in more than three weeks. Germany's largest market researcher will pursue alternatives to a takeover offer for Taylor Nelson Sofres Plc, Chief Executive Officer Klaus Wuebbenhorst said."
"``We didn't want TNS at any price,'' Wuebbenhorst said in a telephone interview today. ``There are alternatives and we will pursue them, acquiring in markets we consider interesting for an expansion.''"
"Heidelberger Druckmaschinen AG (HDD GY) dropped 27 cents, or 2 percent, to 13.50 euros, the lowest in a week. Kepler Equities cut its recommendation for the world's largest printing-press maker to ``reduce'' from ``buy.''"
"ProSiebenSat.1 Media AG (PSM GY) rallied 45 cents, or 7.1 percent, to 6.76 euros, the highest in more than a week. Goldman Sachs Group Inc. upgraded shares of the country's biggest private broadcaster to ``buy'' from ``neutral.''"
"Rhoen-Klinikum AG (RHK GY) fell 32 cents, or 1.4 percent, to 22.32 euros, the steepest decline in two weeks. Piper Jaffray Cos. reduced its recommendation for the country's biggest publicly traded hospital operator to ``sell'' from ``neutral.''"
To contact the reporters on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.
"Last Updated: August 27, 2008 12:02 EDT"
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U.S. Two-Year Notes Advance After Record $32 Billion Auction
By Greg Storey
"Aug. 27 (Bloomberg) -- Treasury two-year notes rose after the government sold a record $32 billion of the securities at a yield of 2.38 percent, the lowest since April."
"``It went reasonably well,'' said Carl Lantz, an interest- rate strategist in New York at Credit Suisse Securities USA, one of the 19 primary dealers required to participate in Treasury auctions. ``It's perceived to be a success.''"
"The two-year note's yield fell 3 basis points, or 0.03 percentage point, to 2.29 percent at 2:48 p.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due in July 2010 rose 2/32, or 63 cents per $1,000 face amount, to 100 27/32."
The 10-year note's yield was little changed at 3.77 percent.
The yield at the Treasury's auction of two-year notes was just below the 2.383 percent average forecast of eight bond- trading firms surveyed by Bloomberg News.
"Indirect bidders, a class of investors that includes foreign central banks, bought 29.5 percent of the amount sold, compared with an average of 26 percent at the previous 10 auctions. The so-called bid-to-cover ratio, which compares the number of bids with the amount of securities sold, was 2.18, compared with the average this year of 2.35."
"The U.S. will sell $22 billion of five-year securities tomorrow, the largest amount since 2003."
"Treasuries earlier fell, reaching their lows of the day after a Commerce Department report showed orders for U.S. durable goods unexpectedly increased in July."
To contact the reporter on this story: Greg Storey at gstorey@bloomberg.net
"Last Updated: August 27, 2008 14:52 EDT"
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Weber Says Higher Rates May Be Needed After Recovery (Update3)
By Christian Vits and Andreas Scholz
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Aug. 27 (Bloomberg) -- European Central Bank council member Axel Weber said there's no room for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump.
"``Monetary policy at the moment is roughly where it should be and I think the discussion about declining rates in Europe is premature,'' Weber, 51, said in an interview in his office in Frankfurt yesterday. ``If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary.''"
"Europe's economy contracted in the second quarter and may not recover in the third, raising the risk of the region's first recession since the euro was introduced in 1999. Weber said the ECB, which increased its benchmark rate by a quarter point to 4.25 percent in July, remains focused on fighting inflation. Bond yields and the euro jumped."
"``I don't expect inflation to come down necessarily just with weaker growth,'' said Weber, who also heads the Bundesbank, Germany's central bank. ``Inflation is still the No. 1 worry for central bankers in the euro region.''"
"``Weber wants to keep the option open to raise rates next year,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. ``He wants to choke any rate-cut debate.''"
Rate-Cut Bets
"This morning, Eonia forward contracts showed investors had fully priced in a cut in the ECB's benchmark rate to 4 percent by May. The yield on the May contract rose 9 basis points to 4.09 percent after Weber's remarks were published. The euro gained half a cent to $1.4773 and yields on two-year government bonds increased 4 basis points to 4.03 percent."
"Weber said while current rates are ``roughly adequate'' for ``the imminent period of cyclical weakness,'' they are ``still more on the accommodative side than being neutral.''"
Inflation at 4 percent is running at twice the ECB's definition of price stability of just less than 2 percent.
"Inflation will remain in breach of the ECB's price-stability goal next year and ``we're not even sure that inflation on average will be below 2 percent in 2010,'' Weber said."
"``If inflation risks further materialize and if we come to the conclusion that the inflation outlook has deteriorated, we'll have to re-examine our monetary-policy stance,'' he said."
Recession Concern
"``His views will not be shared across the ECB Governing Council,'' said Ken Wattret, an economist at BNP Paribas SA in London. ``Keeping a consensus opinion together in this environment is going to be quite a challenge for'' ECB President Jean-Claude Trichet."
"Business confidence in Germany plunged to a three-year low this month, heightening concern that Europe's largest economy is slipping into a recession."
"While oil prices have receded from a record $147.27 a barrel, they're still up more than 60 percent over the past year, crimping companies' spending power just as the euro's appreciation and the U.S. housing slump weigh on exports."
"In June, ECB staff projected growth would slow to about 1.8 percent this year and 1.5 percent in 2009 from 2.7 percent in 2007. The bank will publish new growth and inflation forecasts on Sept. 4, when it announces its next rate decision."
"Weber said he expects ``a slight downward correction'' of the growth estimates for this year and next. ``The European economy, in my opinion, will be robust once we're through this dry spell,'' he said."
Inflation Expectations
"Inflation forecasts may be revised ``slightly higher'' from the current 3.4 percent and 2.4 percent for this year and next. The ECB is concerned that long-term inflation expectations are above 2 percent, Weber said."
"The long-term inflation expectation, defined as through 2013, rose to 2.03 percent in August, according to the ECB's quarterly survey of forecasters published Aug. 14. That's the highest since the survey started in 1999 and up from 1.95 percent three months ago. Expectations measured by the breakeven rate on French five- year inflation-indexed bonds were at 2.19 percent today."
"``We observe with concern that the majority of market watchers don't expect us to meet our stability norm at the 6 to 10-year horizon,'' Weber said. ``For a central bank this puts in question its credibility and this can't be tolerated.''"
To contact the reporter on this story: Christian Vits in Frankfurt cvits@bloomberg.net; Andreas Scholz in Frankfurt at agscholz@bloomberg.net.
"Last Updated: August 27, 2008 09:19 EDT"
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"U.K. Stocks Rise, Led by Commodities Producers; Shell Advances "
By Sarah Jones
Aug. 27 (Bloomberg) -- U.K. stocks rallied as higher commodities prices lifted shares of energy and metals producers and orders for U.S. durable goods unexpectedly climbed in July.
Royal Dutch Shell Plc rose the most in almost two months as oil advanced for a third day. Petrofac Ltd. surged the most since June after the oil- and gas-services provider said 2008 earnings will be at the top end of analysts' estimates. Antofagasta Plc gained 3.9 percent as copper jumped and the company posted an 8.8 percent increase in first-half profit.
"The FTSE 100 Index added 57.4, or 1.1 percent, to 5,528.1 in London, rebounding from an earlier drop of as much as 0.7 percent as the U.S. durable-goods report defied economist predictions for an unchanged reading. The FTSE All-Share Index increased 0.9 percent and Ireland's ISEQ Index added 0.8 percent."
"``The focus has been on the oil sector today, with good first-half numbers from a couple of constituents including Petrofac,'' said David Jones, chief market strategist at IG Index in London."
"Shell, Europe's largest oil company, jumped 2.3 percent to 1,907 pence. Cairn Energy Plc, the U.K. oil and gas explorer operating in India, jumped 4.7 percent to 2,911 pence."
"Crude oil for October delivery rose as much as 2.9 percent in New York to $119.63 a barrel on forecasts that Tropical Storm Gustav will enter the Gulf of Mexico, home to more than a fifth of U.S. oil production."
"Petrofac, Tullow"
"Petrofac gained 6.2 percent to 629.5 pence. The company said profit will be boosted as producers step up exploration in remote areas. Analyst estimates for annual profit range between $228 million and $262 million, Petrofac said."
Tullow Oil Plc gained 3 percent to 817 pence. The U.K. explorer with the most licenses in Africa said first-half profit rose to a record 124 million pounds ($227.19 million) as crude and natural-gas prices advanced. Sales climbed 33 percent.
Antofagasta advanced 3.9 percent to 592 pence. The copper producer controlled by Chile's Luksic family said first-half profit rose to $792.8 million after output advanced and prices increased.
"Kazakhmys Plc, Kazakhstan's largest copper producer, gained 2.1 percent to 1,339 pence as base metals including copper, lead and nickel advanced. Vedanta Resources Inc., India's biggest zinc and copper producer, added 3.9 percent to 1,853 pence."
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
"G4S Plc (GFS LN) rallied 12.5 pence, or 5.9 percent, to 224. The world's second-largest security company said first-half profit rose 21 percent to 74.4 million pounds after expanding in the Middle East and Asia."
"Segro Plc (SGRO LN) dropped 14.25 pence, or 3.4 percent, to 406. Britain's largest owner of business parks reported a loss for the first half of 325 million pounds after the value of its properties declined. Net asset value dropped 12 percent to 623 pence a share."
"Taylor Wimpey Plc (TW/ LN) dropped 3.75 pence, or 7.2 percent, to 48.25. The homebuilder reported a first-half loss of 1.42 billion pounds after writing down the value of land and said it remains in talks with banks to avoid breaching loan terms."
Irish companies:
"Kingspan Group Plc (KSP ID) rallied 56 cents, or 8 percent, to 7.55 euros after Europe's largest maker of flooring and insulation panels reported first-half profit and sales beat estimates and analysts said full-year earnings may decline less than predicted."
"Paddy Power Plc (PWL ID) dropped 90 cents, or 5.6 percent, to 15.15. Ireland's largest bookmaker lowered its annual profit forecast after customers placed winning bets on Irish golfer Padraig Harrington and on the results of games at soccer's European championships."
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
"Last Updated: August 27, 2008 13:15 EDT"
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Fannie Sells $2 Billion of Short-Term Notes; Freddie $1 Billion
By Jody Shenn
"Aug. 27 (Bloomberg) -- Fannie Mae, the largest U.S. mortgage-finance company, sold $2 billion of short-term notes in a weekly auction."
"Fannie sold $1 billion of three-month notes at a yield of 2.58 percent, the Washington-based company said. The company also sold $1 billion of six-month debt at a yield of 2.87 percent."
"Freddie Mac, the second-largest mortgage-finance company, raised $1 billion of one-month debt today at a yield of 2.28 percent, according to separate data from the McLean, Virginia- based company."
To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.
"Last Updated: August 27, 2008 09:57 EDT"
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Canadian Imperial Bank Soars as Writedowns Ease (Update4)
By Doug Alexander
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"Aug. 27 (Bloomberg) -- Canadian Imperial Bank of Commerce surged in Toronto trading after reporting debt writedowns that were less than analysts' forecast, indicating the worst may be over for the bank that's had more debt costs than any Canadian lender."
"The bank recorded writedowns of C$885 million ($845 million) in the third quarter on investments tied to U.S. mortgages, about half the amount expected by some analysts. The costs led to a 91 percent decline in net income, to C$71 million, or 11 cents a share, from C$835 million, or C$2.31 a share, a year earlier, the bank said today."
"``There may be a little bit of `thank goodness it wasn't as bad as we thought it would be' in that number,'' said John Kinsey, who helps manage about C$1 billion for Caldwell Securities Ltd. in Toronto. ``I don't know if they're out of the woods yet; if there's a pothole in the road they seem to hit it every time.''"
"Canadian Imperial rose C$3.39, or 5.9 percent, to C$60.44 at 1:29 p.m. on the Toronto Stock Exchange, its biggest gain in more than a month. Shares of other Canadian banks, including National Bank of Canada, also rose."
Canadian Imperial's writedowns add to C$6.66 billion in debt-related costs since the third quarter of 2007. The bank has $2.84 billion in remaining U.S. mortgage investments backed by financial guarantors.
Relief
"``This should relieve much of the near-term concerns regarding its balance sheet and shift valuation more towards its earnings outlook,'' said John Aiken, an analyst at Dundee Securities Corp. in Toronto, who was expecting as much as C$1.9 billion in writedowns. Aiken raised his rating to ``neutral'' from ``sell.''"
"Canadian Imperial earned C$1.65 a share before one-time items, said National Bank Financial analyst Robert Sedran, missing his per-share estimate of C$1.72 on that measure. Canadian Imperial is the third Canadian bank to miss analysts' estimates this quarter, following Bank of Montreal and Bank of Nova Scotia. The banks are based in Toronto."
"Chief Executive Officer Gerald McCaughey, 52, has sought to reduce risk at the bank. In the past year, he sold off most of the U.S. investment-banking business, exited debt-related activities, replaced senior executives, and raised C$2.94 billion to repair the bank's balance sheet."
"``CIBC has been the poster child throughout this credit crunch for writedowns among the Canadian banks and risky exposures to subprime,'' Edward Jones & Co. analyst Craig Fehr said in an interview."
Revenue Falls
"Canadian Imperial's revenue fell 36 percent to C$1.91 billion. The bank set aside C$203 million for bad loans, a 25 percent increase from a year earlier."
"Consumer-banking profit fell 4 percent to C$572 million from a year earlier on higher loan losses and a decline in mortgage and personal lending, the bank said."
"The CIBC World Markets investment-banking unit had a loss of C$538 million, compared with profit of C$220 million a year earlier, as mergers and stock sales plunged and writedowns eroded earnings."
"CIBC World Markets had hedged derivatives contracts tied to U.S. mortgages with a face value of $7.67 billion at the end of July, the bank said. The bank also had another $24.6 billion in U.S. debt investments backed by guarantors."
"Bank of Nova Scotia, the No. 3 bank by assets, said yesterday that profit fell 1.9 percent to C$1.01 billion, while Bank of Montreal, the fourth-biggest bank, said profit fell 21 percent to C$521 million."
"Royal Bank of Canada, the country's largest bank, Toronto- Dominion Bank, the second-biggest lender, and No. 6-ranked National Bank of Canada report results tomorrow."
(Canadian Imperial Bank of Commerce will hold an earnings conference call at 4:30 p.m. Toronto-time at +1-416-340-8010 or +1-866-540-8136 or at www.cibc.com.)
To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net
"Last Updated: August 27, 2008 13:37 EDT"
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"European Stocks Climb on U.S. Durable Orders; ABB, BAE Gain "
By Adria Cimino
Aug. 27 (Bloomberg) -- European stocks advanced for a second day after a report showed orders for U.S. durable goods unexpectedly increased in July and higher commodity prices boosted the profit outlooks for energy and metal producers.
"ABB Ltd., the world's largest builder of power networks, jumped 2.8 percent, and BAE Systems Plc, Europe's biggest defense contractor, climbed 3.6 percent. BP Plc rose 1.8 percent as oil rallied for a third day, while BHP Billiton Ltd. increased 1.3 percent as copper, lead and nickel gained."
The Dow Jones Stoxx 600 Index rose 0.2 percent to 283.25. The index reversed earlier declines of as much as 1 percent after the Commerce Department said orders for goods meant to last several years rose 1.3 percent. Economists had forecast orders would be unchanged.
"``This gives a bit of air to the market,'' said Vafa Ahmadi, a fund manager at CPR Asset Management in Paris, which oversees the equivalent of $39 billion. ``It's an undeniably good number, following a good number in June. It's a small series of data moving in the right direction.''"
"Stocks fell earlier today as concern deepened bank losses will spread, while European Central Bank council member Axel Weber damped speculation borrowing costs may ease."
"The Stoxx 600 has fallen 22 percent this year as rising oil prices and more than $500 billion in credit-related losses by the world's largest banks threatened global economic growth, while accelerating inflation keeps central banks from cutting borrowing costs."
No Scope for Cut
Weber said earlier today there's no scope for interest-rate cuts and the bank may even need to raise borrowing costs again once the economy emerges from its slump. The ECB raised its benchmark rate by a quarter point to 4.25 percent in July.
National benchmark indexes gained in 11 of the 18 western European markets. Germany's DAX sank 0.3 percent. France's CAC 40 advanced 0.1 percent and the U.K.'s FTSE 100 added 1.1 percent.
"ABB, the world's largest builder of power networks, rose 2.8 percent to 26.3 Swiss francs, while BAE Systems rallied 3.6 percent to 477.5 pence."
"BHP Billiton gained 1.3 percent to 1,698 pence. Antofagasta Plc climbed 3.9 percent to 592 pence. The copper producer controlled by Chile's Luksic family said first-half profit rose 8.8 percent after output advanced and prices increased."
"Copper gained as a decline in the dollar and a rise in energy costs increased demand for commodities as a hedge against inflation. Lead, nickel and zinc price also rose in London."
BP Gains
"BP, Europe's second-largest oil producer, added 1.8 percent to 525.75 pence. Total SA, the region's third-biggest, gained 1 percent to 49.02 euros."
"Crude oil rose in New York on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production. The contract for October delivery rose as much as 2.9 percent to $119.63 on the New York Mercantile Exchange. Oil gained 1 percent to $116.27 yesterday."
"Irish Life & Permanent Plc jumped 6.8 percent to 5.79 euros. Ireland's largest mortgage lender said it has no plans to raise capital from investors even after first-half profit fell 88 percent, hurt by higher borrowing costs and the country's deteriorating housing market."
"Natixis SA sank 4.9 percent to 5.69 euros. The bank may offer new shares at a discount of between 30 percent and 40 percent in its rights offer, La Tribune reported, citing an unidentified person."
"The discount may even be higher to ensure the success of the offer, which may begin next week, the French daily said."
A Natixis spokeswoman declined to comment on the report.
Earnings
"Analysts estimate earnings among companies in the Stoxx 600 will decline 2 percent on average in 2008, according to weekly Bloomberg data. That compares with 11 percent growth forecast at the beginning of the year. Profits at financial companies will slump 26 percent, the data show."
"``What's most on investors' minds is the level of earnings and growth,'' Salah Seddik, a fund manager at Richelieu Finance in Paris, which oversees $6.2 billion, said in a television interview. ``We could have disappointments in the months ahead.''"
"Taylor Wimpey Plc, the U.K.'s largest homebuilder, lost 7.2 percent to 48.25 pence. The company booked a first-half loss of 1.42 billion pounds ($2.62 billion) after writing down the value of land and said it's still in talks with lenders to avoid breaching loan agreements."
"Baloise Holding AG, Switzerland's third-biggest insurer, fell 7.9 percent to 92.9 francs. Profit dropped 42 percent in the first half to 268.2 million Swiss francs ($244.9 million) after income from its life business and investments fell. That missed analysts' estimates."
"Scor SE climbed 1.6 percent to 15.77 euros. France's biggest reinsurer said first-half net income rose 24 percent to 225 million euros, surpassing analysts' estimates, as it used deferred tax assets to offset costs related to the acquisition of Switzerland's Converium Holding AG."
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: August 27, 2008 12:15 EDT"
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"Italian Stocks: Fondiaria, Prysmian, Seat, Tiscali, UBI "
By Francesca Cinelli
"Aug. 27 (Bloomberg) -- Italy's S&P/MIB Index fell 0.1 percent to 27,958. Futures expiring in September slid 15, or less than 0.1 percent, to 28,070."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Atlantia SpA (ATL IM), Europe's largest toll-highway operator, declined 42 cents, or 2.3 percent, to 17.63 euros. Credit Suisse Group rated the stock an ``underperform'' with a price estimate of 25 euros."
"``We see Italy as having more regulatory risk than the other major countries where the other toll-road companies we cover operate,'' analysts Robert Crimes and Ur-cheng Leong wrote. ``Atlantia does not have a proven track record of international investment such as Cintra Concesiones de Infraestructuras de Transporte SA or Abertis Infraestructuras SA.''"
"The company will invest 100-150 million euros ($148-221 million) in Alitalia SpA (AZA IM), chief executive officer, Giovanni Castellucci, told at a conference in Rimini, Italy."
"Autogrill SpA (AGL IM), the world's biggest manager of airport restaurants, retreated 15 cents, or 1.8 percent, to 8.3 euros. The company reported a 32 percent drop in first-half profit after it bought a duty-free shop unit."
"Banca Monte dei Paschi di Siena SpA (BMPS IM), Italy's third-biggest bank, slipped 0.3 percent to 1.73 euros. Dresdner Kleinwort cut its price estimate on the stock to 1.8 euros from 2.25 euros."
"Banca Popolare di Milano Scrl (BPM IM), an Italian regional bank that's been looking for a partner for more than a year, dropped 2.7 percent to 6.4 euros. Cheuvreux cut its price estimate on the stock to 6 euros from 6.5 euros because second- quarter results released yesterday were below estimates."
"Fondiaria-SAI SpA (FSA IM), Italy's second-biggest insurer, sank 5.9 percent to 18.95 euros. The company said first-half profit fell 25 percent as the slowing economy and new legislation reduced income from premiums."
"Immsi SpA (IMS IM), the Italian holding company that controls Piaggio SpA (PIA IM), fell 2.24 cents, or 2.9 percent, to 75.42 cents. Roberto Colaninno, chairman of Piaggio and Immsi, will present a plan for investment in state-controlled Alitalia to the board of directors of his holding company tomorrow."
"Piaggio shares declined 4.8 cents, or 3.1 percent, to 1.49 euros."
"Impregilo SpA (IPG IM), Italy's biggest builder, rose 4.4 cents, or 1.3 percent, to 3.57 euros. The identification of an operator by the extraordinary commissioner for the waste management activity in Acerra should be concluded by Sept. 15, newspaper MF reported, without saying where it got the information."
"``The positive solution of the Naples litigation should represent the last step to definitely exit from the activities in Campania,'' Andrea Scauri, an analyst at Mediobanca Securities who rates Impregilo an ``outperform,'' wrote in a research report."
"IT Holding SpA (ITH IM), the owner of the Gianfranco Ferre SpA fashion house, gained for a third session, adding 1.54 cents, or 3.3 percent, to 47.71 cents. The board is scheduled to meet to discuss first-half earnings."
"Prysmian SpA (PRY IM), an Italian cable maker, rose 53.2 cents, or 3.3 percent, to 16.56 euros. The company said first- half profit rose 26.5 percent to 190 million euros and revised its 2008 earnings before interest, taxes, depreciation, and amortization outlook upwards. Adjusted Ebitda is now expected above 550 million euros. Prysmian said May 14 adjusted Ebitda was expected above 2007 level (529 million euros)."
"Saipem SpA (SPM IM), Europe's largest oil-field services contractor by market value, increased 52 cents, or 2 percent, to 26.41 euros. Oil stocks were the best performers among the 18 industry groups in the Dow Jones Stoxx 60 Index today."
"Tenaris SA (TEN IM), the world's biggest maker of seamless steel tubes for pipelines, gained 62.7 cents, or 3.5 percent, to 18.69 euros."
"Saras SpA (SRS IM), the owner of the Mediterranean region's biggest refinery, surged 7.8 cents, or 2.3 percent, to 3.52 euros. Santander increased its price estimate on the stock to 4.71 euros from 4.23 euros."
"Seat Pagine Gialle SpA (PG IM), Italy's largest publisher of phone directories, fell 5.3 percent to 10.04 cents. Goldman Sachs resumed coverage of the stock with a ``sell'' recommendation and a price estimate of 10.2 cents. The company announced July 1 it had asked an investment bank to analyze different scenarios for some of its foreign subsidiaries. ``We do not rule out a sale of the company's non-Italian assets,'' Goldman Sachs analyst wrote in a note."
"The brokerage also upgraded Mediaset SpA (MS IM) to ``neutral'' from ``sell.'' Mediaset, the television company controlled by Italian Prime Minister Silvio Berlusconi, slid 0.1 percent to 4.78 euros."
"Telecom Italia SpA (TIT IM), Italy's biggest phone company, added 0.9 percent to 1.08 euros. Iliad SA acquired Telecom Italia's French Internet business for 775 million euros ($1.1 billion), leapfrogging Vivendi SA as France's second-largest provider of broadband Web access."
"Tiscali SpA (TIS IM), the Italian Internet provider that's for sale, jumped 9.2 cents, or 6.6 percent, to 1.48 euros. ``The market is speculating on interest that Telecom Italia may have in assets after selling Alice France,'' said Alessandro Frigerio, a fund manager at RMJ Sgr in Milan."
"``By applying Alice France's transaction multiple we obtain a valuation for Tiscali of 2.3-2.4 euros per share,'' Alberto Francese, an analyst at Banca Imi who rates Tiscali a ``hold'' with a price estimate of 1.61 euros, wrote in a note."
"Tod's SpA (TOD IM), a luxury-goods maker, dropped 1.17 euros, or 2.9 percent, to 39.42 euros. ``Our least preferred names remain those with low exposure to hard luxury (Burberry Group PLC, PPR and Tod's),'' Goldman Sachs analysts including Luca Cipiccia wrote in a note on European luxury industry."
"Unione di Banche Italiane Scpa (UBI IM), Italy's fourth- largest bank by branches, fell 48.5 cents, or 3.2 percent, to 14.9278 euros. Profit was higher than expected but the gain ``came entirely from lower taxes,'' Marcello Zanardo and Aldo Comi, analysts at Keefe, Bruyette & Woods Ltd. wrote in a research report. UBS AG cut its price estimate on the stock to 18.3 euros from 19 euros."
To contact the reporters on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: August 27, 2008 12:37 EDT"
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Hog Prices Tumble Most Allowed by Chicago Exchange; Cattle Drop
By Tony C. Dreibus
"Aug. 27 (Bloomberg) -- Hogs tumbled the most allowed by the Chicago Mercantile Exchange as U.S. slaughter rates increased, signaling a glut of pork available to retailers. Cattle futures declined to the lowest since July."
"Meatpacking plants killed 863,000 hogs in the first two days of this week, up from 808,000 a year earlier, U.S. Department of Agriculture data show. Pork processors are nearing full capacity of more than 430,000 hogs a day."
"``All the plants were up and operating this week, which signals the beginning of the fall run,'' said David Kruse, a commodity trading adviser at Commstock Investments Inc. in Royal, Iowa. ``The power behind the expansion of the numbers surprised traders. They're saying if we've got a couple months to go through this, we're going to have problems moving pork.''"
Hog futures for October settlement fell the maximum of 3 cents to 70.5 cents a pound at 12:43 p.m. on the Chicago Mercantile Exchange. The 4.1 percentage drop would mark the biggest for a most-active contract since Feb. 25. The commodity declined for the sixth time in seven sessions.
"Before today, futures jumped 27 percent this year, partly because global demand for pork increased."
"Wholesale pork has dropped seven straight sessions, falling 11 percent since Aug. 15. The price is still up 17 percent in the past year."
Dollar's Rally
"Hogs also fell as the dollar climbed, eroding the appeal of U.S. exports."
"The dollar is up 5.4 percent this month against a basket of six major currencies, reducing the purchasing power of some importers. The dollar dropped 4.5 percent in the first half of 2008, spurring a commodity rally."
"``On the export side, there's some concern,'' Kruse said. ``The decline in the dollar did help boost pork exports, which have become a big part of our demand. Now, the dollar has had a bounce.''"
Cattle futures declined as demand for beef was expected to wane as pork prices fall and fewer people eat at restaurants in a slumping economy.
"Retailers may offer lower-priced pork in weekly specials, prompting people to purchase the meat instead of pricier beef."
"``If you make pork that much more competitive, you have more to deal with,'' Kruse said. ``Retailers like to feature products that are the cheapest and have the biggest supply, and that's pork. One would think that there's a tighter supply of beef, prices go higher, so retailers are saying `I'm going to buy pork,' and demand for beef weakens.''"
Lowest Since July
"Cattle for October delivery fell 1.975 cents, or 1.9 percent, to $1.03775 a pound. Earlier, the price touched $1.03535, the lowest since July 10."
"Before today, cattle gained 8.1 percent in the past year. Global demand for U.S. beef increased amid signs the worldwide livestock herd may be culled because of surging feed costs."
"Feeder-cattle futures for October delivery fell 1.275 cents, or 1.1 percent, to $1.10325 a pound. Before today, the price declined 5.7 percent in the past year as the soaring expense of corn eroded the incentive for feedlots to buy more animals. Corn futures had jumped 66 percent in the past 12 months."
"Wholesale beef fell 0.4 percent to $1.6148 a pound today, USDA data show. The price is still up 12 percent in the past year."
To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.
"Last Updated: August 27, 2008 13:49 EDT"
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Petrobras Finds Offshore Oil in Deep Water Campos Basin Field
By Jeb Blount and Heloiza Canassa
"Aug. 27 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, found oil in an offshore well in the Campos Basin more than 6,800 meters (22,310 feet) below the ocean surface, the country's petroleum regulator said."
"Petrobras, which has not determined if the find is commercially exploitable, found the oil in the BC-60 exploration block using the Peregrine I rig operating in 1,348 meters of water atop a well drilled 5,455 meters below the sea floor, the regulator, known as the ANP, said on its Web site."
To contact the reporters on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net and Heloiza Canassa in Sao Paulo at (55- hcanassa@bloomberg.net
"Last Updated: August 27, 2008 11:46 EDT"
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PetroChina Net Falls Most in 6 Years; Cnooc Jumps 89% (Update2)
By Wang Ying and Winnie Zhu
"Aug. 27 (Bloomberg) -- PetroChina Co., China's largest oil company, posted its steepest semi-annual profit decline in more than six years as refining losses eroded gains from record crude oil prices that drove better-than-estimated earnings at Cnooc Ltd."
"Net income at PetroChina dropped 35 percent to 53.6 billion yuan ($7.8 billion) in the first half, lower than the 54 billion yuan median forecast of analysts in a Bloomberg News survey. The fall was the biggest since a 43 percent slump in the second half of 2001. Cnooc, China's third-largest oil producer, posted an 89 percent increase to 27.5 billion yuan, compared with an estimate of 22.1 billion yuan."
"PetroChina, overtaken by Exxon Mobil Corp. as the world's most valuable company in the first half, was hurt by government fuel-price caps that undermined gains from a 46 percent jump in oil prices. Cnooc, which doesn't run refineries, increased crude reserves and production at home to post more than triple the earnings growth of Exxon and Royal Dutch Shell Plc."
"``With global crude prices expected to decline, we expect PetroChina to perform better in the second half, while Cnooc will have stable growth,'' Yin Xiaodong, an analyst at Citic Securities Co., said by telephone from Beijing today."
Crude prices reached a record of $147.27 a barrel on July 11. Prices have dropped 19 percent since then and are still 63 percent higher than a year ago.
"PetroChina, China Petroleum & Chemical Corp. and Cnooc are increasing output to meet the needs of the world's fastest- growing major economy, which has expanded by more than 10 percent for the past 5 years. China's oil consumption jumped 88 percent to 7.9 million barrels a day in 2007 compared with a decade ago, according to the BP Statistical Review."
"Sudan, Iran"
"Chinese oil companies have been criticized by the U.S. and Western European countries for sourcing supplies from Sudan, Iran and Myanmar, which face trade sanctions."
"China's refineries are still losing money even though the government raised gasoline and diesel prices by at least 17 percent in June, China National Petroleum Corp., the parent company of PetroChina, said on June 28."
"PetroChina's second-quarter profit fell 38 percent to 24.7 billion yuan, according to Bloomberg calculations made by deducting earnings for the first three months from today's figures. Cnooc doesn't report quarterly results."
"PetroChina's sales rose 40 percent to 549.5 billion yuan in the first six months. The company, 88 percent owned by the Chinese government through China National Petroleum Corp., will pay a first-half dividend of 0.131827 yuan a share."
"``PetroChina was unable to fully pass on costs to gasoline and diesel users,'' said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei. ``Cnooc doesn't have this problem.''"
Cnooc Sales
"Cnooc's oil and gas sales rose 64 percent to 54 billion yuan from 33.2 billion yuan a year earlier. Total oil and gas production gained 8 percent to the equivalent of 92 million barrels of oil. The average price Cnooc got for its oil surged 74 percent to $102.5 a barrel, the company said."
"Cnooc plans to increase crude oil and natural gas output by as much as 18 percent this year as economic growth spurs energy demand, the Beijing-based company said Jan. 29. Cnooc started production at two oil fields and announced two discoveries in the first half."
"``Production will continue rapid growth in the next two years,'' David Johnson, a Hong Kong-based energy analyst at Macquarie Bank Ltd., said today."
"PetroChina has a market value of $337.8 billion. The stock advanced 3.4 percent to close at HK$10.3, before the earnings announcement, while Cnooc gained 3.8 percent to HK$11.62."
"Exxon, Shell"
"Exxon's earnings climbed 16 percent in the first six months while Shell's profit rose 29 percent, according to data compiled by Bloomberg. Both companies struggled to boost output as countries from Kazakhstan to Venezuela cut access to oil."
"The government paid PetroChina and China Petroleum & Chemical Corp., the nation's largest refiners, rebates of 75 percent on the 17 percent value-added tax levied on crude imports in the second quarter."
"The two companies will get about 40 percent rebate on the tax for crude imported between July and September, the South China Morning Post reported yesterday, citing people it didn't identify."
"PetroChina will expedite overseas oil and gas projects to meet the country's rising energy demand, President Zhou Jiping said today. Annual capital spending will remain above 200 billion yuan in the coming years, and about 70 percent of that will be plowed into exploration and development, he told reporters in Hong Kong."
Asset Acquisitions
"The Beijing-based company said today it will acquire a 52 percent stake in parent China National Petroleum Corp.'s unit, CNPC Hong Kong, for HK$7.6 billion to boost natural gas sales."
"PetroChina has agreed to buy the China National's 50 percent stake in CNPC Exploration & Development Co., the Wall Street Journal reported yesterday, citing a person familiar with the matter. Zhou said the company needs more time to complete the purchase."
"PetroChina also plans to set up a ``world-class'' oil refining operation, Zhou said. China's current refining capacity isn't enough to meet rising demand for oil products, he said."
"The oil producer plans to boost its annual refining capacity by 14 percent to more than 160 million metric tons by 2010, Vice President Shen Diancheng said in May."
To contact the reporter on this story: Wang Ying in Hong Kong at wang30@bloomberg.net; Winnie Zhu in Hong Kong at wzhu4@bloomberg.net
"Last Updated: August 27, 2008 10:07 EDT"
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"Questerre, Transeuro Advance After Testing Gas Well (Update1) "
By Jakob Lindstroem
"Aug. 27 (Bloomberg) -- Questerre Energy Corp., the Calgary- based oil explorer whose stock has tripled this year, rose to a two-week high in Oslo trading after starting tests with Transeuro Energy Corp. on a gas shale well in western Canada's Liard Basin."
"Questerre climbed 2.55 kroner, or 21 percent, to 14.7 kroner, the highest since Aug. 12. Transeuro jumped 0.42 krone, or 28 percent, to 1.92 kroner, valuing the Vancouver-based explorer at 399 million kroner ($74 million)."
"The ``very high'' gas reserves and ``promising'' production from two earlier wells make the test ``very interesting,'' the companies said today in a statement to the Oslo exchange."
"``Expertise we have gained from our Quebec shale play has allowed us to re-evaluate our past efforts,'' they wrote in the release. ``We have developed a predictive model which allows us to better target our completions to productive shales.''"
To contact the reporter on this story: Jakob Lindstroem in Stockholm at jlindstroem@bloomberg.net.
"Last Updated: August 27, 2008 11:01 EDT"
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Sberbank Falls on Concern Over Losses on Ruble Bonds (Update2)
By William Mauldin and Denis Maternovsky
"Aug. 27 (Bloomberg) -- OAO Sberbank, Russia's biggest bank, fell to the lowest in almost two years on concern losses in the value of its government ruble-denominated bonds may erode capital."
"The bank holds 280 billion rubles ($11.4 billion) in local- currency denominated Russian government bonds, according to Deutsche Bank AG in Moscow. The yield on Russia's benchmark 30- year 6.9 percent ruble bond has jumped 106 basis points to 8.81 percent since Aug. 7, as President Dmitry Medvedev's move to send troops and warplanes into Georgia helped spur investors to pull assets out of Russia. Bond yields move inversely to prices."
"``If they decide to sell a portion of their portfolio, these losses will become material,'' Natalia Orlova, banking analyst at Moscow-based Alfa Bank, said by telephone. ``This is a problem for the bank's liquidity.''"
"Sberbank fell for a third day, sinking 0.51 ruble, or 0.9 percent, to 55.50 rubles, the lowest since September 2006. The shares dropped 6.4 percent yesterday and 4.9 percent on Aug. 25."
"State-controlled Sberbank was a rare survivor of the Russian banking system's collapse in August 1998, when the government defaulted on $40 billion of Treasury debt and the ruble devalued, wiping out private banks. The RTS Index sank 56 percent that month. The 50-stock index has fallen 19 percent so far this month."
Rising Costs
"Sberbank is currently seeking to borrow $1 billion for three years at 85 basis points more than the London interbank offered rate, according to two bankers with knowledge of the transaction. The bank paid 45 basis points above Libor in November to borrow $750 million for a similar period. Sberbank has $6.1 billion in bonds and loans outstanding, based on data compiled by Bloomberg."
"Investors pulled about $13 billion out of Russia in ``capital flight'' in the week following the outbreak of the military conflict in Georgia, according to UniCredit SpA estimates."
"Credit-default swaps on Russia's government debt climbed 32 to 134, the highest since April 2, according to at CMA Datavision prices at 3:15 p.m. in London."
"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 should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite."
"A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year."
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net; Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
"Last Updated: August 27, 2008 14:02 EDT"
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East European Currencies: Hungarian Forint Drops Against Euro
By Ewa Krukowska
Aug. 27 (Bloomberg) -- Hungary's forint fell against the euro after Prime Minister Ferenc Gyurcsany told state radio he would resign if lawmakers don't approve his tax plan and next year's budget proposals. The Polish zloty declined.
"The government wants to cut taxes by as much as 1.2 trillion forint ($7.4 billion) over the next four years to stimulate the weakest economic growth since 1993 last year, Gurcsany wrote in an article published in Nepszabadsag newspaper. The premier is reversing some of the tax increases he pushed through in 2006 as part of a plan to trim a record budget deficit and meet euro- adoption terms next year."
"``Hungary has a minority government, which doesn't make it easy for pushing legislation through parliament,'' said Michal Dybula, central European economist at BNP Paribas SA in Warsaw. ``Gurcsany's statement today boosted political uncertainty.''"
"The forint fell as much as 0.4 percent to 236.83 per euro, and was at 236.30 by 4:32 p.m. in Budapest, from 235.84 yesterday."
"The forint is the best emerging-markets performer in the past six months, rising almost 10 percent versus Europe's common currency as the central bank raised interest rates to the highest level in more than three years to curb inflation."
"In other trading, the Polish zloty fell 0.1 percent to 3.3342 per euro as the central bank kept interest rates on hold at 6 percent, in line with analysts' expectations."
Polish Rates
"The zloty is the worst-performing emerging-market currency in the region this month, falling 3.6 percent on rising risk aversion and as traders bet the central bank's rate-increase cycle is nearing an end amid slowing economic growth."
"The central bank's Monetary Policy Council raised interest rates eight times in the past 16 months to quell inflation. Further policy tightening may be needed to bring inflation down to the target, the bank said in a statement after its meeting."
"``We continue to expect the MPC to hike rates once again this year, probably in October, and it will probably be the last rise in the cycle,'' Piotr Kalisz, an economist at Citigroup Inc. in Warsaw, wrote in a client note."
"The Czech koruna was little changed at 24.578 against the euro, from 24.572 yesterday, after a report by the Prague-based statistics office showed second-quarter real wages grew at the slowest pace in almost 10 years."
"The average salary rose 1.1 percent when adjusted for 6.8 percent inflation, compared with revised growth of 2.6 percent in the first three months."
"The Romanian leu gained 0.2 percent to 3.5450 per euro as CEZ AS, a Czech utility, said today it will invest 1.1 billion euros ($1.6 billion) in a 600-megawatt wind farm in Romania."
"``The size of the investment is substantial given total net foreign direct investment reached 8.4 billion euro in the 12- month period ended in June,'' Bartosz Pawlowski, a strategist at TD Securities in London, wrote in a client note. ``Even though we don't expect the Romanian current-account deficit to decline from around 14 percent of GDP last year, we think the situation on the financing side should continue to improve.''"
"The Slovak koruna was little changed at 30.310 per euro, as was the Turkish lira at 1.1906 against the dollar."
To contact the reporter on this story: Ewa Krukowska at ekrukowska@bloomberg.net
"Last Updated: August 27, 2008 10:44 EDT"
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Energy Futures Increase as Gustav Threatens U.S. Gulf Platforms
By Mark Shenk
"Aug. 27 (Bloomberg) -- Oil, natural gas and gasoline rose on speculation Tropical Storm Gustav will become the most damaging hurricane since Katrina as it moves toward production platforms in the Gulf of Mexico."
"Gustav may become a ``destructive hurricane rivaling Rita and Katrina,'' which shut refineries and platforms in the Gulf and sent oil prices to a record, Joe Bastardi of AccuWeather.com in State College, Pennsylvania, said today. Gustav was packing sustained winds of almost 60 miles (95 kilometers) per hour, the National Hurricane Center said at 2 p.m. Miami time."
"``The forecasts have Gustav heading for Louisiana, which is very bad news,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``If the storm track holds, this could shape up to be an untimely repeat of Hurricane Katrina. The damage caused by Katrina is in the collective consciousness of everyone who trades.''"
"Crude oil for October delivery increased $1.88, or 1.6 percent, to settle at $118.15 a barrel at 2:58 p.m. on the New York Mercantile Exchange. Prices are up 64 percent from a year ago. Futures have dropped 20 percent since touching a record $147.27 a barrel on July 11."
"Natural gas for September delivery rose 11.6 cents, or 1.4 percent, to settle at $8.394 per million British thermal units in New York."
Evacuations
"Energy producers will evacuate ``several thousand'' employees from offshore rigs today because of the storm, said Ted Falgout, the director of Louisiana's Port Fourchon. Almost 20,000 workers are on offshore platforms, about one-quarter of which are needed to maintain output, Falgout said in an interview."
"``Most companies are waiting until Friday to decide whether they need to shut down production,'' Falgout said. ``If you look at models showing the storm's track, it should scare you.''"
The Gulf accounts for about 14 percent of U.S. gas output. The coast along Louisiana and Texas is home to 42 percent of U.S. refining capacity.
"Gustav was about 140 miles west of the Haitian capital, Port-au-Prince, and forecast to head into the central Gulf of Mexico by Aug. 31, the hurricane center said."
"The storm has the potential to grow to a Category 4 hurricane with winds of at least 131 miles per hour by the time it enters the Gulf, said Jim Rouiller, senior energy meteorologist with Planalytics Inc. in Wayne, Pennsylvania."
Katrina and Rita
In August and September 2005 U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita struck the Gulf Coast. Katrina closed 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by the storms.
"``Since Katrina there's a greater perception of our vulnerability, especially to a strong storm,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There's a potential of disruption throughout the industry.''"
"The hurricane center's track for Gustav takes it toward waters south of Louisiana, where U.S. offshore oil and gas platforms and pipelines are most concentrated."
"``If the storm does intensify to a Category 4 or 5 and stays on its current path, you will see a definite impact on the offshore Gulf production,'' said Dominick Chirichella, senior partner at the Energy Management Institute in New York. ``A lot of rigs will shut down as they move essential personnel off.''"
U.S. Inventories
"Prices also rose after a government report showed that U.S. gasoline supplies dropped for a fifth week. Gasoline stockpiles fell 1.18 million barrels to 195.4 million barrels, the Energy Department said in its weekly report. A drop of 2.45 million barrels was expected, according to the median of 12 analyst responses in a Bloomberg News survey."
"Crude-oil inventories dropped 177,000 barrels to 305.8 million barrels, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, climbed 57,000 barrels to 132.1 million barrels."
"Gasoline for September delivery climbed 9.75 cents, or 3.3 percent, to $3.0672 a gallon in New York, the highest settlement since Aug. 1. Heating oil for September delivery increased 5.18 cents, or 1.6 percent, to settle at $3.2617 a gallon."
"Energy futures are also higher because the dollar weakened against the euro, boosting the appeal of commodities as a hedge against inflation. The euro climbed 0.4 percent to $1.4714 in New York, from $1.4653 yesterday, when it touched $1.4571, the lowest level since Feb. 14."
OPEC
"The Organization of Petroleum Exporting Countries, producer of 42 percent of the world's oil, should maintain output when it meets in Vienna next month to help curb prices, International Energy Agency Executive Director Nobuo Tanaka said. The IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo."
"``We wish producers will maintain the current level of production,'' Tanaka said in an interview at an oil conference in Stavanger, Norway. ``The current price level is putting a burden on the global economy.''"
"Brent crude oil for October settlement rose $1.59, or 1.4 percent, to settle at $116.22 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 27, 2008 15:55 EDT"
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"China Stocks Fall for 5th Day; Offshore Oil, China Eastern Drop "
By Chua Kong Ho
"Aug. 27 (Bloomberg) -- China stocks fell for a fifth day, the longest losing streak in 10 weeks, as higher fuel and raw material costs pared earnings at industrial and transportation companies."
"Offshore Oil Engineering Co., which lays undersea pipes and tests oilfield equipment, plunged by the daily 10 percent limit for a second day after first-half profit slumped 33 percent on higher costs and bad weather. China Eastern Airlines Corp., the country's third-largest carrier, sank after reporting first-half profit fell 29 percent as it paid more for jet fuel. China Shipping Container Lines Co. slid after first-half earnings dropped 45 percent."
"``Many company profits will come under pressure because costs are not decreasing and the demand picture is deteriorating,'' said Chris Tang, chief investment officer at Marco Polo Pure Asset Management in Hong Kong, which oversees about $120 million."
"The CSI 300 Index, which tracks yuan-denominated shares on the nation's two exchanges, lost 6.24, or 0.3 percent, to 2,325.29 at the close, the lowest since Aug. 18. Nine of the 10 industry groups fell. The measure has retreated for the most consecutive days since a 10-day drop ending June 17."
"The stock benchmark has fallen 56 percent this year, the biggest decline among 89 global indexes tracked by Bloomberg, on concern government measures to combat inflation will erode profit."
Profit Declines
"Offshore Oil dropped to 14.46 yuan, the lowest since April 2, 2007. Profit for the first half fell to 296.7 million yuan ($43.4 million) from 445.9 million yuan, according to a statement to the Shanghai stock exchange today."
"China Eastern, based in Shanghai, fell 3.5 percent to 4.73 yuan after first-half income dropped 29 percent to 41.6 million yuan due to higher jet fuel costs and as it carried fewer passengers."
"Air China, the nation's largest carrier by market value, lost 1.1 percent to 5.57 yuan, after posting an operating loss in the first half of 335.9 million yuan as fuel prices doubled and natural disasters reduced passenger numbers."
"``The first-half results are weaker than our below-consensus estimates,'' Goldman Sachs analysts including Hino Lam said in a note to investors today. ``While we are closer to a recovery in Chinese air travel, full revival may be slow and gradual post- Olympics.''"
Goldman lowered its target price for Air China to 2.7 yuan from 6.7 yuan.
China Shipping
"China Shipping, the country's second-largest cargo-box carrier, fell 1.7 percent to 3.57 yuan. First-half profit dropped 45 percent to 637.2 million yuan ($93 million) after fuel costs surged and the global economic slowdown cut demand."
"The Shanghai Composite Index lost 0.3 percent to 2,342.15, while the Shenzhen Composite Index declined 0.6 percent to 642.82."
The following shares also rose or fell in China. Stock symbols are in parentheses after company names:
"Bank of Communications Co. (601328 CH), China's fourth- largest bank by market value, gained 0.03 yuan, or 0.4 percent, to 7.50 yuan. Second-quarter profit rose 60 percent to 7.62 billion yuan as it sold more credit cards and insurance products, the bank said in a statement."
"China Railway Construction Corp. (601186 CH), builder of more than half the nation's railroads, dropped 0.69 yuan, or 7.6 percent, to 8.42, the most since June 10, after Goldman Sachs cut its price estimate by 6.7 percent to HK$14, citing a slowdown in investment and competition in highway construction."
"Citic Securities Co. (600030 CH), the nation's second- biggest brokerage by market value, gained 0.95 yuan, or 5.3 percent, to 18.88 yuan. Investors opened 180,756 accounts to trade stocks on the Shanghai and Shenzhen exchanges from Aug. 18 to Aug. 22, compared with 151,125 the previous week, data published late yesterday on the Web site of the China Securities Depository and Clearing Corporation Ltd. showed."
"Jiangxi Copper Co. (600362 CH), China's second-biggest smelter of the metal, rose 0.64 yuan, or 4 percent, to 16.55, the most since Aug. 20. Net income rose 32 percent to 2.77 billion yuan in the first six months, the company said in a statement to the Hong Kong stock exchange."
"Zhenhua Port Machinery Co. (600320 CH), the world's biggest maker of quayside cranes, fell 0.82 yuan, or 7.9 percent, to 9.58 yuan, saying first-half profit increased 4 percent to 1 billion yuan. Investors' expectations may have been ``too high,'' said Jimmy Lam, a Hong Kong-based analyst at BOC International Holdings Ltd."
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net.
"Last Updated: August 27, 2008 05:47 EDT"
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"Mexico's Peso Gains on U.S. Durable Goods Data, Trade Outlook "
By Andrea Jaramillo
"Aug. 27 (Bloomberg) -- Mexico's peso advanced after a U.S. report showed durable goods unexpectedly rose in July, buoying speculation that a growing U.S. economy will boost demand for Mexican exports."
"Most Latin American currencies tracked by Bloomberg advanced against the dollar today. The U.S. is the biggest buyer of developing nations' exports, including Mexico."
"Mexico's peso dropped 0.2 percent to 10.1378 per dollar at 11:16 a.m. in New York, from 10.1582 yesterday."
The U.S. Commerce Department said today bookings of goods meant to last several years rose 1.3 percent last month. The median of 76 economists surveyed by Bloomberg projected orders would be unchanged.
"Yields on Mexico's 10 percent bond due in December 2024, the country's most-traded security, fell 3 basis points, or 0.03 percentage point, to 8.56 percent. The bond's price rose 0.3 centavo to 112.58 centavos per peso, according to Banco Santander SA."
To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
"Last Updated: August 27, 2008 11:16 EDT"
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Brazil's Real Rises as Commodity Prices Boost Export Inflows
By Adriana Brasileiro and Carolina Matos
Aug. 27 (Bloomberg) -- Brazil's real rose for a second day as rising commodity prices increased foreign currency flows from exports.
"The real climbed 0.4 percent to 1.623 per U.S. dollar at 10:11 a.m. New York time compared with 1.6288 yesterday. Brazil's real has advanced 9.7 percent this year, the biggest gainer among the 16 most-actively traded currencies tracked by Bloomberg."
"``The real is moving on commodities and on the U.S. dollar performance against other currencies,'' said Rodrigo Boulos, head of proprietary trading in Sao Paulo at Banif Investment Bank."
"Crude oil rose for a third day on forecasts that Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production. Crude oil is among Brazil's biggest export products along with iron ore and soybeans."
Metals also rose as a weakening dollar boosted the appeal of commodities as a hedging instrument. The dollar fell against 15 of the 16 most-actively traded currencies today.
"The yield on Brazil's zero-coupon bonds due in January 2010 rose 2 basis points, or 0.02 percentage point, to 14.78 percent, according to Banco Votorantim."
To contact the reporters on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net; Carolina Matos in Sao Paulo at cmatos1@bloomberg.net
"Last Updated: August 27, 2008 10:12 EDT"
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"Citigroup Recommends Brazil Banks, Consumer Stocks (Update1) "
By Paulo Winterstein and Alexander Ragir
"Aug. 27 (Bloomberg) -- Investors should buy financial and consumer stocks in Brazil because Latin America's biggest economy is growing and inflation expectations ``have peaked,'' Citigroup Inc. strategists said."
"``It is time to turn aggressive on domestic sector strategy in Brazil,'' wrote Latin American strategist Geoffrey Dennis in a note to clients. ``The domestic economy is strong.''"
"Brazil's economy, which has shown ``impressive strength,'' will continue to expand through the cycle of interest rate increases, boosting earnings for companies focused on the domestic market, Dennis wrote. Falling commodity prices have helped bring down inflation expectations, with bond yields peaking in early June, he wrote. Inflation data released today showed the first drop in the IGP-M price index in two years."
Dennis raised his rating on Brazilian banks to ``overweight' from ``underweight' and upgraded consumer companies reliant on discretionary spending to ``neutral'' from ``underweight.''
"``The impressive strength of the Brazilian real economy is used to justify a further significant extension of the rising rate cycle,'' New York-based Dennis wrote. ``As the rate cycle approaches its end, strong domestic demand growth will `morph' into a reason to be more aggressive towards domestic stocks.''"
"The country's gross domestic product probably expanded 1.1 percent in the second quarter, Citigroup economists estimate."
"Consumer, construction and wholesale prices, as measured by the IGP-M price index, decreased 0.32 percent, more than all 28 economists surveyed by Bloomberg had predicted."
Brazil Banks
"Citigroup analyst Daniel Abut last week raised his rating on Banco do Brasil SA, Latin America's biggest bank by assets, and Uniao de Bancos Brasileiros SA, the country's third-biggest non- government bank, after share prices slumped. The Brazilian banks trade at a discount to emerging market banks or a price that is about 8.9-times estimated 2009 profit. Global banks trade at a price about 10 times estimated profit."
"State and non-state bank lending climbed to 1.086 trillion reais ($669.5 billion) last month, a 1.7 percent rise from a revised 1.068 trillion reais in June, the central bank said in a statement distributed Aug. 25 in Brasilia. Lending rose 32.7 percent from a year earlier."
That's the slowest pace since February as rising interest rates made borrowing more expensive and damped the consumer spending that has driven growth to record levels.
"Brazilian banks will likely increase earnings by 13 percent this year, Deutsche Bank AG analyst Mario Pierry wrote last week, cutting his growth estimate from 16 percent. Falling income from fees and narrower margins will lead to less profit growth ``despite spectacular loan growth,'' he wrote in an Aug. 21 note."
"Dennis also cut Brazilian utilities to ``underweight'' from ``overweight'' in his note dated yesterday, while reiterating his ``overweight'' rating for raw materials producers."
"Brazil's Bovespa index rose for the first time in four days, spurred by gains for banks and commodity producers."
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
"Last Updated: August 27, 2008 12:11 EDT"
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Pound Drops Versus Euro on Bets Economy Heading for a Recession
By Lukanyo Mnyanda
Aug. 27 (Bloomberg) -- The U.K. pound fell to the lowest level in almost three months against the euro on speculation a deepening slump in the nation's housing market may force the central bank to cut interest rates.
"The pound also dropped to near a two-year low versus the dollar as Taylor Wimpey Plc., the largest U.K. homebuilder, reported a first-half loss of 1.4 billion pounds ($2.6 billion), adding to concern the economy is entering a recession. Nationwide Building Society will tomorrow say house prices fell for a ninth month, according to economists surveyed by Bloomberg News. The difference in yield between 10-year gilts and German bunds slipped to the narrowest in seven months."
"``There are a variety of broader negative stories floating around that are sterling negative,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``That's not helping the cause.'' The currency may slip to $1.80 versus the dollar in a month, he predicted."
"The U.K. currency fell to 80.20 pence per euro by 4:35 p.m. in London, the lowest since June 9, from 79.65 yesterday. The pound was little changed at $1.8325, showing a decline this month of almost 8 percent. It's headed for the biggest monthly loss since October 1992, when it sank 12 percent."
"Taylor Wimpey and other builders are being forced to cut operations and shed jobs as the economy, Europe's second-largest, reels from the most widespread housing slump in 30 years. Bank of England Governor Mervyn King said this month the U.K. faces a ``difficult and painful adjustment'' as falling house prices and rising inflation hurt consumer spending."
"The pound dropped versus the dollar in each of the past five weeks, the longest losing run since February 2006. It slipped last week after a government report showed economic growth stagnated in the second quarter, adding to pressure on the central bank to cut interest rates to revive the economy."
Gilts Reverse Gains
"Gilts dropped with Treasuries and European bonds, reversing an earlier gain that pushed the yield on the 10-year bond to the lowest level since April 16."
"The 10-year yield rose 1 basis point to 4.50 percent. The 5 percent security due March 2018 fell 0.06, or 60 pence per 1,000- pound face amount, to 103.85. Two-year gilt yields, which are more sensitive to interest-rate expectations, also advanced 1 basis point to 4.49 percent. Bond yields move inversely to prices."
"Two-year gilts advanced the most in two weeks yesterday as an industry report showed mortgage approvals held near the weakest level in a decade. The number of mortgages approved last month slumped 65 percent in the year and their value fell to the least since 1998, the British Bankers' Association said."
"The spread between 10-year gilts and their German equivalent narrowed 5 basis points to 33 basis points, the least since Jan. 11. The gap was 69 basis points on Feb. 25, which was the widest this year."
"``The economic situation in the U.K. is getting worse and we expect gilts to remain supported as a result,'' said Giuseppe Maraffino, a bond strategist in Milan at UniCredit Markets & Investment Banking, a unit of Italy's largest bank. Investors should favor shorter-dated notes and two-year gilt yields may drop to 4 percent by year-end, he predicted."
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: August 27, 2008 11:43 EDT"
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"Brazil Stocks Rise on Easing Inflation, Banks; Bolsa Gains "
By Alexander Ragir and Paulo Winterstein
Aug. 27 (Bloomberg) -- Brazilian stocks gained for the first time in four days as drop in wholesale prices in two years boosted retailers and banks while rising commodity prices sent energy and steel producers higher.
"Lojas Americanas SA and Banco do Brasil SA paced advances for retail and bank stocks after Brazil's broadest inflation index dropped in August more than economists expected. Petroleo Brasileiro SA and Gerdau SA gained as oil and metal prices jumped and Citigroup Inc. recommended investors buy commodity producers, banks and consumer companies as economic growth quickens."
"``We're reaching a point where people are re-evaluating whether the scenario out there is so bad,'' said Jose Oliveira, who oversees the equivalent of $49 billion as chief executive of BNY Mellon Arx in Rio de Janeiro. ``Investors are looking at the domestic market still doing well, with lower inflation.''"
"The Bovespa index rose 497.59, or 0.9 percent, to 54,856.29 at 1:33 p.m. New York time. The MSCI Latin America index gained 2 percent. Mexico's Bolsa gained 0.8 percent. Chile's Ipsa advanced 0.7 percent."
"Investors should buy financial and consumer stocks in Brazil because the economy is growing and inflation expectations ``have peaked,'' Citigroup Inc. strategists said."
"``It is time to turn aggressive on domestic sector strategy in Brazil,'' wrote Latin American Strategist Geoffrey Dennis in a note to clients. ``The domestic economy is strong.''"
"Consumer, construction and wholesale prices, as measured by the IGP-M price index, decreased 0.32 percent, more than all estimates, and the 0.20 percent median forecast in a Bloomberg survey of 28 analysts, the Rio de Janeiro-based Getulio Vargas Foundation said today."
Banks Upgraded
Banco do Brasil gained 2.7 percent to 22.80 reais. Lojas Americanas rose 1.5 percent to 10.24 reais. Citigroup's Dennis raised his rating on Brazilian banks to ``overweight' from ``underweight' and upgraded consumer companies reliant on discretionary spending to ``neutral'' from ``underweight.''
"Lojas Renner SA, Brazil's biggest publicly traded clothing retailer, rose 2.3 percent to 29.97 reais."
Citigroup also reiterated its ``overweight'' rating on raw material producers.
"Gerdau, Latin America's largest steelmaker, climbed 1.2 percent to 29.35 reais. BNY's Oliveira said he favors steelmakers because supply constraints and strong demand will keep prices high."
Lead rose 11 percent on the London Metal Exchange as industry and investors took advantage of recent declines to buy at cheaper prices. Nickel gained 4.1 percent in London.
"Cia. Vale do Rio Doce, the world's biggest iron ore and nickel miner, gained 1.7 percent to 37.62 reais."
Oil Jumps
"Petrobras jumped 2.1 percent to 34.90 reais. Crude oil for October delivery increased $1.19, or 1 percent, to $117.46 a barrel on the New York Mercantile Exchange."
"Net Servicos de Comunicacao SA, Brazil's biggest cable-TV company, gained 1.2 percent to 18.08 reais on speculation it may be able to continue charging for extra customer connections."
"The antitrust agency of Brazil's Finance Ministry defended companies' right to charge extra fees for additional connections to cable networks, Raymond James & Associates Inc. analyst Alexandre Garcia wrote in a note."
"In Mexico, the Bolsa index rose for the first time in three days, led by Alsea SAB, the operator of Starbucks Coffee franchises in Mexico and Argentina."
"Starbucks Corp. expects store growth of 75 percent in Latin America next year, Mexico City-based newspaper Excelsior reported, citing the company's head for the region. Alsea rose 1 percent to 11 pesos."
Movil Gains
"America Movil SAB, Latin America's largest mobile phone company, gained 2.3 percent to 26.07 reais. The company may be interested in buying an Indian wireless company, which ``could be a positive,'' JPMorgan Chase & Co. wrote in a research note. The Times of India said America Movil has approached Datacom, which has a mobile-phone license there, about buying a stake."
"Elsewhere in Latin America, Argentina's Merval index rose 1.1 percent, Colombia's IGBC dropped 0.6 percent and Peru's Lima General Index fell 3.4 percent."
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.
"Last Updated: August 27, 2008 14:26 EDT"
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"Mexico's Peso Gains on U.S. Durable Goods Data, Trade Outlook "
By Valerie Rota and Andrea Jaramillo
"Aug. 27 (Bloomberg) -- Mexico's peso advanced after a U.S. government report showed durable goods orders unexpectedly rose in July, buoying speculation that a growing U.S. economy will boost demand for Mexican exports."
"Most Latin American currencies tracked by Bloomberg advanced against the dollar today. The Morgan Stanley Capital Index of emerging market stocks rose the most in a week, increasing 1.6 percent. The U.S. is the biggest buyer of exports from developing nations, including Mexico."
"Today's report suggests ``the U.S. economy isn't doing that badly,'' said Jaime Ascencio, a fixed-income analyst in Mexico City at Actinver SA, the country's biggest independent money manager. ``This decreases risk aversion.''"
"Mexico's peso advanced 0.1 percent to 10.1432 per dollar at 3:20 p.m. in New York, from 10.1582 yesterday. It has risen 5.5 percent over the past six months, the best performance among the six most-traded currencies in Latin America."
The U.S. Commerce Department said today bookings of goods meant to last several years rose 1.3 percent last month. The median forecast of 76 economists surveyed by Bloomberg projected orders would be unchanged.
"Yields on Mexico's 10 percent bond due in December 2024, the country's most-traded security, fell 3 basis points, or 0.03 percentage point, to 8.56 percent. The bond's price rose 0.3 centavo to 112.58 centavos per peso, according to Banco Santander SA."
To contact the reporters on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net; Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
"Last Updated: August 27, 2008 15:30 EDT"
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European Bonds Decline; Weber Says No Scope for Rate Reductions
Aug. 27 (Bloomberg) -- European government notes declined after European Central Bank council member Axel Weber said there's no scope for interest-rate cuts as inflation remains the bank's main concern.
"The drop in prices pushed the yield on the 10-year bund, Europe's benchmark debt security, up from near the lowest since mid-May. Weber said investors' expectations of lower rates were ``premature'' and the bank may even need to raise borrowing costs again once the economy emerges from its slump."
"``Weber was hawkish as ever,'' said Marius Daheim, a senior bond strategist in Munich at Bayerische Landesbank, Germany's second-biggest state-owned bank. ``It does strike me how strongly the market reacted to these comments. The market has recently traded quite one-sidedly on the recession story. Weber probably wanted to counter overly optimistic expectations for rate cuts.''"
"The 10-year note yield climbed 5 basis points to 4.16 percent as of 4:41 p.m. in London. The 4.25 percent note due July 2018 fell 0.41, or 4.1 euros per 1,000-euro ($1,473) face amount, to 100.67."
The yield on the two-year note rose 9 basis points to 4.07 percent. Yields move inversely to bond prices.
"Bonds extended their drop after a U.S. report showed durable goods orders unexpectedly rose in the world's largest economy. The 1.3 percent gain in bookings of goods meant to last several years matched the previous month's revised increase, the Commerce Department said today in Washington."
Rate Bets
Traders have reduced bets the ECB will lower interest rates next year to spur economic expansion. The implied yield on the March Euribor futures contract rose 7 basis point to 4.77 percent. It has declined 24 basis points in the past month.
"The difference in yield, or spread, between two- and 10-year notes narrowed to 9 basis points, from 12 basis points yesterday, as short-maturity debt underperformed longer-dated bunds."
Two-year notes rose earlier on speculation inflation in Germany slowed from the fastest pace in 12 years in August as oil prices retreated from a record.
"The Federal Statistics Office later said the inflation rate was 3.3 percent, from 3.5 percent in July, using a harmonized European Union method. Consumer prices in four German states fell this month as oil prices retreated from a record."
Oil prices have declined 21 percent from a record of $147.27 a barrel while a faltering economy makes it more difficult for companies to boost prices. Crude prices are still up 57 percent from a year earlier.
Bond Returns
"European bonds returned 3.7 percent this quarter, compared with a 1.8 percent gain for U.S. Treasuries, according to Merrill Lynch & Co.'s EMU Direct Government and U.S. Treasury Master indexes."
"``Monetary policy at the moment is roughly where it should be,'' Weber, 51, said in an interview in his office in Frankfurt yesterday. ``I don't expect inflation to come down necessarily just with weaker growth. Inflation is still the No. 1 worry for central bankers in the euro region.''"
Bonds were supported earlier even after separate reports showed import-price inflation in Germany accelerated to the fastest pace in almost eight years in July and Italian consumer confidence rebounded from a 15-year low in August.
"Import prices rose 9.3 percent in the year, the statistics office said. That's the biggest gain since November 2000. The Rome-based Isae Institute's index, calculated from a survey of 2,000 families, climbed to 99.5, from 95.8 in July."
German Confidence
"Bonds rallied yesterday after a report showed business confidence in Germany fell to the lowest level in three years in August, increasing the likelihood the European Central Bank will lower interest rates. The German economy, Europe's largest, contracted in the second quarter, according to a separate report."
"``The euro-region economy is struggling at the moment and downside risks are intensifying,'' said Soerensen. ``This should continue to put downward pressure on yields.''"
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 1.45 billion euros of inflation-linked bonds due September 2012 and September 2023 at an auction today. The country also plans to sell 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 tomorrow."
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
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Brazil's IGP-M Index Drops for First Time in 2 Years (Update3)
By Joshua Goodman
"Aug. 27 (Bloomberg) -- Brazil's broadest measure of inflation fell in August for the first time in more than two years, led by a larger-than-forecast drop in food prices."
"Consumer, construction and wholesale prices, as measured by the IGP-M price index, decreased 0.32 percent, more than all 28 economists surveyed by Bloomberg had predicted."
"Today's report doesn't suggest the central bank should ease up on its bid to contain inflation, said Zeina Latif, chief economist for ING Bank NV in Sao Paulo. Policy makers have raised interest rates three times since April, to 13 percent from a record low 11.25 percent, to slow inflation running near the 6.5 percent upper limit of its target range."
"``This helps ease concerns, but inflation expectations for next year remain pretty rigid,'' Latif said. ``As long as food prices remain volatile and demand robust there's not much room for monetary policy to change.''"
"Policy makers, led by bank President Henrique Meirelles, are expected to raise the key rate 0.75 percentage point for the second consecutive time at their Sept. 10 meeting, according to an Aug. 22 bank survey of 100 economists. The bank will raise the rate to 14.75 percent by the end of the year, the survey showed."
"A 30 percent monthly drop in the wholesale price of tomatoes led all food items lower, helping reverse a 1.76 percent increase in the IGP-M in July. The index is measured by the Rio de Janeiro-based Getulio Vargas Foundation."
Annual Pace
"Consumer, construction and wholesale prices climbed 13.63 percent from a year-ago, less than the 5-year high of 15.12 percent in July, the Getulio Vargas Foundation said. The country's benchmark index for consumer prices showed a 6.23 percent increase for the 12 months through mid-August, the central bank said last week."
Citigroup Inc. said in a report today that inflation expectations in Brazil have ``peaked'' and raised its rating on Brazil banks to ``overweight'' from ``underweight.'' The bank also upgraded its recommendation on the country's consumer discretionary stocks to ``neutral'' from ``underweight.''
"``Often lost in the case for a more aggressive stance toward domestic sectors in Brazil is the ongoing impressive strength of the real economy in Brazil, especially of domestic demand,'' Latin American equities strategist Geoffrey Dennis wrote in the report."
Dennis said the benchmark Selic rate should peak at 15.25 percent in early 2009.
To contact the reporter on this story: Joshua Goodman in Rio de Janeiro jgoodman19@bloomberg.net
"Last Updated: August 27, 2008 11:32 EDT"
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"Canada Stocks Rise, Led by Banks; CIBC, Bank of Montreal Gain "
By John Kipphoff
"Aug. 27 (Bloomberg) -- Canadian stocks gained the most in a week, led by banks, after Canadian Imperial Bank of Commerce posted lower-than-estimated writedowns, stoking speculation the worst of the credit crisis may soon be over for lenders."
"CIBC jumped the most since July 17, lifting an index of banks and insurance stocks from a six-week low. Canadian Natural Resources Ltd. and Potash Corp. of Saskatchewan Inc. paced gains among commodity producers, as oil, metals and grain prices rose and the U.S. reported an increase in durable-goods orders."
"The Standard & Poor's/TSX Composite Index jumped 1.8 percent to 13,532.14 as of 12:46 p.m. in Toronto. Canada's equity benchmark, which derives three-quarters of its value from financial, energy and materials and stocks, has still slid 9.4 percent from its June peak as commodities slumped on concern credit losses would slow global growth and demand for resources."
"``This might not be the bottom yet for'' CIBC, said Michael Sprung, president of Sprung & Co. Investment Counsel, which manages about $50 million in Toronto. ``But it's certainly close enough. We're beginning to see some attractive valuations.''"
"Canadian Imperial Bank of Commerce gained 5.6 percent to C$60.26. the biggest advance among stocks in the S&P/TSX today. The country's fifth-largest bank had C$885 million in pretax writedowns linked to the U.S. mortgage market, adding to the C$6.66 billion in debt-related costs it's reported since the third quarter of 2007."
"Canadian Imperial said third-quarter profit fell 91 percent to C$71 million ($68 million) on the writedowns. CIBC earned C$1.65 a share before some one-time items, said National Bank Financial analyst Robert Sedran, missing his C$1.72 estimate."
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"CIBC was raised to ``neutral'' from ``sell'' by John Aiken at Dundee Securities Corp. in Toronto, who said that its writedowns were ``well below'' his estimate of as much as C$1.9 billion."
"This should allay concern that the company may have to raise capital by selling additional shares or cutting the dividend, and redirect attention to CIBC's earnings outlook, the analyst wrote in a note. He kept his share-price target of C$49 under review."
"Bank of Montreal, whose profit yesterday also missed analysts' estimates, on rising provisions for bad loans, climbed 3.8 percent to C$45.62. Royal Bank of Canada and Toronto- Dominion Bank advanced 2.8 percent and 2.7 percent, respectively. The nation's two largest lenders are scheduled to report their results tomorrow."
"A measure of financial shares rose 2.5 percent, leading all 10 industry groups in the S&P/TSX higher."
Energy Rally
"Canadian Natural, whose Horizon oil-sands project is scheduled to begin production this year, rose 3 percent to C$90.19. Suncor Energy Inc., the world's second-largest producer of oil from the tar sands, advanced 3.1 percent to C$60.99."
"Gauges of energy and materials stocks added 1.8 percent and 1.5 percent, respectively."
"Potash Corp., the largest maker of crop nutrients, gained 1.6 percent to C$190.66. Barrick Gold Corp., the biggest bullion producer, rose 1.9 percent to C$36.70."
"Crude oil and natural gas rose in New York on speculation Tropical Storm Gustav will become the most damaging hurricane since Katrina, as it moves toward production platforms in the Gulf of Mexico."
"Copper, gold and soybeans prices advanced after a slip in the U.S. dollar and rising energy prices enhanced the appeal of commodities as an investment and inflation hedge."
"U.S. orders for goods meant to last several years unexpectedly increased in July, gaining 1.3 percent, the Commerce Department said. The increase indicates growing foreign demand is helping companies weather a slump in domestic consumer spending."
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
"Last Updated: August 27, 2008 13:09 EDT"
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"Copper Futures Gain in New York as Dollar Declines, Oil Rallies "
By Millie Munshi
Aug. 27 (Bloomberg) -- Copper gained as a decline in the dollar and a rise in energy costs increased demand for commodities as a hedge against inflation.
"The dollar fell as much as 0.8 percent against a basket of the euro, yen and four other major currencies. Crude oil climbed as much as 2.9 percent. Some traders buy raw materials to preserve purchasing power. Copper has gained 13 percent this year as the dollar slumped to a record versus the euro and fuel prices soared."
"The metal advanced ``in the wake of the direction dictated by oil and the dollar,'' Alex Heath, the head of base metals trading at RBC Capital Markets in London, said in a report."
"Copper futures for December delivery rose 2.85 cents, or 0.8 percent, to $3.445 a pound on the Comex division of the New York Mercantile Exchange. The price reached a record $4.2605 on May 5."
"The metal extended gains after a report showed orders for U.S. durable goods unexpectedly increased in July, easing concern that an economic slump will curb metals demand."
"The report ``adds fuel to the fire and is playing into the bullish sentiment today that is helping copper,'' said Michael Gross, an analyst at OptionSellers.com in Tampa, Florida."
"Bookings of goods meant to last several years climbed 1.3 percent, the Commerce Department said. Economists projected orders would be unchanged, according to the median of 76 forecasts in a Bloomberg News survey."
"Orders of primary metals gained 2.2 percent last month, after climbing 7.8 percent in June, the government said. Copper is used in air conditioners, cars, electronics and other durable items."
`Short-Term Bounce'
"Still, the gain may be a ``short-term bounce'' as the outlook for the European economy dims, weighing on the value of the euro, Gross said."
"``Things in the euro-zone are looking pretty bad,'' he said. ``Though the dollar is weaker today, we expect that it will resume its gain against the euro and that will pressure copper longer term.''"
"The U.S. currency reached a six-month high against the euro yesterday on reports of weaker growth in Germany, Europe's largest economy."
"On the London Metal Exchange, copper for delivery in three months rose $70, or 0.9 percent, to $7,650 a metric ton ($3.47 a pound). The price has 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 27, 2008 14:15 EDT"
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Canada's 2-Year Bonds Advance for Third Consecutive Session
By Chris Fournier
"Aug. 27 (Bloomberg) -- Canada's two-year bonds rose for a third day, the longest such streak in almost three weeks."
"The yield on the 2.75 percent bond maturing in December 2010 fell 5 basis points, or 0.05 percentage point, to 2.78 percent at 12:32 p.m. in Toronto. The price rose 10 cents to C$99.93. The bond last advanced for three consecutive sessions during the period ended Aug. 8."
"``We're getting into month-end, and the index funds have to buy,'' said Sheldon Dong, a fixed-income analyst in Toronto at TD Securities Inc. ``People are trying to get their buying out of the way before Friday.''"
The yield on the benchmark 4.25 percent bond maturing June 2018 rose 1 basis point to 3.55 percent. The price fell 9 cents to C$105.72
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
"Last Updated: August 27, 2008 12:33 EDT"
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Banks' Subprime Market-Related Losses Reach $506 Billion: Table
By Yalman Onaran and Dave Pierson
Aug. 27 (Bloomberg) -- The following table shows the $506.1 billion in asset writedowns and credit losses at more than 100 of the world's biggest banks and securities firms as well as the $352.6 billion capital raised to cope with them.
Those with a star next to their name have figures that were updated since the table was last published. You can see quarterly breakdowns for each bank and different regions by typing WDCI.
Firm Writedown & Loss Capital Raised
Citigroup Inc. 55.1 49.1
Merrill Lynch & Co. 51.8 29.9
UBS AG 44.2 27.9
HSBC Holdings Plc 27.4 3.9
Wachovia Corporation 22.7 11.0
Bank of America Corp. 21.2 20.7
IKB Deutsche Industriebank AG 15.1 12.4
Washington Mutual Inc. 14.8 12.1
Morgan Stanley 14.4 5.6
Royal Bank of Scotland Group Plc 14.3 23.4
JPMorgan Chase & Co. 14.3 9.5
Deutsche Bank AG 10.6 3.2
Credit Suisse Group AG 10.4 2.7
Wells Fargo & Company 10.0 4.0
Barclays Plc 9.9 18.1
Lehman Brothers Holdings Inc. 8.2 13.9
Credit Agricole S.A. 7.8 8.7
Fortis 7.3 7.1
Canadian Imperial Bank of Commerce* 7.2 2.8
Bayerische Landesbank 7.1 0.0
HBOS Plc* 6.9 7.3
ING Groep N.V. 6.8 4.7
Societe Generale 6.7 9.6
Mizuho Financial Group Inc. 5.9 0.0
National City Corp. 5.4 8.9
Indymac Bancorp Inc 4.9 0.0
Lloyds TSB Group Plc 4.8 4.8
WestLB AG 4.7 7.3
Dresdner Bank AG 4.0 0.0
BNP Paribas 3.9 0.0
Landesbank Baden-Wurttemberg 3.8 0.0
Goldman Sachs Group Inc. 3.8 0.6
E*TRADE Financial Corp. 3.6 2.4
Rabobank* 3.6 0.0
Nomura Holdings Inc. 3.3 1.1
Natixis 3.2 6.6
Bear Stearns Companies Inc. 3.2 0.0
HSH Nordbank AG 2.7 1.9
Landesbank Sachsen AG 2.6 0.0
UniCredit SpA 2.5 0.0
Commerzbank AG 2.3 0.0
ABN AMRO Holding NV 2.3 0.0
Bank of China Ltd 2.0 0.0
DZ Bank AG 2.0 0.0
Fifth Third Bancorp 1.9 2.6
Bank Hapoalim B.M. 1.7 2.4
Royal Bank of Canada 1.6 0.0
Mitsubishi UFJ Financial Group 1.6 1.5
Marshall & Ilsley Corp. 1.4 0.0
Alliance & Leicester Plc 1.3 0.0
U.S. Bancorp 1.3 0.0
Dexia SA 1.2 0.0
Bank of Montreal* 1.2 0.0
KeyCorp 1.2 1.6
Groupe Caisse d'Epargne 1.2 0.0
Hypo Real Estate Holding AG 1.2 0.0
Sovereign Bancorp Inc. 1.0 1.9
Gulf International Bank 1.0 1.0
Sumitomo Mitsui Financial Group 0.9 4.8
Sumitomo Trust and Banking Co. 0.7 1.0
DBS Group Holdings Limited 0.2 1.1
Other European Banks 7.4 2.2
(not listed above)
Other Asian Banks* 5.6 9.0
(not listed above)
Other US Banks 2.9 1.9
(not listed above)
Other Canadian Banks* 1.0 0.0
(not listed above)
________ ________
TOTAL 506.1 352.6
"All the charges stem from the collapse of the U.S. subprime- mortgage market and reflect credit losses or writedowns of mortgage assets that aren't subprime, as well as charges taken on leveraged-loan commitments since the beginning of 2007. They are net of financial hedges the firms used to mitigate losses and pre-tax figures unless the bank only provided after-tax numbers. Credit losses include the increase in the provisions for bad loans, impacted by the rising defaults in mortgage payments."
"Capital raised includes common stock, preferred shares, subordinated debt and hybrid securities which count as Tier 1 or Tier 2 capital as well as equity stakes or subsidiaries sold for capital strengthening. Capital data begins with funds raised in July 2007."
"All numbers are in billions of U.S. dollars, converted at today's exchange rate if reported in another currency. See WDCI Help pages for a list of the banks included in the Other European, Other U.S., Other Canada and Other Asia categories."
To contact the reporters on this story: Yalman Onaran in New York at yonaran@bloomberg.net; Dave Pierson at dpierson@bloomberg.net.
"Last Updated: August 27, 2008 12:13 EDT"
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