European Bonds Little Changed Before German Confidence Index
By Agnes Lovasz
Aug. 26 (Bloomberg) -- European government bonds were little changed before an industry survey that will probably show German business confidence slipped to a three-year low in August.
"The 10-year bund yield held near the lowest level in more than three months after a government report showed the German economy, Europe's largest, contracted in the second quarter. The Ifo institute's investor sentiment index fell to 97.2 from 97.5 in July, according to the median of 35 forecasts in a Bloomberg News survey. That would be the weakest reading since September 2005. The data is due at 10 a.m. in Munich."
"``We don't see where a swift recovery in economic activity might be coming from,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``We see further downside in coming months. The bigger picture is conducive toward more gains in the bond markets.''"
"The two-year note yield declined 2 basis points, to 4.01 percent by 8:22 a.m. in London. The price of the 4.75 percent note rose 0.03, or 30 euro cents per 1,000 euro ($1,468) face amount, to 101.23."
"The yield on the 10-year German bund, Europe's benchmark government security, rose 1 basis point to 4.13 percent, 4 basis point above its lowest level since May 13. Yields move inversely to bond prices."
"The difference in yield, or spread, between two- and 10-year notes widened to 11 basis points, the most in a week, from 8 basis points yesterday, as rate-sensitive short-maturity debt outperformed."
Waning Confidence
"Building investment dropped 3.5 percent in the quarter, investment in plant and machinery fell 0.5 percent and consumer spending decreased 0.7 percent, the Federal Statistics Office said. Gross domestic product fell an adjusted 0.5 percent from the first quarter, when it rose 1.3 percent, the office said, confirming a first estimate from Aug. 14. That's the weakest since the second quarter of 1998."
"Confidence among Germany's consumers slipped to the lowest level in more than five years, according to GfK AG's index for September, released today."
"The gauge, based on a survey of about 2,000 people, fell to 1.5, the lowest since June 2003, from a revised 1.9 in August, the Nuremberg-based market-research company said in a statement."
Traders have increased bets the European Central Bank will lower interest rates this year to stimulate economic expansion. The implied yield on the December Euribor futures contract fell 1 basis point to 5.04 percent. It has declined 9 basis points in the past month.
The central bank left its main interest rate at 4.25 percent on Aug. 7 while ECB President Jean-Claude Trichet said that growth will be ``particularly weak.''
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
"Last Updated: August 26, 2008 03:49 EDT"
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Canada's Currency Declines for a Second Day as Commodities Fall
By Chris Fournier
"Aug. 25 (Bloomberg) -- Canada's dollar dropped for a second day, its longest losing streak in two weeks, as the price of commodities including gold and silver fell."
The Canadian dollar weakened versus 10 of the 16 most- actively traded currencies. Commodities account for more than half of the nation's export revenue.
"``If the metals prices are down, that tends to weigh on our currency,'' said Sal Guatieri, a senior economist at Bank of Montreal in Toronto. ``It's probably a commodities play.''"
"The Canadian currency fell 0.3 percent to C$1.0503 per U.S. dollar at 3:10 p.m. in Toronto, from C$1.0470 on Aug. 22. The last time Canada's dollar depreciated for two straight days occurred on Aug. 8 and Aug. 11. One Canadian dollar buys 95.21 U.S. cents."
"Gold futures for December delivery dropped 0.9 percent to $825.70 an ounce on the Comex division of the New York Mercantile Exchange. Silver futures for December delivery fell 11.1 cents, or 0.8 percent, to $13.479 an ounce."
"The Canadian dollar will slip to C$1.10 against the U.S. currency by the end of 2009, according to the median forecast of economists surveyed by Bloomberg News."
Two-Year Yield
"The yield on the two-year Canadian government bond declined 3 basis points, or 0.03 percentage point, to 2.89 percent. The price of the 2.75 percent security due in December 2010 rose 7 cents to C$99.70. The 10-year bond's yield slipped 4 basis points to 3.58 percent. It was the biggest fall since Aug. 7."
"``Markets are trading off the U.S., where renewed concern about the U.S. corporate sector and the economy in general is resurfacing,'' said John Rothfield, senior currency strategist at Banc of America Securities LLC in San Francisco. ``There's quite a bit of interest this week also in Canadian banks.''"
"The two-year bond's yield will rise to 3.09 percent by the end of this year, while the 10-year bond's yield will increase to 3.86 percent, according to the median forecasts of economists surveyed by Bloomberg News."
"The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 21 basis points, down from 36 basis points on Aug. 11. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22."
"``With equities spooked over concerns about the financial system and worried about global growth, bonds are seeing a flight-to-safety bid, with Canada's being pulled along by a sharp rally in U.S. treasuries,'' said Avery Shenfeld, senior economist at CIBC World Markets in Toronto."
"Canadian government bonds have returned 4.3 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 3.6 percent this year."
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
"Last Updated: August 25, 2008 15:11 EDT"
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Brazil Lending Rises at Slowest Pace in Five Months (Update2)
By Telma Marotto
Aug. 25 (Bloomberg) -- Brazilian bank lending expanded last month at 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.
"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 today in Brasilia. Lending rose 32.7 percent from the year-earlier month."
"Monetary policy makers have raised benchmark interest rates three times since April, to 13 percent from a record low 11.25 percent, in a bid to cool domestic demand and inflation. The moves pushed the average annual interest rate Brazilian banks charge customers to 39.4 percent in July from 38 percent in June, the central bank said."
"``With rates going up it's natural that people will be more careful in taking credit and banks be more restrictive in lending money,'' Luiz Medina, economist at asset management M2 Investimentos, said in a Bloomberg television interview. ``The trend for credit is still one of expansion but at a slower pace.''"
"Shares of Brazilian banks helped lead a drop in the MSCI Brazil Index. The group of nine Brazilian financial companies declined 3.7 percent. Banco do Brasil SA, Latin America's largest bank by assets, fell 73 centavos, or 3.1 percent, to 22.78 reais at the Sao Paulo stock exchange."
Financials Decline
"Banco Bradesco SA, Brazil's largest non-government bank by assets, declined 73 centavos, or 3.1 percent, to 22.78 reais, while Banco Itau Holding Financeira SA, Brazil's second-biggest non-government bank, fell 1 real, or 3.2 percent, to 30.55 reais."
"The average default rate, measured by payments late more than 60 days, increased to 4.2 percent from 4 percent in June and declined from 4.7 percent in July 2007."
"``We expect asset quality to continue to deteriorate gradually, following a five-year credit bull cycle and a much more leveraged consumer,'' Mario Pierry, an analyst with Deutsche Bank, wrote in an e-mailed report today."
Borrowing in Brazil has risen every month since February 2004 on rising employment and household incomes.
"Lending reached a record of 37 percent of the country's gross domestic product, compared with 36.6 percent in June and 32.4 percent in the same month last year. Lending may reach 40 percent of GDP by year end, Altamir Lopes, head of economic research at the central bank told reporters."
"Mortgage lending rose 3.3 percent from June and 30 percent in the past 12 months, the central bank said."
To contact the reporters on this story: Telma Marotto in Sao Paulo at tmarotto1@bloomberg.net; Katia Cortes in Brasilia at at kcortes@bloomberg.net
"Last Updated: August 25, 2008 17:19 EDT"
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"U.K. Pound Falls Against Dollar, Little Changed Versus Euro "
By Lukanyo Mnyanda
"Aug. 26 (Bloomberg) -- The U.K. pound fell against the dollar, extending a fifth week of declines, the longest losing streak since February 2006."
"The British currency traded at $1.8427 by 7:38 a.m. in London, from $1.8532 yesterday in New York. It slipped to $1.8512 on Aug. 15, near the lowest level since July 2006. Against the single European currency, the pound was little changed at 79.63 pence."
The pound dropped against the euro and the dollar last week after a government report showed economic growth stagnated in the second quarter.
"The report added to pressure on the Bank of England to set aside concerns about inflation and cut its benchmark interest rate, currently at 5 percent."
"The U.K. economy faltered after banks choked off credit following the collapse of the U.S. subprime-mortgage market. Still, an inflation rate at more than twice its 2 percent target has prevented the Bank of England's from lowering interest rates to revive the economy."
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: August 26, 2008 02:40 EDT"
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"Treasuries Little Changed, Interrupting Rally Before Auctions "
By Wes Goodman
"Aug. 26 (Bloomberg) -- Treasuries were little changed, interrupting a rally that pushed 10-year yields to the lowest since May, before the U.S. sells $54 billion of securities tomorrow and the following day."
"Ten-year notes yield 1.79 percentage points more than the Federal Reserve's target for overnight bank lending, the smallest spread since May 20. The narrowing raised speculation notes may lose their appeal given forecasts that the Fed will raise borrowing costs next year."
"``The global fixed-income market has rallied, and I don't want to chase bonds,'' said Shinji Kunibe, a senior portfolio manager who helps oversee $847 billion globally at the Tokyo branch of JPMorgan Asset Management, part of the third-biggest U.S. bank. ``For the remainder of the week, the U.S. Treasury market will be vulnerable.''"
"The benchmark 10-year note yielded 3.79 percent at 7:26 a.m. in London, according to bond broker BGCantor Market Data. The price of the 4 percent security due August 2018 fell 2/32, or 63 cents per $1,000 face amount, to 101 23/32. The rate dropped to 3.76 percent yesterday, the lowest since May 13."
"Kunibe said he would consider buying the notes at 3.9 percent. European bonds offer better value, he said. U.S. two- year securities yielded 2.32 percent."
"The Treasury Department is scheduled to auction $32 billion of two-year notes tomorrow and $22 billion of five-year securities on Aug. 28. The size of the two-year note sale is a record, and the five-year note auction will be the biggest since February 2003."
Slower Growth
Ten-year yields have fallen almost half a percentage point since the middle of June as forecasts for slowing economic growth spurred demand for the relative safety of government debt.
"The U.S. economy may have grown 2.7 percent in the second quarter, faster than the 1.9 percent pace first reported, according to a Bloomberg News survey of economists before the Commerce Department releases the revised figure on Aug. 28. Growth will slow to 0.45 percent in the fourth quarter, a separate Bloomberg survey showed."
"Asian stocks fell, led by Mitsubishi UFJ Financial Group Inc. and other financial companies, on speculation credit-market losses that have surpassed $500 billion since the start of 2007 will dent earnings. The MSCI Asia Pacific Index of regional shares fell 1.1 percent, approaching a two-year low."
`I'm Bullish'
"``I'm bullish on Treasuries now because of the economic situation,'' said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., part of Japan's biggest bank. ``The housing market is sluggish and the financial institutions in the U.S. have many, many problems. There is no fuel for the economy.''"
"Home purchases slid 0.9 percent in July to an annual pace of 525,000, according to the median forecast in a Bloomberg survey before the Commerce Department reports the figure today. Sales reached a 17-year low rate of 513,000 in March."
"The S&P/Case-Shiller gauge of home prices in 20 metropolitan areas will plunge 16.2 percent in June from a year earlier, the biggest drop since records began in 2001, according a separate Bloomberg survey."
"U.S. government securities returned 2.6 percent in the past two months, according to Merrill Lynch & Co.'s U.S. Treasury Master index. The gain was 3.2 percent for German bonds and 1.5 percent in Japan, Merrill's indexes showed."
Business Confidence
"The Ifo institute's German business confidence index will decline to 97.2 in August, the lowest level since September 2005, from 97.5 the previous month, a Bloomberg survey showed before the report today."
"The Fed will probably raise its target for overnight loans between banks in the U.S., now 2 percent, by at least a quarter- percentage point at its January meeting, futures contracts on the Chicago Board of Trade indicate."
"U.S. inflation forecasts approached the lowest since January, yields indicated."
"The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes narrowed to 2.15 percentage point from 2.63 percentage point in the first week of July. The figure reflects the inflation rate that traders expect for the next decade."
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
"Last Updated: August 26, 2008 02:29 EDT"
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Nordic Currencies: Norway's Krone Gains Before Jobless Report
By Bo Nielsen
Aug. 25 (Bloomberg) -- Norway's krone rose against the euro before a report this week that will probably show the June unemployment rate held near the lowest level in two decades.
"The jobless rate stayed at 2.5 percent, according to the median estimate of 15 economists in a Bloomberg News survey. The data will be released by Statistics Norway on Aug. 27. The mainland economy, which excludes oil activities, grew 1 percent after shrinking 0.1 percent in the first quarter, a government report last week showed."
"``A steady number suggests that the previously existing inflation pressure is going to be maintained,'' said Geoffrey Yu, a currency strategist in London at UBS AG, the second-biggest foreign-exchange trading bank. ``Norges Bank is almost certainly going to hike rates next month.''"
"The Norwegian krone was at 7.9288 per euro by 4 p.m. in Oslo, from 7.9411 on Aug. 22, and gained 0.1 percent to 5.3618 per dollar. The Swedish krona slipped to 6.3278 per dollar, after falling to 6.3639 earlier, from 6.3246."
Sweden's krona pared declines against the dollar after a government report showed the country's trade surplus widened in July as demand for its exports increased.
"The unadjusted trade balance reached 9.4 billion kronor ($1.48 billion), from a revised 9 billion kronor in June, Statistics Sweden said on its Web site today. Danske Bank, Scandinavia's second-biggest bank, forecast the surplus would narrow to 6 billion kronor."
"The country's main trading partner is the European Union, whose economy contracted in the second quarter for the first time since the launch of the euro almost a decade ago."
Fiscal Changes
Finance Minister Anders Borg said last week the Swedish government will slash taxes and raise spending by a total of 30 billion kronor next year to counter slowing economic growth and rising unemployment.
"Norges Bank, which next sets rates on Sept. 24, raised its key rate to 5.75 percent in June and indicated it may lift it to 6 percent to prevent inflation from accelerating. Consumer-price growth reached a 7 1/2-year high of 2.9 percent in July."
"Iceland's krona snapped a two-day gain, falling 0.9 percent to 82.13 per dollar."
"Nordic government bonds declined, with the yield on Sweden's 5.25 percent note due March 2011 falling 3 basis points, or 0.03 percentage point, to 4.37 percent. The yield on Norway's 6 percent government note maturing May 2011 fell 2 basis points to 5.05 percent. Yields move inversely to bond prices."
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
"Last Updated: August 25, 2008 10:09 EDT"
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Germany GfK Consumer Confidence for September: Summary (Table)
By Kristian Siedenburg
Aug. 26 (Bloomberg) -- Following is a summary of the September German consumer confidence report from GfK AG in Nuremberg.
===============================================================================
Sept. Aug. Aug. July July June June
Initial Rev. Initial Rev. Initial Rev. Initial
===============================================================================
[bn:WBTKR=ECO1GFKC:IND] Consumer climate [] 1.5 1.9 2.1 3.6 3.9 4.5 4.9
------------------------------------------------------------------------------
Aug. July June May April March Feb.
2008 2008 2008 2008 2008 2008 2008
------------------------------------------------------------------------------
Economic outlook -21.8 -8.0 7.5 13.4 23.3 15.0 14.6
Income expectations -16.8 -20.0 -7.2 -4.3 10.5 1.5 -0.5
Willingness to buy -27.9 -26.2 -23.7 -20.4 -4.7 -10.2 -15.0
===============================================================================
"NOTE: Survey results are based on approximately 2,000 responses gathered"
during the first half of the month.
SOURCE: GfK AG
To contact the reporter on this story: Kristian Siedenburg in Budapest at ksiedenburg@bloomberg.net
"Last Updated: August 26, 2008 02:10 EDT"
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Euro Falls for 3rd Day Before German Business Confidence Report
By Stanley White
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Aug. 26 (Bloomberg) -- The euro fell for a third day against the dollar on speculation a report today will show business confidence in Germany slumped to a three-year low.
The currency also declined for a second day versus the yen on concern credit-market losses and slowing exports will stop the European Central Bank from raising interest rates this year. The yen rose against the Australian and New Zealand dollars as a drop in Asian stocks prompted investors to pare holdings of higher-yielding assets funded in the Japanese currency.
"``There's a good chance for the euro to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``People are giving up on bets for euro gains as the chance of an ECB rate hike fades away.''"
"The euro fell to $1.4684 at 8 a.m. in London from $1.4754 late yesterday in New York. It reached $1.4631 on Aug. 19, the lowest since Feb. 20. The currency weakened to 161.07 yen from 161.26, near the three-month low of 160.20 yen reached on Aug. 21. The dollar bought 109.69 yen from 109.30."
"The pound declined to $1.8440 from $1.8532 yesterday, when it touched a two-year low of $1.8406. Data this week may show U.K. home prices fell by the most in almost two decades."
The yen climbed to 93.89 per Australian dollar from 95.34 late yesterday in Asia. It also advanced 1.9 percent to 75.94 versus the New Zealand dollar.
"Investors reduced so-called carry trades after the MSCI Asia Pacific Index lost 1.1 percent on concern widening losses at financial firms will slow global growth. Topeka, Kansas-based Columbian Bank& Trust Co. became the ninth U.S. bank to collapse this year."
Carry Trades
"In carry trades, investors 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 7.25 percent in Australia and 8 percent in New Zealand. The risk is that exchange rate moves erode those profits."
"The Ifo institute's German business confidence index will decline to 97.2 in August, the lowest level since September 2005, from 97.5 the previous month, according to the median forecast of economists surveyed by Bloomberg News. The Ifo releases the data at 10 a.m. in Munich today."
"The euro has lost 8 percent versus the dollar since touching an all-time high of $1.6038 on July 15, sliding as a report showed the European economy shrank in the second quarter and crude oil dropped more than 20 percent from a record $147.27 a barrel set last month."
Rate Bets
"Traders reduced bets the ECB will raise its 4.25 percent benchmark rate this year. The implied yield on the Euribor futures contract expiring in December was 5.045 percent, down from 5.065 percent at the start of the month."
"`There's good reason why the dollar is rallying, particularly against the euro,'' Kathy Lien, director of research at GFT Forex, said in an interview with Bloomberg Television. ``Once we get more speculation about the possibility of an ECB rate cut, that could push the euro-dollar a little lower.''"
The yen declined against the dollar on speculation Japanese pension funds and institutional investors sold the currency to increase their holdings of Treasuries.
Treasury Auctions
"The Treasury Department is scheduled to auction $32 billion of two-year notes tomorrow and $22 billion of five-year securities on Aug. 28. The size of the two-year note sale is a record, and the five-year note auction will be the biggest since February 2003. Japan is the largest foreign holder of Treasuries, according to U.S. government data."
"``There's a new supply of Treasuries coming on line and that may lure some Japanese investors,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd., a unit of Japan's largest brokerage. ``Pension funds have been aggressive buyers of Treasuries in the past.''"
"Gains in the dollar may be limited by speculation new U.S. home sales declined. Purchases of new houses dropped 0.9 percent to an annual rate of 525,000 in July from 530,000 in June, according to a Bloomberg News survey of economists. New home sales fell to a 17-year low of 513,000 in March. The Commerce Department releases the data at 10 a.m. today in Washington."
"``There's not going to be any improvement in the data out of the U.S. and the hope is that it doesn't get any worse than it already is,'' said Mitul Kotecha, global head of currency strategy at Calyon in Hong Kong. ``We could see the dollar being restrained in the short term.''"
Pound Selling
"The pound approached a two-year low against the dollar on speculation the housing market will slow the economy, increasing the likelihood the Bank of England will lower its 5 percent benchmark rate."
"U.K. home prices slid by 9.6 percent in August from a year earlier, the most since at least 1991, according to a Bloomberg survey. Nationwide Building Society, Britain's fourth-biggest mortgage lender, will release the data on Aug. 28."
The implied yield on the March short-sterling futures contract fell to 5.265 percent yesterday from 5.5 percent at the start of the month.
"``The pound comes under continued selling pressure,'' analysts led by Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France's biggest bank, wrote in a research note yesterday. ``The continued deterioration in the housing market is expected to keep the growth outlook gloomy. Speculation of an early BoE rate cut will continue to develop.''"
"Investors should sell the pound with a target of $1.82 and an automatic buy order at $1.88 to limit losses, according to the report."
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: August 26, 2008 03:03 EDT"
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"Australian, New Zealand Dollars Fall on Credit-Market Concerns "
By Ron Harui and Tracy Withers
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Aug. 26 (Bloomberg) -- The Australian and New Zealand dollars declined for a second day against the yen as concerns credit-market turmoil will widen prompted investors to sell higher-yielding assets funded in the Japanese currency.
"Australia's dollar slid toward a four-month low and New Zealand's currency fell to its lowest in more than a week versus the yen on speculation American International Group Inc. will post a loss, spurring investors to reduce so-called carry trades. The Australian dollar dropped to its lowest in seven months against the U.S. currency on prospects the nation's central bank will cut interest rates from a 12-year high next week."
"``I'm concerned the Australian dollar can't bounce from here and we have more downside to come,'' said Paul Milton, chief foreign-exchange dealer at Societe Generale SA in Sydney. ``The fundamental picture is looking shaky for the Australian dollar and we're staring at rate cuts.''"
"The Australian dollar fell 1.7 percent to 93.75 yen as of 4:40 p.m. in Sydney, from 95.34 yen late in Asia yesterday. The currency, known as the Aussie, reached 93.57 yen. It touched 93.15 yen on Aug. 13, the weakest since April."
"The Aussie dropped 1.6 percent to 85.49 U.S. cents from 86.85 cents. It reached 85.40 cents, the weakest since Jan. 22, and Milton predicts the currency will slide toward 83 cents in the next few weeks."
"The New Zealand dollar lost 2.7 percent, the largest decline since May 8, to 75.72 yen from 77.80 yen late in Asia yesterday. It touched 75.71 yen, the lowest since Aug. 14. The currency, known as the kiwi, slid 2.5 percent, the most since June 5, to 69.10 U.S. cents."
Carry Trades
"The Australian and New Zealand dollars are favorite targets of carry trades, in which investors get funds in a country with low borrowing costs and invest in one with higher rates, earning the spread between the two. The risk is that currency market moves erase those profits."
"Benchmark interest rates are 7.25 percent in Australia and 8 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S."
"Traders are certain Reserve Bank of Australia policy makers will lower their interest rate by a quarter-percentage point when they meet Sept. 2, according to interest-rate futures trading on the Sydney Futures Exchange."
"Australia & New Zealand Banking Group Ltd. lowered its forecasts for the Australia dollar on prospects for a stronger U.S. dollar, weaker commodities and lower interest rates."
Commodities Decline
"``When the dollar is going up and commodities are coming off, that's a double whammy against the Australian dollar,'' said Tony Morriss, a senior currency strategist in Sydney at Australia & New Zealand Banking Group, confirming a research note published today. ``We've also got the RBA going into easing mode.''"
"The Australian dollar is likely to trade at 92 cents at the end of September and 90 cents at year-end, according to ANZ's research note, compared with earlier predictions of 94 cents and 92 cents, respectively."
The New Zealand dollar was the worst performer among the 16 most-traded currencies versus the U.S. dollar and the yen today after AIG tumbled to a 13-year low in New York. Credit Suisse Group said the world's largest insurer may lose $2.41 billion this quarter on mortgage-related writedowns.
Sell N.Z. Dollar
"Investors should sell the New Zealand dollar as the drop in global commodity prices slows the nation's economic growth, according to Standard Chartered Plc."
"The New Zealand dollar is likely to fall to 69 cents by year-end, compared with a previous estimate of 71 cents, according to Standard Chartered. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen almost 15 percent from a peak in July."
"``The recent correction in global commodities is the straw that has broken the camel's back,'' New York-based currency strategist Mike Moran and Singapore-based Callum Henderson wrote in a research note yesterday. Fund managers should reduce their New Zealand dollar-denominated holdings to ``underweight'' from ``neutral,'' they wrote."
"Australian government bonds gained. The yield on the benchmark 10-year bond fell 4 basis points, or 0.04 percentage point, to 5.75 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.328, or A$3.28 per A$1,000 face amount, to 96.061. Yields move inversely to prices."
"New Zealand government debt advanced, pushing the yield on the benchmark 10-year note down by 3 basis points to 6.06 percent. The price of the 6 percent security due in December 2017 climbed 0.228, or NZ$2.28 per NZ$1,000 face amount, to 99.582."
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net
"Last Updated: August 26, 2008 03:10 EDT"
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"Brazil Stocks Fall, Led by Banks, Vale; Mexico's Bolsa Drops "
By Alexander Ragir and William Freebairn
"Aug. 25 (Bloomberg) -- Brazilian stocks fell the most in two weeks, led by financial companies and metal producers, after bank lending grew at the slowest pace in five months and a decline in iron ore prices raised concern demand for commodities is slowing."
"Banco do Brasil SA and Banco Itau Holding Financeira SA lost more than 3 percent as higher interest rates curbed demand for consumer credit last month. Cia. Vale do Rio Doce paced a decline in raw-materials producers after Itau Corretora said a fall in prices for iron ore exported to China is ``disturbing.'' Petroleo Brasileiro SA, Brazil's state-controlled oil company, dropped the most in three weeks after Itau said the government is likely to raise taxes once oil production begins on existing concessions."
"``The loan data showed a clear sign of the economy slowing in the future,'' said Felipe Taylor, a portfolio manager at Ciano Investimentos Gestao, the $142 million Sao Paulo hedge fund run by former central bank chief economist Ilan Goldfajn. ``All this commentary on Petrobras is very bad and people are becoming more and more fearful of what will happen.''"
"The Bovespa index dropped 1,372.88, or 2.5 percent, to 54,477.25, the steepest decline since Aug. 11. The MSCI Latin America index slid 3.1 percent. Mexico's Bolsa index dropped 1.7 percent. Chile's Ipsa slipped 0.1 percent."
"Financial stocks slid 3.5 percent in the MSCI Brazil index for the second-steepest decline among the 10 industry groups. 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."
Higher Rates
"Monetary policy makers have raised benchmark interest rates three times since April, to 13 percent from a record low 11.25 percent, in a bid to cool domestic demand and inflation. The move pushed the average annual interest rate Brazilian banks charge customers to 39.4 percent in July from 38 percent in June, the central bank said."
"Uniao de Bancos Brasileiros, Brazil's third biggest non- state bank, fell 2.7 percent to 18.80 reais. Banco Bradesco SA slid 2.2 percent to 29.69 reais."
"Banco do Brasil fell 3.1 percent to 22.78 reais. Latin America's biggest bank and Banco Nossa Caixa SA, Brazil's largest regional lender in government hands, disagree about the amount Banco do Brasil should pay for assets of the bank it's in talks to acquire, Valor Economico reported without saying where it obtained the information. Nossa Caixa dropped 3 percent to 38.50."
Slowing Economy
"Retailers dropped, led by Lojas Americanas SA, on concern higher borrowing costs over the past year will slow consumer demand."
"Lojas Americanas, Brazil's biggest discount retailer, retreated 3.8 percent to 9.87 reais. Lojas Renner SA, the largest publicly traded clothing retailer, fell 2.4 percent to 29."
"``The market is beginning to see a slowing in the economy,'' said Andre Segadilha, head of research at Prosper Corretora in Rio de Janeiro."
"Vale, the world's largest iron-ore exporter, fell 2.6 percent to 37.13 reais. Gerdau SA, Latin America's biggest steelmaker, slid 3.1 percent to 28.80 reais."
"A decline in prices for iron ore exported to China is ``disturbing'' but it is not time to ``panic'' yet, Itau said."
"Spot market prices fell about $10 per dry metric ton from $180 to $185 earlier in the month, said Itau's Sao Paulo-based analyst Marcelo Brisac. Even though the summer lull may cause temporary weakness in the commodity markets, Chinese demand is expected to pick up in October after the Paraolympics, the analyst said."
Petrobras Declines
Petrobras fell 4.2 percent to 33.81 reais.
"O Globo reported yesterday Brazil's government may take back pre-salt oil fields that have been licensed to companies such as Petrobras. The government may expropriate oil wells operated by Petrobras and other companies if they find the wells are linked to others that haven't yet been auctioned, the newspaper said, citing Mines and Energy Minister Edison Lobao."
"``We agree that the government would likely never decide to expropriate already awarded concessions, but this is not the point,'' wrote Itau analyst Paula Kovarsky. ``The existing concessions are the ones that will produce some oil, if any, within the next five years (we guess it will take a little longer) and once the oil starts flowing, we very much doubt that taxation will remain the same.''"
Eletropaulo Metropolitana SA dropped 5 percent to 29.40 reais as the utility said it was canceling a dividend payment after it lost a court ruling on back taxes.
Eletropaulo Declines
"The court ruling refers to social contribution taxes due on operations for the period 1992 to 1999 and will result in the suspension of 360 million reais ($223 million) of first half dividends, according to Itau analyst Sergio Tamashiro."
"Eletropaulo plans to appeal the ruling, the company said in a statement to Brazil's securities regulator on Friday."
"Gol Linhas Aereas Inteligentes SA, Brazil's second-biggest airline, gained for a second day after UBS AG upgraded the stock to ``neutral'' from ``sell.''"
"Gol's revised fleet expansion plans ``should help sustain the ongoing revenue per passenger recovery trend,'' UBS analysts Rodrigo Goes and Gustavo Moreira wrote in a note to clients. ``We like its prospects a lot more under our revised scenario of lower oil prices.''"
"Gol climbed 1.4 percent to 14.30 reais. Rival Tam, which UBS upgraded to ``buy'' from ``neutral,'' gained 1.9 percent to 32.60 reais"
Bolsa Falls
Mexico's Bolsa index fell to the lowest in seven months on concern slowing economic growth and rising inflation will cut into corporate profits.
"Empresas ICA SAB, the country's largest construction company, fell 3.1 percent to 46.34 pesos as growth in building lagged estimates, said analyst Gerardo Copca of Metanalisis from Mexico City."
"Mexico reported second-quarter economic growth last week that trailed estimates. Inflation in the first half of August was higher than economists forecast, the central bank said Aug. 22."
"``Slow growth and strong inflation: the markets don't have anywhere to go but down,'' he said."
"Grupo Televisa SAB, the world's largest Spanish-language media company, declined for the fifth time in six days. The broadcaster's largest division gets revenue from Mexican advertising."
Televisa slipped 3.3 percent to 48.36 pesos.
Ipsa Gains
"In Chile,, Vina Concha y Toro SA, Chile's biggest wine exporter, rose 4.1 percent to 1,025 pesos after Banchile Inversiones said the weaker peso may increase shipments and boost revenue."
"In other Latin America markets, Argentina's Merval declined 0.9 percent, Peru's Lima General gained 1.2 percent and Colombia's IGBC index slipped 0.4 percent."
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net
"Last Updated: August 25, 2008 16:42 EDT"
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Sales of New Houses in U.S. Probably Dropped as Rates Rose
By Shobhana Chandra
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"Aug. 26 (Bloomberg) -- Sales of new houses in the U.S. probably fell in July as mortgage lending dried up and interest rates rose, economists said before reports today."
"Purchases dropped 0.9 percent to a 525,000 annual pace, according to the median forecast in a Bloomberg News survey. Sales reached a 17-year low rate of 513,000 in March. A separate report may show home prices fell last quarter by the most in at least two decades."
"Mounting losses on subprime mortgages have caused banks to withhold credit and boost borrowing costs, hurting demand even as falling prices make housing more affordable. The decrease in sales signals the worst real-estate slump in more than a quarter century will extend into 2009."
"``Another deterioration in home sales is likely unless the weakening in mortgage credit availability is arrested,'' said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York."
"The Commerce Department's report on new-home purchases is due at 10 a.m. in Washington. Estimates of the 76 economists surveyed by Bloomberg News ranged from 493,000 to 570,000."
"The S&P/Case-Shiller gauge of home prices in 20 metropolitan areas is projected to have plunged 16.2 percent in June from a year earlier, the biggest drop since records began in 2001, according to the survey median."
"Nationally, prices probably dropped by a similar amount last quarter, the most since records began in 1988. The report is due at 9 a.m."
Pessimistic Consumers
"The loss of home equity is evaporating household wealth and souring Americans' moods. At 10 a.m., a report from the New York-based Conference Board may show confidence this month was little-changed from a 16-year low reached in June, according to the survey."
"While accounting for only about 15 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier."
"Resales increased 3.1 percent in July, the National Association of Realtors said yesterday. The gain masked further weakness as inventories surged to a record high level of 4.67 million unsold houses and condos."
"Inventories of new properties are likely to shrink as builders pull back. Ground was broken on the fewest new houses in 17 years in July, and permits, a sign of future construction, also fell, Commerce Department figures showed."
Foreclosures
"U.S. banks repossessed almost three times as many houses in July as a year earlier and the number of properties at risk of foreclosure jumped 55 percent, California-based RealtyTrac Inc. reported this month."
"Freddie Mac and Fannie Mae, which own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding, had combined losses of $14.9 billion in the past four quarters as delinquencies rose to record levels. Their cost to raise capital is getting more prohibitive by the day, raising the possibility the government will have to pump in cash to underpin their balance sheets."
"The interest rate on a 30-year fixed mortgage averaged 6.43 percent last month, the highest since August 2007, according to figures from Freddie Mac. The rate has averaged 6.50 percent so far this month."
Government officials remain pessimistic.
"``We have a ways to go before we start seeing a turnaround,'' Housing and Urban Development Secretary Steve Preston said yesterday in an interview. ``We'll be well into 2009 before we see some real energy in this market.''"
"Company results reflect the distress. Home Depot Inc. and Lowe's Cos., the world's two largest home-improvement retailers, posted declines in second quarter profit."
"``We continue to see pressure on our market and the consumer,'' Home Depot Chief Executive Officer Frank Blake said in a statement last week."
Bloomberg Survey
================================================================
Case Shil Consumer New Home
Monthly Conf Sales
" YOY% Index ,000's"
================================================================
Date of Release 08/26 08/26 08/26
Observation Period June Aug. July
----------------------------------------------------------------
Median -16.2% 53.0 525
Average -16.3% 53.2 524
High Forecast -15.9% 56.1 570
Low Forecast -17.3% 50.0 493
Number of Participants 26 70 76
Previous -15.8% 51.9 530
----------------------------------------------------------------
4CAST Ltd. -16.0% 54.0 515
Action Economics --- 54.0 530
AIG Investments -15.9% 51.5 530
Aletti Gestielle SGR --- 52.7 530
Analytical Synthesis -15.9% --- 514
Argus Research Corp. --- 53.0 545
Banc of America Securitie --- 53.5 535
Bank of Tokyo- Mitsubishi --- 53.6 493
Barclays Capital --- 53.0 525
BBVA -17.3% 52.9 522
BMO Capital Markets -16.4% 52.5 525
BNP Paribas --- 54.0 510
Briefing.com --- 53.0 535
Calyon --- 54.0 524
CFC Group -16.1% 53.4 531
CIBC World Markets --- --- 520
Citi --- 50.0 525
ClearView Economics --- --- 520
Commerzbank AG --- 52.0 520
Credit Suisse --- 52.0 500
Daiwa Securities America --- 53.0 520
Danske Bank --- 51.0 520
DekaBank --- 53.0 535
Desjardins Group -16.1% 54.0 525
Deutsche Bank Securities --- 51.5 525
Deutsche Postbank AG --- 53.0 ---
Dresdner Kleinwort --- 52.5 520
DZ Bank -16.0% 53.4 525
First Trust Advisors --- 54.5 521
Fortis -16.1% 55.0 530
FTN Financial --- 52.5 525
Global Insight Inc. --- --- 519
"Goldman, Sachs & Co. --- 53.5 524"
H&R Block Financial Advis --- 52.5 525
HBOS Treasury Services --- 54.0 515
Helaba --- 54.0 535
High Frequency Economics -16.2% --- 530
Horizon Investments --- 52.0 530
HSBC Markets -16.2% 54.5 540
IDEAglobal -16.5% 53.0 520
Informa Global Markets --- 52.0 520
ING Financial Markets -16.4% 51.0 530
Insight Economics --- 54.0 520
Intesa-SanPaulo -16.0% 54.0 533
J.P. Morgan Chase -17.0% 52.5 520
Janney Montgomery Scott L -16.0% 55.0 520
Landesbank Berlin --- 54.0 520
Landesbank BW -16.8% 53.0 520
Lehman Brothers -16.4% 55.0 520
Lloyds TSB --- 54.0 530
Maria Fiorini Ramirez Inc --- 53.5 515
Merk Investments --- 53.0 527
Merrill Lynch --- 53.0 525
Moody's Economy.com --- 53.0 527
Morgan Keegan & Co. --- --- 527
Morgan Stanley & Co. --- 55.0 510
National Bank Financial --- 53.0 530
National City Corporation --- 54.4 570
Natixis -16.2% 52.5 520
Newedge --- 53.2 ---
Nomura Securities Intl. --- --- 525
Nord/LB --- 52.3 ---
PNC Bank --- --- 530
RBS Greenwich Capital --- 54.0 520
"Ried, Thunberg & Co. --- --- 510"
Schneider Trading Associa --- 56.1 533
Scotia Capital -16.0% 52.5 520
Societe Generale --- 54.0 530
Stone & McCarthy Research --- 54.6 528
TD Securities -16.1% 52.4 525
Thomson Financial/IFR --- 53.0 515
UBS Securities LLC -16.3% 53.5 515
Unicredit MIB -16.2% 53.0 525
University of Maryland -16.3% 53.0 541
Wachovia Corp. --- 54.0 500
Wells Fargo & Co. --- 54.0 530
WestLB AG -16.5% 53.0 525
Westpac Banking Co. -16.8% 53.5 516
Wrightson Associates --- 52.5 510
================================================================
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
"Last Updated: August 26, 2008 00:01 EDT"
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Yuan Little Changed; China May Seek Gains to Cut Trade Surplus
By Belinda Cao and Judy Chen
"Aug. 26 (Bloomberg) -- China's yuan was little changed, pausing after the biggest decline in four weeks yesterday, on speculation the government will use strength in the currency to narrow the trade surplus."
"U.S. Labor Secretary Elain Chao said the administration of President George W. Bush will keep pressing China to let the yuan appreciate at a faster pace to help close a trade deficit with the Asian nation. China's trade balance unexpectedly widened 4 percent in July from a year earlier to $25.3 billion, the first increase in four months, according to China customs bureau figures released Aug. 11."
"``China still has a huge trade surplus, giving room for appreciation of the yuan,'' said Xie Dongming, an analyst at Oversea-Chinese Banking Corp. in Singapore. ``The currency will appreciate more on a trade-weighted basis while its advance against the dollar will depend on the dollar's moves.''"
"The yuan was at 6.8528 a dollar as of 3:38 p.m. in Shanghai, from 6.8481 yesterday, according to the China Foreign Exchange Trade System. The currency is allowed to trade by as much as 0.5 percent against the dollar either side of a daily rate set by the central bank, which was fixed at 6.8400 today."
"The Chinese currency dropped 0.22 percent yesterday, the biggest daily loss since July 28."
"The yuan has weakened 0.3 percent versus the dollar this month, after a 6.5 percent gain in the first seven months of 2008."
Dollar Index
"The ICE futures exchange's Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, rose 0.5 percent today. The index on Aug. 19 touched the highest this year."
U.S. Treasury Secretary Henry Paulson said Aug. 19 that China must let its currency appreciate to curb domestic inflation and defuse tensions in Congress that may prompt trade penalties.
"``The dollar's rebound contributes to the yuan's weakness this month,'' said Wen Li, a Beijing-based dealer at Bank of China Ltd., the nation's largest foreign-currency trader. ``The government will probably take the chance to slow down the yuan's appreciation.''"
"The central bank manages the yuan's exchange rate against a basket of currencies, including the yen and the euro, after scrapping a peg to the dollar in 2005. The euro fell for a third day against the dollar."
"China's yuan has gained 7.4 percent versus the euro and 3.4 percent against the yen this quarter, compared with a 0.03 percent advance versus the dollar."
Bonds Rise
Government bonds rose for a second day on speculation funds have surplus cash to invest in debt.
"China's bonds returned 0.4 percent since Aug. 8, according to an Asian local-currency debt index compiled by HSBC Holdings Plc. The yield on the 10-year bond declined 17 basis points during the period, data compiled by the nation's biggest debt clearing house showed. A basis point is 0.01 percentage point."
"``The debt rally was mainly driven by a treasury bond sale Aug. 15 and was helped by easy funding between big financial institutions,'' said He Xiuhong, a fixed-income analyst at GF Securities Co. in Guangzhou, the nation's third-largest brokerage by revenue. ``Bonds may continue to rise until mid-September.''"
"China's finance ministry sold 26.6 billion yuan ($3.88 billion) in seven-year bonds Aug. 15 at a 4.23 percent yield, 4 basis points lower than the median estimate in a Bloomberg News survey. The auction drew bids for 2.15 times the amount on offer."
Bill Sales
"The central bank sold 50 billion yuan of one-year sterilization bills. It's the third straight week for it to offer around 50 billion yuan in similar-dated bills, compared with a 6 billion yuan offering Aug. 5."
"``Taking the net of new sales and maturing debt, the central bank has taken cash away from the market to absorb excess liquidity,'' He at GF Securities said."
"The yield on the 4.41 percent bond due June 2018 traded at 4.327 percent in Shanghai, 1.6 basis points lower than the rate compiled by the nation's biggest clearing house yesterday. The price of the security rose to 100.65 per 100 yuan face."
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net.
"Last Updated: August 26, 2008 03:39 EDT"
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"Taiwan Dollar May Extend Loss as Funds Sell Stocks, HSBC Says "
By Bob Chen
"Aug. 26 (Bloomberg) -- Taiwan's dollar, Asia's second-worst performer this quarter, is likely to weaken further as a global economic slump prompts overseas investors to cut holdings of the island's shares, according to HSBC Holdings Plc."
"The currency dropped to a six-month low after a report yesterday showed growth in Taiwan's export orders slowed to 5.5 percent from a year earlier in July, the least since May 2003. The European and Japanese economies shrank in the second quarter, which may reduce demand for Asian goods."
"``Economic growth is almost entirely dependent on the export sector,'' Richard Yetsenga, head of Asian currency strategy at HSBC, Europe's biggest bank, said in an interview today. He expects a reversal of the inflows into Taiwan because they were ``based on strong emerging economies.''"
"The currency fell as much as 0.4 percent to NT$31.558 against the dollar, the weakest since Feb. 21, according to Taipei Forex Inc. It was at NT$31.54 as of 1:15 p.m. local time. HSBC forecasts the Taiwan dollar will weaken 1.4 percent to NT$32 by the first quarter of 2009."
HSBC's currency prediction compares with a NT$30.3 median estimate among 19 finance firms surveyed by Bloomberg News for the quarter.
"Overseas investors have put $69 billion into Taiwan stocks since 2003, the largest net inflow for an Asian country besides Japan, according to data from HSBC. The data include investments from India, South Korea, Indonesia, the Philippines, Thailand and Vietnam."
Slumping Stocks
"Eight of the 10 most-active Asian currencies outside Japan declined against the U.S. dollar this quarter. The island's Taiex Index of stocks has lost more than 18 percent this year after rising 8.7 percent in 2007, a fifth annual gain."
Yetsenga wrote in a research note today that he didn't expect the central bank to be too concerned about the decline in the Taiwan dollar because of the competitiveness of exporters.
"``The uniformity of dollar strength across the region also suggests only limited scope for individual central banks to cap their currencies,'' he wrote."
Non-deliverable forwards contracts in the Taiwan dollar show the currency will trade at an implied rate of NT$31.26 in six months compared with a rate of NT$29.98 on July 25.
Forwards are agreements in which assets are bought and sold at current prices for future delivery.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
"Last Updated: August 26, 2008 01:19 EDT"
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Drop in Construction Caused German Economy to Shrink (Update2)
By Christian Vits
"Aug. 26 (Bloomberg) -- German companies cut investment in equipment and construction in the second quarter, causing Europe's biggest economy to shrink for the first time in almost four years."
"Building investment dropped 3.5 percent from the previous quarter, investment in plant and machinery fell 0.5 percent and consumer spending decreased 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product fell a seasonally adjusted 0.5 percent from the first quarter, when it rose 1.3 percent, the office said, confirming an estimate from Aug. 14. That's the biggest drop since the second quarter of 1998."
The stronger euro and slower global growth have damped demand for German goods just as faster inflation erodes spending power at home. The second-quarter contraction was exacerbated by companies bringing forward investment in construction due to unusually mild weather in the first three months of the year.
"``The economy is loosing steam significantly as exports and investments show,'' said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. ``We expect a longer-term economic weakness and don't see a broad-based recovery in 2009.''"
"The government forecasts that the pace of expansion will slow to 1.7 percent this year and 1.2 percent in 2009 from 2.5 percent in 2007. ``The growth dynamic will moderate in coming months,'' the Economy Ministry said in a statement last week."
"In the year, the economy grew 1.7 percent when adjusted for the number of working days. Expansion in the first quarter was revised down from an initially reported 1.5 percent."
Global Slowdown
"Growth is slowing around the world after oil and food prices rose to records and the U.S. subprime mortgage market collapsed, making banks reluctant to lend and driving up the cost of credit."
"The economy of the 15 nations sharing the euro contracted 0.2 percent in the three months through June, its first decline since monetary union a decade ago, the European Union's statistics office said on Aug. 14."
"German exports fell 0.2 percent in the second quarter from the previous three months, when they rose 2.1 percent, today's report showed. Imports dropped 1.3 percent from the first quarter, when they increased 3.2 percent."
"Consumer confidence in Germany dropped to the lowest in more than five years as soaring energy prices sapped purchasing power and the economic outlook deteriorated, the Nuremberg-based market- research company GfK said today."
`Particularly Weak'
"Economic growth will be ``particularly weak'' through the third quarter, European Central Bank President Jean-Claude Trichet said on Aug. 7. The ECB last month raised its key interest rate to 4.25 percent, a seven-year high, to curb inflation."
"German consumer prices rose 3.5 percent in July from a year earlier, up from 3.4 percent the previous month."
"While oil prices have retreated 20 percent from a record $147.27 a barrel reached on July 11, they are still almost 60 percent higher than a year ago. The euro, which rose to a record $1.6038 on July 15, has gained 8 percent in the past 12 months."
"Second-quarter profit at Sixt AG, Germany's largest car- rental operator, fell 6.1 percent because of higher financing costs, the company said this week. Sixt predicted pretax earnings this year will fall as much as 16 percent."
The benchmark DAX share index dropped 16 percent in the past year and German factory orders fell for a seventh month in June.
"Linos AG, a German maker of optical equipment, said last week it no longer expects 2008 profit and sales to rise, citing postponed orders and lower semiconductor equipment sales."
Emerging Markets
"Some German companies are trying to offset falling western European and U.S. orders by expanding in eastern Europe, oil- exporting countries and emerging Asia."
"Siemens AG, Europe's largest engineering company, last month reported third-quarter earnings that beat analyst estimates on increased orders for power plants and generator upgrades in Russia and China. Siemens said on Aug. 5 that it will get 10 billion euros ($15.5 billion) of annual orders from China by 2010 as the country boosts spending on utilities and transport networks."
"Still, economic expansion in Asia and parts of Europe may not offset weaker global growth. ``Even in emerging markets we see a significant easing in activity,'' said Joerg Lueschow, an economist at WestLB in Dusseldorf. ``We face a global, cyclical slowdown.''"
To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net
"Last Updated: August 26, 2008 03:20 EDT"
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U.S. Treasuries Climb on Concern Credit-Market Turmoil Widening
By Dakin Campbell
Aug. 25 (Bloomberg) -- Treasuries rose the most in almost two weeks on speculation credit-market turmoil may be widening.
The gains pushed yields on U.S. 10-year notes to the lowest since May 13 as financial stocks fell amid speculation American International Group Inc. will post a loss and Korea Development Bank may be reconsidering a possible bid for Lehman Brothers Holdings Inc. Interest-rate derivatives imply banks are becoming more hesitant to lend.
"``This is the longest-running horror movie that any of us has ever had to deal with,'' said T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, the investment- banking arm of Canada's biggest lender."
"The 10-year note yield declined 9 basis points, or 0.09 percentage point, the most since Aug. 12, to 3.78 percent at 4:39 p.m. in New York, according to BGCantor Market Data. The yield touched 3.76 percent. The 4 percent security due in August 2018 rose 3/4, or $7.50 per $1,000 face amount, to 101 26/32."
"Two-year yields dropped 9 basis points, also the most since Aug. 12, to 2.33 percent."
"The rally comes as the Treasury prepares to auction $32 billion of two-year notes on Aug. 27 and $22 billion of five- year securities Aug. 28. The size of the two-year note sale is a record, and the five-year note auction will be the biggest sale of that maturity since February 2003. Both amounts are $1 billion more than expected last week."
"``Even with supply on the horizon, everyone is concerned with the uncertainties,'' said Sean Simko, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. ``You have the thought of continued credit deterioration within the market. That is an ongoing thorn in everyone's side.''"
Credit-Default Swaps
"The cost of protecting U.S. corporate bonds from default rose as Credit Suisse Group said AIG may lose $2.41 billion this quarter and as the ninth U.S. bank failure of the year, the collapse of Columbian Bank and Trust Co. of Topeka, Kansas, added fuel to concern subprime losses will worsen."
"Credit-default swaps on the Markit CDX North America Investment Grade Index, a benchmark gauge of credit risk linked to the bonds of 125 companies in the U.S. and Canada, rose 4 basis points to 144 basis points, according to prices from broker Phoenix Partners Group and CMA Datavision."
"``You keep hearing about continued credit fears,'' said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley's individual-investor clients. `We're back into flight-to-quality mode.''"
The Standard & Poor's 500 Index dropped 2 percent.
"Losses, Writedowns"
Banks are charging each other a premium of 78 basis points over what traders predict the Federal Reserve's daily effective federal funds rate will average in the next three months to lend cash. The spread has widened from about 24 basis points in January.
"U.S. notes headed for a third straight monthly gain, according to Merrill Lynch & Co.'s U.S. Treasury Master Index, as forecasts called for slowing economic growth and credit- market losses mounted. Treasuries returned 0.9 percent so far in August, the Merrill index shows, after gaining 0.8 percent in June and 0.4 percent in July."
"Losses and writedowns on securities related to subprime home loans now exceed $500 billion at financial institutions worldwide, according to data compiled by Bloomberg."
`Biggest Uncertainty'
JPMorgan Chase & Co. said the value of $1.2 billion in preferred shares of government-sponsored enterprises Fannie Mae and Freddie Mac has declined in the third quarter by half. Prices on the securities are volatile as speculation increases about whether a government rescue of the two companies will protect shareholders.
"``All eyeballs will be on the GSEs and whatever statement the government makes'' about them, said John Spinello, chief technical strategist in New York at Jefferies Group Inc. ``That remains the biggest uncertainty in the market.''"
"Treasuries remained higher today even after a National Association of Realtors report showed sales of existing houses in the U.S. rose in July from a 10-year low. The resales increased at an annual pace of 5 million units, versus a revised 4.85 million in June. A Bloomberg News survey forecast a pace of 4.91 million."
"Ried, Thunberg & Co.'s sentiment index for the end of December rose to 49 for the seven days ended Aug. 22 from 48 the week before. A reading below 50 means investors anticipate lower prices. The 31 fund managers surveyed by the company, a unit of ICAP Plc, the world's largest inter-dealer broker, manage a combined $1.40 trillion."
Rate Outlook
"Futures contracts on the Chicago Board of Trade show the Fed will most likely refrain from raising its 2 percent target rate for overnight lending between banks this year. Traders see an 81 percent chance the Fed will remain on hold through December, up from 25 percent odds a month ago."
"Fed Chairman Ben S. Bernanke signaled in a speech Aug. 22 the central bank is relying on slowing growth to contain inflation. The comments, during the Kansas City Fed's conference at Jackson Hole, Wyoming, fueled speculation the central bank will be reluctant to raise rates."
"The world's largest economy probably grew at an annualized 2.7 percent in the second quarter, according to a Bloomberg survey of economists before the Commerce Department releases the figure on Aug. 28. Growth will slow to 0.45 percent in the fourth quarter, a separate survey showed."
To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net
"Last Updated: August 25, 2008 16:43 EDT"
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"Wheat Extends Decline on Dollar Strength, Production Outlook "
By Jae Hur
"Aug. 26 (Bloomberg) -- Wheat declined for a third day as the dollar strengthened, making U.S. grain less attractive to buyers overseas, and on speculation favorable weather in major producers will help increase harvests."
Prices dropped 6.2 percent in the previous two days as rain in the southern U.S. Great Plains helped build soil moisture for plants that will be seeded starting next month. Wheat has fallen 37 percent from a record $13.495 a bushel on Feb. 27 on forecasts for higher global output after prices climbed 77 percent in 2007.
"``Wheat supplies will rise as production increases in the Northern and Southern hemisphere on good weather,'' Hiroyuki Kikukawa, general manager of research at IDO Securities Co., said from Tokyo. Wheat-growing areas in Australia and Argentina may get rain later this week, he said."
"Wheat for December delivery fell as much as 14.25 cents, 1.7 percent, to $8.505 a bushel in after-hours electronic trading on the Chicago Board of Trade and was at $8.525 at 12:03 p.m. Singapore time."
"The dollar rose for a third day against the euro, making the U.S. grain expensive for importers holding other currencies. The euro fell as much as 0.4 percent to $1.4712. It reached $1.4631 on Aug. 19, the lowest since Feb. 20."
"Farmers around the world will harvest a record 670.8 million metric tons in the year that started June 1, up 9.9 percent from the previous year, the U.S. Department of Agriculture said on Aug. 12. Reserves may jump 18 percent to 136.2 million tons by May 31."
Western Australia
"Australia, forecast to be the world's third-largest exporter of wheat, may get rain this week in its two biggest grain-growing states, the National Climate Center said."
"Western Australia may receive between 10 millimeters and 25 millimeters of rainfall this week, with totals higher in northern regions, Shoni Dawkins, climatologist with the center said today by phone from Melbourne. Cropping regions in New South Wales may get 10 millimeters, with falls above 25 millimeters in some areas, later in the week, he said."
"Corn for December delivery declined as much as 7 cents, or 1.2 percent, to $5.93 a bushel and traded at $5.955 as of 12:07 p.m. in Singapore. It lost 1.1 percent yesterday on speculation demand for the grain will fall from livestock producers because of increased production of feed grains in Russia."
Soybeans for November delivery fell 1.2 percent to $13.31 a bushel at 12:08 p.m. in Singapore. The contract rose 1.5 percent yesterday amid concern that dry weather will damage crops in the U.S. Futures lost 18 percent from a record $16.3675 on July 3.
"U.S. corn crop was rated 64 percent good or excellent as of Aug. 24, compared with 67 percent a week earlier and 59 percent a year ago, the USDA said in a weekly report yesterday. Soybeans were rated 61 percent good or excellent, compared with 62 percent a week earlier and 55 percent a year ago."
To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net
"Last Updated: August 26, 2008 00:46 EDT"
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Standard Chartered Says Sell New Zealand Dollar on Commodities
By Lilian Karunungan
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"Aug. 26 (Bloomberg) -- Investors should sell the New Zealand dollar as the drop in global commodity prices slows the nation's economic growth, according to Standard Chartered Plc."
"The New Zealand dollar is likely to fall 1 percent to 69 U.S. cents by year-end, compared with a previous estimate of 71 cents, as the slowdown intensifies, according to Standard Chartered. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen 17 percent from a peak in July."
"``The recent correction in global commodities is the straw that has broken the camel's back,'' New York-based currency strategist Mike Moran and Singapore-based Callum Henderson wrote in a research note yesterday. Fund managers should reduce their New Zealand dollar-denominated holdings to ``underweight'' from ``neutral,'' they wrote."
"Sales of commodities, including lumber, wool and oil, account for 70 percent of New Zealand's exports. Slowing consumer spending and a plunging housing market tipped New Zealand's economy into a recession in the first half of this year, prompting Reserve Bank Governor Alan Bollard to cut interest rates last month."
"The kiwi, as the currency is also known, fell 1.6 percent to 69.72 U.S. cents as of 12:15 p.m. in Wellington from 70.85 cents late yesterday in Asia. The currency has declined 11 percent over the past three months, the worst performer among the 16 most-traded currencies versus the dollar."
Bets
"Standard Chartered, which generates three-quarters of its profit from Asia, forecasts the kiwi will trade at 2.16 euros and 73.83 yen by the end of December, against previous estimates of 2.19 euros and 75.90 yen."
"Traders are betting the Reserve Bank of New Zealand will lower its benchmark rate by 1.45 percentage points over the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps."
"New Zealand's slowing economy will ease inflation over the next two years, cuts in borrowing costs, central bank Governor Bollard said July 30. Bollard cut the official cash rate a quarter-percentage point to 8 percent on July 24, the first reduction in five years."
"The nation's gross domestic growth fell 0.3 percent in the three months ended March 31. The central bank may lower the official cash rate to 7.25 percent by the end of the year, Standard Chartered said. Henderson confirmed the contents of the report."
"House prices in New Zealand fell 2.2 percent in July from a year earlier, the first annual decline in more than three years, the government valuation agency said on Aug. 11, as record-high interest rates eroded demand for property."
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
"Last Updated: August 25, 2008 20:28 EDT"
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Mexico's June Retail Sales Rise 1.6% From Year Ago (Update1)
By Thomas Black
"Aug. 25 (Bloomberg) -- Mexican retail sales in June rose less than economists forecast, sending another signal the country's consumer economy may be slowing."
"Retail sales expanded 1.6 percent from a year earlier, the national statistics agency said today, compared with 3.4 percent in May. Economists predicted sales would rise 2.7 percent, the median estimate of 16 analysts surveyed by Bloomberg."
"The slowdown in consumption comes as Mexicans working abroad send home less money to their families and the central bank boosts interest rates to quell inflation. Slowing consumer demand contributed to second-quarter economic growth that trailed economists' estimates on a slump in the services sector, which includes retailers."
"Borrowing is becoming more expensive for Mexicans after the central bank raised its target lending rate three times in as many months to 8.25 percent, the highest since December 2005. During the second quarter, remittances from workers abroad fell 1.1 percent."
"June's increase in retail sales was the worst performance since March, when a calendar shift contributed to a 0.5 percent decrease. June retail sales, seasonally adjusted and compared with May, rose 0.64 percent."
"Last week, Mexico reported second-quarter economic growth of 2.8 percent, trailing analysts' forecasts. Services, the largest component of gross domestic product, rose 3.5 percent in the second quarter, below a forecast of 4.1 percent by BNP Paribas economist Rafael de la Fuente."
"To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at tblack@bloomberg.net."
"Last Updated: August 25, 2008 16:17 EDT"
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German Business Confidence May Fall to Three-Year Low (Update1)
By Simone Meier
"Aug. 26 (Bloomberg) -- German business confidence probably fell to a three-year low in August as a recession loomed, a survey of economists shows."
"The Ifo institute's business climate index declined to 97.2 from 97.5 in July, according to the median of 35 forecasts in a Bloomberg News survey. That would be the weakest reading since September 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today."
"Germany's economy contracted in the second quarter and may not grow in the third. While oil prices have receded from a record $147.27 a barrel, they're still up 60 percent over the past year, crimping companies' spending power just as the euro's appreciation and the U.S. housing slump weigh on export demand."
"``The outlook for production has significantly worsened,'' said Andreas Scheuerle, an economist at Dekabank in Frankfurt. ``The German economy probably shrank in the current quarter, fueling discussion of recession.''"
"The 0.5 percent contraction in the three months through June was driven by a 3.5 percent slump in construction as well as declines in company investment and consumer spending, the Federal Statistics Office said today. Consumer confidence dropped to the lowest in more than five years, a report from GfK AG showed."
"The German government forecasts growth of 1.7 percent this year after 2.5 percent in 2007. The Berlin-based BDB banking association said on Aug. 20 that the economy, Europe's largest, may barely expand in the second half of the year."
"Food, Clothes, Cars"
"Arcandor AG, Germany's largest department-store operator, on Aug. 13 reported a loss for the quarter through June and reduced its 2009 earnings forecast. Daimler AG, the world's second-largest luxury carmaker, said Aug. 6 it plans to cut production by 45,000 vehicles by the end of the year. The Stuttgart-based company had already lowered its full-year earnings forecast."
Manufacturing and service industries in the 15-nation euro region contracted for a third straight month in August and confidence in the economic outlook last month dropped the most since the Sept. 11 terrorist attacks in 2001.
"``The further development in business confidence will hinge on oil prices,'' said Sylvain Broyer, an economist at Natixis in Frankfurt. ``We may escape a recession in 2008, but the threat for next year is still significant.''"
German investor confidence rebounded from an all-time low this month after oil prices and the euro declined.
"Oil, Euro"
The price of crude has dropped 6.6 percent over the past month to around $115 a barrel. The euro has retreated from an all- time high of $1.6038 on July 15 to $1.4683 today. That's still a gain of 8 percent from a year earlier.
"Some companies are benefiting from demand in faster-growing economies in Asia and eastern Europe. Hochtief AG, Germany's largest builder, on Aug. 14 raised its full-year earnings forecasts on increasing demand for construction and mining work in Australia and Asia."
"The European Central Bank in July raised its key rate by a quarter point to 4.25 percent to counter inflation even as the economy cools. With the economic outlook deteriorating, investors have pared expectations for further rate increases, Eonia forward contracts show. The yield on the December contract was at 4.22 percent today, down from 4.41 percent a month ago."
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
"Last Updated: August 26, 2008 03:07 EDT"
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"Stocks in Europe, Asia Drop; U.S. Futures Are Little Changed "
By Adam Haigh
Aug. 26 (Bloomberg) -- Stocks fell in Europe and Asia on concern the economic slowdown and credit-market losses will stifle profit growth. U.S. index futures were little changed.
"L'Oreal SA, the world's largest cosmetics maker, dropped 1.4 percent and UBS AG fell 1.8 percent as consumer confidence in Germany, Europe's biggest economy, sank to the lowest in more than five years. Suncorp-Metway Ltd. fell 2.6 percent as Australia's third-largest general insurer said bad debts may rise. CRH Plc, the building-materials maker, declined 3.8 percent after a weaker dollar and deteriorating markets in North America and Europe hurt earnings."
"The MSCI World Index lost 0.7 percent to 1,315.36 at 8:48 a.m. in London as all 10 industry groups decreased. Financial stocks have led a global rout in equities this year as credit- related losses surpassed $500 billion and inflation accelerated, threatening economic and profit growth."
"``With the economy stalling, ``we are avoiding the broad consumer discretionary space,'' said Andy Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London. ``As people become more prudent consumer discretionary stocks are going to suffer.''"
"Europe's Dow Jones Stoxx 600 Index declined 1.1 percent, while the MSCI Asia Pacific Index decreased 1.1 percent. Futures on the Standard & Poor's 500 Index rose less than 0.1 percent."
"The U.K. economy is likely to enter a ``mild recession'' this quarter, Societe Generale SA wrote in a note to clients. The French brokerage cut its 2009 growth forecast to 0.5 percent from 1.2 percent."
Consumer Sentiment
"German consumer confidence sank to the lowest in more than five years as soaring energy prices sapped purchasing power and the economic outlook deteriorated, a report showed today."
"An Ifo institute survey of economists will probably show business confidence in the country fell to a three-year low this month as a recession loomed. The report, based on a survey of 7,000 executives, is due to be released at 10 a.m. in Munich today."
"L'Oreal, the world's biggest cosmetics maker, slid 1.4 percent to 67.86 euros."
"UBS, the European bank hardest hit by the subprime contagion, lost 1.8 percent to 22.4 Swiss francs. Societe Generale of France slipped 1.8 percent to 61.57 euros."
"BankUnited Financial Corp., Florida's largest bank, may lose its ``well-capitalized'' status under federal rules for financial strength unless it attracts at least $400 million of new capital, the company said late yesterday."
Financial shares dragged the Standard & Poor's 500 Index to its largest loss in a month yesterday after Columbian Bank & Trust Co. became the nation's ninth bank to collapse this year.
Earnings Outlook
"Profit for companies in the Stoxx 600 will fall 2 percent in 2008, according to analysts' estimates compiled by Bloomberg. That's down from growth of 11 percent forecast at the start of the year."
"Suncorp-Metway slumped 33 cents to A$12.47 after saying net income tumbled 68 percent in the six months ended June 30 as storms increased and falling financial markets cut investment income. Chief Executive Officer John Mulcahy forecast flat profit growth for its managed funds unit in 2009, and said bad debts may increase as the economy loses momentum."
"Sumitomo Realty & Development Co., Japan's No. 3 developer, lost 1.3 percent to 2,240 yen after Sebon Corp., a smaller rival, filed for bankruptcy."
CRH declined 3.8 percent to 16.08 euros. First-half profit fell 8.5 percent and forecast a decline in full-year pretax profit similar to the 10 percent drop recorded in the first half.
"United Utilities Group Plc, the U.K.'s largest publicly traded water company, dropped 1.1 percent to 723 pence. Lehman Brothers Holdings Inc. cut the shares to ``underweight'' from ``equal weight,'' saying there is a ``diminished likelihood'' of takeovers in the industry."
"SSAB, Oerlikon"
SSAB Svenskt Staal AB rose 1 percent to 152 kronor. Goldman Sachs Group Inc. lifted its recommendation on the world's largest supplier of high-tensile steel to ``buy'' from ``neutral.''
"``SSAB's main end product, heavy plate, has been the strongest steel grade globally in terms of pricing,'' London- based analyst including Peter Mallin-Jones wrote in a note to clients."
OC Oerlikon Corp. slipped 1.1 percent to 260.25 francs. The world's biggest maker of spinning machines reported a first-half loss as rising costs and tighter credit clipped Chinese investment in textile equipment.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
"Last Updated: August 26, 2008 03:53 EDT"
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BNP Says Receive Japanese Swaps on Excessive Premium (Update1)
By Theresa Barraclough
"Aug. 26 (Bloomberg) -- Investors should receive Japan's seven-year swap rate and sell similar-dated government bonds because the difference in yield between the two will narrow, according to BNP Paribas Securities Japan Ltd."
"The swap rate is about 37 basis points higher than the seven-year bond yield, a gap approaching levels unseen since March when the failure of Bear Stearns Cos., the depreciation of the dollar against the yen to a 12-year low and the unwinding of positions by hedge funds rattled markets. The spread is almost a third wider than it should be, said Alessio Caldarera, a bond strategist at the Tokyo-based unit of France's largest bank."
"``The current level is pricing in a full crisis scenario,'' Caldarera said in Tokyo. ``The crisis is way, way, way more muted than in March. There is still some uncertainty about, but the path is definitely normalization.''"
The gap between 7-year swaps and government bonds should be at least 10 basis points tighter given that the equivalent spread for 10-year yields is 20 basis points and the difference for 5-year yields is 23 basis points.
"Japan's seven-year swap rate fell 3 basis points to 1.37 percent at 2:02 p.m. in Tokyo, according to data compiled by Bloomberg. The yield on the seven-year government note declined 5 basis points to 1.005 percent today."
Interest-rate swaps are agreements that allow investors to hedge against the risk of interest rate movements by paying or receiving a variable interest rate in exchange for a fixed rate.
March Crisis
"The seven-year spread between swaps and bonds expanded to an almost decade-high of 43 basis points the day after JPMorgan Chase & Co. on March 17 agreed to buy Bear Stearns Cos., causing the dollar to depreciate to 95.76 yen. Endeavour Capital LLP, a London-based hedge fund, on March 19 said it sold all of its Japanese bonds due to ``extreme volatility.''"
"Ten-year bond yields tumbled to a four-month low of 1.405 percent on Aug. 25 as the market's focus shifted from financial distress to economic concerns. A government report on Aug. 13 showed gross domestic product shrank an annualized 2.4 percent in the three months ended June 30, bringing the nation to the brink of its first recession in six years."
"``The bond market was driven by a global flight-to- quality,'' Caldarera said. The spread ``is totally distorted and it shouldn't be pricing in a crisis.''"
"The difference in yields on three-month government bills and the Tokyo interbank offered rate, the so-called TED spread, rose to 29 basis points, compared with an average of 27 basis points since March 16, Bloomberg data show. The spread was as wide as 32 basis points on Dec. 5."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
"Last Updated: August 26, 2008 01:08 EDT"
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"Asian Stocks Fall on Credit Concerns, Earnings; Banks Decline "
By Chen Shiyin and Shani Raja
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"Aug. 26 (Bloomberg) -- Asian stocks fell the most in a week, led by financial companies, as speculation of increased credit- market losses weighed on regional growth and earnings."
"Mitsubishi UFJ Financial Group Inc. declined 1.3 percent in Tokyo after Credit Suisse Group said American International Group Inc. may lose $2.41 billion this quarter on mortgage-related writedowns. Suncorp-Metway Ltd. lost 3.4 percent as Australia's third-largest general insurer said bad debts may rise. Sumitomo Realty & Development Co., Japan's No. 3 developer, fell 1.1 percent after Sebon Corp., a smaller rival, filed for bankruptcy."
"``There's been an impairment of capital in the global banking system,'' said Sean Fenton, who manages the equivalent of $563 million, including banking shares, at Tribeca Investment Partners in Sydney. ``It's the continuance of concerns not just over mortgage losses, but the process of credit destruction that has been set off all around the world.''"
"The MSCI Asia Pacific Index lost 1.1 percent to 122.35 as of 4:16 p.m. in Tokyo, set for its largest drop in a week and almost erasing yesterday's 1.7 percent advance. Financial companies accounted for a third of the measure's retreat today."
"The Asian index has declined 23 percent this year, led by banks, securities companies and property firms, as the world's largest financial companies posted writedowns and credit losses of more than $500 billion and inflation soared."
"Japan's Nikkei 225 Stock Average slipped 0.8 percent to 12,778.71. China's CSI 300 Index dropped 2.9 percent after the daily trading value fell yesterday to the lowest since November 2006. Pakistan's Karachi Stock Exchange 100 Index posted the region's largest loss, tumbling 4.2 percent. Indexes retreated in other Asian markets."
`Bad News'
"Mirvac Group, an Australian property trust, declined after posting a 69 percent decline in full-year profit. IHI Corp., the nation's No. 3 maker of heavy machinery, fell after saying it won't pay a dividend in the first half because of a loss."
"U.S. stocks dropped yesterday, sending the Standard & Poor's 500 Index to its largest loss in a month. AIG tumbled to a 13- year low, while other financial companies dropped after Columbian Bank & Trust Co. became the ninth U.S. bank to collapse this year. S&P 500 index futures climbed 0.2 percent today."
"``With more bad news emerging on U.S. financial shares, it's natural to see the market here take a hit as well,'' Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television."
"Mitsubishi UFJ, Japan's biggest bank by market value, retreated 11 yen to 820. Macquarie Group Ltd., Australia's No. 1 securities firm, fell 3.2 percent to A$46.05."
"A gauge of financial companies on MSCI's Asian index has dropped 28 percent this year, the worst performance among the broader measure's 10 industry groups."
AIG Plunges
"AIG tumbled in New York trading after Credit Suisse analyst Thomas Gallagher predicted AIG will lose 86 cents a share in the third quarter, compared with an earlier forecast of a 13-cent profit. ``Recent deterioration'' in debt holdings may cause losses in the firm's credit-default swaps, Gallagher wrote yesterday in a research note."
"Temasek Holdings Pte, a $130 billion Singapore sovereign wealth fund, expects the fallout of the credit crisis to ``continue to dampen the global economy over the next 24 months'' and limit investment opportunities, Chairman S. Dhanabalan said."
Suncorp-Metway slumped 44 cents to A$12.36 after saying net income tumbled 68 percent in the six months ended June 30 as storms increased and falling financial markets cut investment income. Chief Executive Officer John Mulcahy said bad debts may increase as the economy loses momentum.
Regional Banks Drop
"Fukuoka Financial Group Inc., Japan's second-largest regional bank by assets, fell 4 percent to 405 yen after HSBC Holdings Plc downgraded the stock to ``underweight'' from ``neutral,'' citing rising property defaults nationwide. The brokerage also lowered its rating on Bank of Yokohama Ltd., the nation's largest regional lender, whose shares slipped 2.6 percent to 612 yen."
"``Real estate-related bankruptcies have spiked,'' Kentaro Kogi, a Tokyo-based analyst at HSBC, said in a report today. ``Real estate firm bankruptcies remain our biggest concern for regional bank credit costs.''"
"Sebon, a Tokyo-based real-estate developer, filed for bankruptcy protection yesterday with 62 billion yen ($568 million) in liabilities. Construction and real estate companies accounted for almost a third of all bankruptcies in Japan in July as banks cut lending and the country's economy shrank."
Developers Retreat
"Sumitomo Realty fell 25 yen to 2,245. Asahi Homes Co., which counts Sebon as its biggest shareholder, retreated 28 percent to 42 yen, its sharpest drop in six years."
"In China, the benchmark CSI 300 has slumped 57 percent this year, making it the world's worst-performing market, as measures to cool inflation spurred concern economic and profit growth will slow. Shares worth 39.7 billion yuan ($5.8 billion) were traded on the Shanghai and Shenzhen stock markets yesterday, the lowest since Nov. 14, 2006, according to data compiled by Bloomberg."
"Haitong Securities Co., China's largest listed brokerage by market value, dropped 8.1 percent to 15.45 yuan. Citic Securities Co., the brokerage unit of the country's No. 1 investment company, retreated 5.2 percent to 17.77 yuan."
"In Japan, IHI retreated 3.1 percent to 191 yen after the company said it won't pay a dividend for the first half. SBI Holdings Inc., a venture capital company, plunged 8.8 percent to 19,620 yen, the biggest retreat on MSCI's Asian index, after it also decided to forgo dividends for the six months to Sept. 30."
"The MSCI Asia-Pacific Consumer Staples Index, which includes agricultural producers, dropped 2.1 percent today, the biggest retreat among the broader gauge's 10 industry groups."
"IOI Corp., Malaysia's second-biggest palm-oil producer, fell 4 percent to 4.80 ringgit. Wilmar International Ltd., the world's largest palm-oil trader, plunged 5.1 percent to S$3.55 in Singapore."
"Palm oil futures in Malaysia declined 4.4 percent to 2,485 ringgit ($732) a metric ton at 12:30 p.m. in Kuala Lumpur, extending yesterday's 4.2 percent drop."
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
"Last Updated: August 26, 2008 03:34 EDT"
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Philippine Import Growth Accelerates to 4-Month High (Update2)
By Karl Lester M. Yap and Francisco Alcuaz Jr.
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"Aug. 26 (Bloomberg) -- Philippine import growth accelerated for the first time in five months in June as oil prices surged, widening the nation's trade deficit."
"Overseas purchases rose 12.7 percent from a year earlier to $5.3 billion, after gaining a revised 10.9 percent in May, the National Statistics Office said in Manila today. That's the fastest pace since February."
"Higher oil costs have stoked inflation in a nation that imports almost all its crude. A widening trade gap may exacerbate the peso's decline, making imports even more expensive after prices of oil, rice and other commodities rose to records this year."
"``We did see a very sharp spike in oil prices then, passing through to higher inflation which may be having an impact on final demand of consumers and businesses,'' said Song Seng Wun, an economist at CIMB-GK Securities Ltd. in Singapore."
"The trade deficit widened to $791 million in June from $559 million a year earlier, today's report showed. The shortfall for the first half of the year was $3.93 billion, compared with $906 million a year earlier."
"The peso declined 0.5 percent to 45.86 per dollar at 9:02 a.m. in Manila, according to Tullett Prebon Plc. The currency has declined 10 percent since the start of the year."
Inflation Accelerates
"Surging food and fuel prices have pushed inflation to a 16- year high, hurting consumer spending and prompting the government to lower its 2008 economic-growth forecast for a second time this year to a range of 5.5 percent to 6.4 percent. All 12 economists surveyed by Bloomberg News expect the central bank to raise its benchmark interest rate when it meets this week, adding to two increases since June."
"Crude oil and other fuel imports jumped 75.7 percent in June from a year earlier to $1.22 billion. Crude oil futures averaged $134.02 a barrel in June, almost double from a year earlier, and reached a record $147.27 a barrel on July 11."
Electronics imports dropped 20.3 percent to $1.74 billion in June. More than 40 percent of imports are raw materials purchased by local units of Texas Instruments Inc. and other manufacturers.
"Purchases of all raw materials fell 9 percent to $1.99 billion. Capital goods purchases, including telecommunications equipment and machinery, declined 3.2 percent to $1.31 billion. Imports of consumer goods increased 71 percent to $722 million."
"Exports rose a revised 8.8 percent in June, compared with the preliminary 8.3 percent gain announced on Aug. 8."
To contact the reporter on this story: Karl Lester M. Yap in Manila at Kyap5@bloomberg.net.
"Last Updated: August 25, 2008 22:27 EDT"
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"Asian Currencies Fall, Led by Korean Won, as Funds Sell Shares "
By Aaron Pan and Judy Chen
"Aug. 26 (Bloomberg) -- Asian currencies declined, led by South Korea's won, on speculation global fund managers are taking their money out of the region after selling local stocks."
"The won fell to the lowest level since November 2004 against the dollar and extended its decline to 7.3 percent since Finance Minister Kang Man Soo told lawmakers on July 28 that the country faces difficult times. Eight of the 10 most-traded Asian currencies outside Japan declined today, according to data compiled by Bloomberg."
"``The trend will continue due to offshore players' heavy buying of the dollar,'' said Sam Hong, a currency trader in Seoul at Shinhan Bank, a unit of South Korea's second-biggest financial group. ``The government's selling of the dollar this month isn't enough to support the currency.''"
"The won weakened 0.7 percent to 1,086 versus the dollar as of 12:25 p.m. local time, according to Seoul Money Brokerage Services Ltd. The local currency has dropped every day this month except two."
Fund managers outside Korea sold more local shares than they bought for a sixth straight day as the benchmark Kospi stock index extended its slump this year to 21 percent.
"Malaysia's ringgit fell for a second day on speculation losses linked to the U.S. mortgage market will aggravate a global economic slowdown, curbing the nation's exports."
"The currency weakened to a nine-month low after Bank Negara Malaysia said exports will moderate as the economy suffers from the effects of a global credit crunch. Opposition leader Anwar Ibrahim, a former deputy prime minister, may return to parliament by winning a by-election today."
`Slowdown Concerns'
"``The focus has shifted to slowdown concerns and the bias is for a weaker ringgit,'' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. ``Investors are also keeping an eye on the risks associated with the by-election.''"
"The ringgit fell 0.5 percent to 3.3910 per dollar, according to data compiled by Bloomberg. The currency earlier reached 3.3913, the lowest level since Nov. 22."
"Malaysia's central bank yesterday kept its overnight policy rate at 3.5 percent, unchanged in 19 straight meetings since April 2006, citing risks of a slowdown. The announcement came after local financial markets closed."
"Growth in Southeast Asia's third-largest economy slowed to 6 percent in the second quarter, versus 7.1 percent in the previous three months, according to the median forecast of 11 economists in a Bloomberg News survey. The central bank will release the report on Aug. 29."
Peso Declines
The Philippine peso fell to the lowest in more than 11 months on concern a deepening global economic slump will spur investors to reduce holdings of emerging-market assets.
"The local currency dropped for a second day as regional and U.S. stocks declined on speculation American International Group Inc. will post a loss. Philippine import growth accelerated for the first time in five months in June, the National Statistics Office said today in Manila."
"``Investors are pulling out of their risky investments,'' said Vishnu Varathan, regional economist at Forecast Singapore Pte. The imports figure ``adds to sentiment that the peso should weaken.''"
"The Philippine currency dropped 0.7 percent to 45.960 per dollar, according to Tullett Prebon Plc. Local financial markets were closed yesterday for a public holiday. The currency touched 45.972, the weakest since September 2007."
"The peso may decline to 46 this week should it break past the 45.88 level, Varathan said."
Taiwan Dollar
The Taiwan dollar weakened to the lowest in six months after export orders increased by the least in five years as cooling sales in China added to the slowdown in global demand.
"The currency fell for a second day after the Ministry of Economic Affairs said yesterday that orders, an indicator of actual shipments over the next one to three months, rose 5.52 percent from a year ago. That was the smallest increase since May 2003. Orders from China gained 1.73 percent last month, the least since February 2005."
"``The export orders are very much in line with the slowdown in external demand,'' said Irene Cheung, a strategist at ABN Amro Bank NV in Singapore. ``It'll continue to play out and we'll see further depreciation in the Taiwan dollar.''"
The currency fell 0.3 percent to NT$31.528.
"Elsewhere, Singapore's dollar lost 0.2 percent to S$1.4195 against the U.S. currency, Indonesia's rupiah declined 0.2 percent to 9,178, Thailand's baht dropped 0.4 percent to 34.23 and Vietnam's dong was little changed at 16,632.50."
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net.
"Last Updated: August 25, 2008 23:33 EDT"
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Indian Rupee Weakens to 17-Month Low as Importers Buy Dollars
By Anoop Agrawal
Aug. 26 (Bloomberg) -- India's rupee weakened past 44 per dollar for the first time in more than 17 months on speculation importers increased dollar purchases to settle bills.
"The local currency extended yesterday's losses after crude oil prices in New York climbed for a second day, spurring concern import costs will increase. Demand for the U.S. dollar typically increases at the end of every month when refiners pay for their imports. The rupee also fell as global investors sold more Indian shares than they bought this year."
"``Dollar demand is strengthening at a time when we are seeing strong capital outflows,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``I expect the rupee to weaken further as the fundamentals are against it.''"
"The rupee fell as much as 0.8 percent to 44.1115 a dollar, the lowest level since March 16, 2007, before trading at 44.07 as of 9:50 a.m. in Mumbai, according to data compiled by Bloomberg."
"Global funds were net sellers of local equities for a seventh straight day, the longest stretch in three months, data provided by the Securities & Exchange Board of India show. They have sold a net $7.2 billion of Indian shares this year, compared with a record $17.2 billion in net purchases in 2007."
"India's average monthly oil import costs rose to $8 billion this year, from $5.5 billion in 2007, trade ministry data show."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal@bloomberg.net.
"Last Updated: August 26, 2008 00:29 EDT"
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Japan's Bond Rise as Lowest Price at an Auction Beats Estimates
Aug. 26 (Bloomberg) -- Japanese government bonds advanced for a second day after the lowest price at an auction of 20-year debt today surpassed traders' forecasts and as stocks declined.
Ten-year yields fell toward the lowest in four months after Credit Suisse Group said American International Group Inc. may lose $2.41 billion this quarter due to mortgage-related writedowns. The lowest price at the 800 billion yen ($7.3 billion) sale was 0.10 yen above the 99.30 median forecast in a Bloomberg News survey.
"``The results reflect the bullishness of the market,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a securities unit of Japan's largest bank by assets, in Tokyo. ``The stock market retained the morning's decline and for the time being, the bond market is very bullish.''"
"The yield on the 1.5 percent bond due June 2018 fell 1 basis point to 1.415 percent as of 4:14 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.087 yen to 100.732 yen."
"Twenty-year yields lost 1 basis points, or 0.01 percentage point, to 2.11 percent."
Ten-year bond futures for September delivery rose 0.39 to 138.49 as of the afternoon close at the Tokyo Stock Exchange.
The auction of the 2.1 percent 20-year securities drew bids worth 3.41 times the amount on offer compared with 3.82 times at the prior sale in July. Last year's average ratio was 3.56 times.
Stock Declines
"The Nikkei 225 Stock Average lost 0.8 percent on concern that credit-market losses will deepen, boosting demand for debt."
"``The drop in stocks is supporting the bond market,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 26 primary dealers required to bid at government debt sales. ``Investors will find it hard to sell bonds.''"
"The world's biggest banks and securities firms have reported more than $500 billion in writedowns and credit losses since the U.S. housing market slump started last year, according to data compiled by Bloomberg."
"Japanese bonds have handed investors a return of 0.7 percent so far this month through yesterday, according to an index compiled by Merrill Lynch & Co. The Nikkei lost 3.7 percent in the same period."
"The decline in yields will probably be limited as the Bank of Japan is likely to keep interest rates on hold, according to BNP Paribas Securities Japan Ltd."
Rate Cut Odds
"``For the 10-year yield to stay below 1.4 percent, the market needs to factor in a rate cut,'' said Koji Shimamoto, chief strategist at BNP Paribas in Tokyo and the top-rated debt analyst in Japan according to the Nikkei Veritas newspaper."
"Bank of Japan Governor Masaaki Shirakawa yesterday said the country's low borrowing costs will help the economy avoid slipping into a ``deep'' slump, suggesting the central bank isn't considering cutting interest rates from 0.5 percent, the lowest among major economies."
"``Japan's economy is unlikely to experience a deep adjustment phase,'' Shirakawa said at a speech in Osaka. The country's ``accommodative environment for corporate finance is expected to continue to support business activity.''"
"There is a 10 percent chance the Bank of Japan will lower borrowing costs to 0.25 percent by year-end, according to calculations by JPMorgan Chase using overnight interest-rate swaps."
Nomura Securities Co. this week will announce the increase in the average duration of its Bond Performance Index in September.
"Money managers such as Japan's Government Pension Investment Fund, which runs the world's largest pool of retirement wealth, use the index to decide on their holdings. Duration is a gauge of how much a change in yields affects the price of a bond or debt portfolio."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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Copper Climbs in Asia on Speculation China Demand to Increase
By Glenys Sim
"Aug. 26 (Bloomberg) -- Copper advanced in Asia on speculation demand in China, the world's largest user, will increase and the dollar's rally may stall."
"Inventories monitored by the Shanghai Futures Exchange fell to 21,796 metric tons last week, the lowest since February. Copper has fallen 4 percent this month on slower consumption and a stronger dollar."
"``The weak seasonality is still ongoing during this hot Chinese summer, but it will eventually run its course over the next one-and-a-half months,'' Na Liu, director of Institutional Equity at Scotia Capital Inc., wrote in a report e-mailed today."
"Copper for delivery in three months gained 1 percent to $7,735 a ton on the London Metal Exchange at 10:52 a.m. in Singapore. Copper for November delivery added 0.2 percent to 59,880 yuan ($8,748) a ton on the Shanghai Futures Exchange."
"``The Shanghai-LME price ratio for copper rebounded to a level at which spot commercial imports are at least feasible again, although still not very profitable,'' said Liu."
"The dollar last week dropped 0.5 percent against the euro, yen and four other major currencies, halting five straight weeks of gains. Most commodities are priced in dollars and often move in the opposite direction of the U.S. currency."
"The dollar was at 109.43 yen from 109.30 yen in New York yesterday, and rose to $1.4719 per euro from $1.4754 at 10:38 a.m. Singapore time."
Copper Spread
"Consumers are paying a bigger premium for immediate delivery metal than for copper three months from now, indicating supplies have tightened."
"The spread between current and future supplies soared 33 percent to $105 a ton last week on the London Metal Exchange, halting four straight weeks of declines. That's the biggest gain since the week ended June 13 and comes after the premium dipped to a six-month low of $12.25 on Aug. 11."
"Among other LME-traded metals, aluminum rose 0.5 percent to $2,803 a ton and lead was up 1.3 percent at $1,905. Zinc slipped 0.6 percent to $1,820 a ton, nickel fell 0.2 percent to $20,800 a ton and tin had not traded as of 10:42 a.m. Singapore time."
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
"Last Updated: August 25, 2008 23:18 EDT"
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"Singapore Interest-Rate Swaps to Drop on Inflation, HSBC Says "
By Patricia Lui
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"Aug. 26 (Bloomberg) -- Singapore's interest-rate swaps will extend the past month's decline as slowing growth and easing inflation signal a looser monetary policy, HSBC Holdings Plc and Standard Chartered Plc said."
Singapore's interest-rates swaps have slid through August to levels below when the credit crunch ignited in 2007. A report yesterday showed inflation slowed from a 26-year high while Singapore's government this month cut its 2008 growth and export forecasts and warned of a ``bumpy year ahead.''
"Overseas investors have ``been unwinding the swaps in the past month as concerns shift to growth from inflation,'' Pieter van der Schaft, head of Asian fixed-income strategy at HSBC in Hong Kong, said in an interview yesterday. ``Exports have been pretty weak. We believe the economy is going to slow, even going into 2009.''"
"Yields on the five-year interest-rate swap fell to 2.79 percent last week, its lowest level since at least May and down from 4 percent on June 16, the highest since November 2001, according to intraday prices. It was at 2.94 percent at 11:06 a.m. in Singapore, from 2.955 percent yesterday."
"In an interest-rate swap, two parties agree to exchange fixed payments for variable-rate payments over a set period."
"``The five-year swap came off as inflation is peaking and you have the rest of the market shifting its focus to growth,'' said Edward Lee, head of Asian fixed income-strategy at Standard Chartered in Singapore. ``Global oil and commodities prices have also come off in the past month while regional interest rates have dropped. These led Singapore rates to come off too.''"
Slower July Inflation
"Consumer prices rose 6.5 percent in July from a year earlier, after holding at a 26-year high of 7.5 percent in each of the previous three months, the government reported yesterday. Singapore's inflation slowed for the first time in five months as prices of food and transportation eased."
"Singapore's currency is the worst performer among the 11 most-traded in Asia through the second half of the year, dropping 4.1 percent to S$1.4186 against the U.S. dollar. It is still up 1.3 percent since the start of the year."
"``Singapore's dollar has been adjusting as well, dropping from the top of its policy band to the middle,'' said Lee. ``Expectations are not so fervent anymore'' for currency appreciation, he said."
"Singapore's central bank conducts its monetary policy by guiding the local dollar within an undisclosed band against a trade-weighted basket of currencies belonging to major trading partners. Adjustments are made via the slope, width or centre of the band."
The Monetary Authority of Singapore allowed a faster pace of appreciation in October 2007 and announced a one-off strengthening at its last policy meeting in April. It holds its next biannual review in October.
``Ahead of Itself''
"Swap rates are likely to rise again because inflation is still too fast and exceeded the forecast of economists, said Wai Ho Leong, a regional economist at Barclays Capital in Singapore."
"Inflation was forecast to quicken 6.1 percent last month, according to the median estimate of economists surveyed by Bloomberg News."
"``The July inflation data showed that the IRS market may have gotten ahead of itself,'' said Leong. ``Price pressures from second-round effects are still there. The market may be reading the inflation picture wrongly.''"
"The Singapore dollar is also likely to strengthen against its trade-weighted basket he said, without citing a target or timeframe."
Central Bank Intervention
"The decline in swap rates are also due to intervention by the central bank in the past two months to slow the pace of the Singapore dollar's appreciation to assist exporters, HSBC's van der Schaft said. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange."
"The central bank may have deliberately kept domestic liquidity flush to ensure borrowing costs are low, a sign that it anticipates slowing economic growth and a tougher business climate ahead for banks and businesses, he said."
"The 10-year swap rate will drop to 3 percent by year-end from 3.34 percent, he forecast. It touched 4.33 percent on July 2."
"``Inflation is slowing, growth is sluggish, so the outlook for bonds is very positive and likewise for swaps to come off,'' van der Schaft said. ``The global economic outlook is not a positive one and I do see scope for the interest-rate swap curve to come off further.''"
To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net
"Last Updated: August 25, 2008 23:15 EDT"
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Libor Signals Credit Seizing as Banks Balk at Lending (Update2)
By Liz Capo McCormick and Gavin Finch
"Aug. 25 (Bloomberg) -- Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen."
"``It's like an ongoing nightmare and no one is sure when we're going to wake up,'' said Thomson, a money manager in Glasgow at Resolution, which oversees $46 billion in bonds. ``Things are going to get worse before they get better.''"
"In a replay of the last four months of 2007, interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens. Binit Patel, an economist in London at Goldman Sachs Group Inc., said in an Aug. 21 report that nations accounting for half of the world's economy face a recession."
"The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000."
"``These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,'' Thomson said, citing a figure of $88 billion. ``The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn't any.''"
Rate Spreads
"Banks are charging each other a premium of about 78 basis points over what traders predict the Federal Reserve's daily effective federal funds rate will average over the next three months to lend cash. The spread is up from about 24 basis points in January, and may widen to 85 basis points, or 0.85 percentage point, by mid-December, prices in the forwards market show."
"Former Fed Chairman Alan Greenspan said in June that this spread, which is the difference between the three-month London interbank offered rate for dollars and the overnight indexed swap rate, should serve as a measure for telling when markets have returned to normal."
"A narrowing to 25 basis points in the so-called Libor-OIS spread would be viewed as a positive, he said. Forward markets signal that won't happen until sometime after June 2010. The premium averaged 11 basis points in the 10 years prior to August 2007."
Another 2007
Increased turmoil in the money markets may again serve as a catalyst for a surprise year-end rally in Treasuries like the one in 2007.
"``The trade to do in December will be to get back into the most liquid thing you can find,'' such as Treasury bills or notes, said David Keeble, head of fixed-income strategy in London at Calyon, a unit of Credit Agricole SA, France's second-largest bank by assets. ``We are having a period now of a second round of pressures on banks. It's weak economic growth which is now piling the pain onto the banks.''"
"A year ago, 10-year note yields fell about half a percentage point to 4 percent between September and December, even though the median estimate of 65 economists surveyed by Bloomberg was for a rise to 5 percent. Treasuries returned 3.98 percent, versus 1.92 percent for company debt and a loss of 3.82 percent in the Standard & Poor's 500 Index, according to Merrill Lynch & Co."
"And just like last year, economists and strategists are again calling for an increase in yields. The median of 52 estimates in a Bloomberg survey between Aug. 1 and Aug. 8 was for 10-year Treasury yields to rise to 4 percent by the end of 2008."
Flow of Cash
"The yield on the benchmark 4 percent note due in August 2018 closed at 3.87 percent last week, rising from 3.31 percent after the Fed engineered the bailout of Bear Stearns Cos. in March and inflation accelerated to the highest level in 17 years."
"``The credit crunch remains the centerpiece of our bond strategy,'' said Resolution's Thomas. He said he's bullish on Treasuries maturing in five years or less."
"Banks began to hoard their cash when rising defaults on subprime mortgages led two Bear Stearns hedge funds to seek bankruptcy protection on July 31, 2007, as creditors forced them to liquidate at least $4 billion of securities tied to the loans."
"Then on Aug. 9, 2007, Paris-based BNP Paribas SA halted withdrawals from three investment funds because it couldn't ``fairly'' value their subprime debt holdings and the European Central Bank took the unprecedented action of offering to pump unlimited cash into the banking system. The BNP funds had about 1.6 billion euros ($2.2 billion) of assets."
`Systemic' Problems
"Losses and writedowns on securities related to home loans to people with poor credit now exceed $504 billion at financial institutions. Last month Treasury Secretary Henry Paulson was forced to seek congressional authority to inject unlimited capital into Fannie Mae and Freddie Mac, which are responsible for about 42 percent of the $12 trillion U.S. home loan market, after their shares tumbled about 90 percent, wiping out some $54 billion of stock market value."
"Trust among banks remains low even after the Fed cut its target rate for overnight loans to 2 percent from 5.25 percent in September and created three emergency lending programs, including the Term Auction Facility, or TAF. In total, the Fed has provided almost $1 trillion of emergency loans."
The Fed's most recent lending survey released Aug. 11 said that more banks tightened credit standards for consumers and business borrowers since April as defaults and delinquencies on home loans climbed.
Libor Validity
"``The problem is much more systemic than was widely anticipated a year ago,'' said Michael Darda, chief economist for MKM Partners LLC in Greenwich, Connecticut. ``Not only bank balance sheets but home balance sheets are under pressure due to falling house prices.''"
"The seizure in the credit markets and rise in short-term borrowing costs this year triggered questions over the validity of Libor, a benchmark administered by the London-based British Bankers' Association and used to calculate rates on $360 trillion of financial products worldwide."
"The Bank for International Settlements in Basel, Switzerland, said in March some members of the BBA may have understated their borrowing costs to avoid being seen as having difficulty raising financing."
"``Libor markets aren't reflective of the entire banking system but of three or four major banks that continue to have pressure on liquidity,'' said Saumil Parikh, a money manager who helps oversee $688 billion at Pacific Investment Management Co., in Newport Beach, California. ``That spreads to the entire system because you are not really sure who you are going to end up lending to through the Libor market.''"
`Not Over'
"Restrictive lending makes it harder for growth to accelerate in U.S. economy, where gross domestic product may slow to 1.5 percent this year, according to the median forecast of 76 contributors in a Bloomberg survey that puts a greater weighting on most recent estimates."
"Meanwhile, Europe's GDP unexpectedly fell 0.2 percent in the second quarter, while Japan's economy shrank at an annual rate of 2.4 percent in the same period."
"The crisis is ``not over and I'm not exactly sure when it's going to end,'' Nobel Prize-winning economist Myron Scholes said Aug. 21 at a conference in Lindau, Germany, featuring 14 Nobel laureates in economics."
To contact the reporters on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net
"Last Updated: August 25, 2008 12:22 EDT"
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Fukuoka Financial Leads Japan Banks Lower on Rating (Update1)
By Finbarr Flynn
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"Aug. 26 (Bloomberg) -- Fukuoka Financial Group Inc., Japan's second-largest regional bank by assets, led declines among bank stocks in Tokyo after HSBC Holdings Plc lowered its rating on the stock, citing rising property defaults nationwide."
"Fukuoka Financial fell 4 percent to close at 405 yen in Tokyo, making it the second-worst performer in the 84-company Topix index of Japanese banks, which dropped 1.3 percent. HSBC cut its rating on the bank to ``underweight'' from ``neutral.''"
"Mounting corporate failures are driving up bad debts at Japan's banks as the nation's economy stagnates. Bankruptcies by property companies more than doubled to 60 in July from 27 a year earlier, according to Tokyo Shoko Research Ltd."
"``Real estate-related bankruptcies have spiked,'' Kentaro Kogi, a Tokyo-based analyst at HSBC, said in a report today. ``Real estate firm bankruptcies remain our biggest concern for regional bank credit costs.''"
"Sebon Corp., a Tokyo-based real-estate developer, filed for bankruptcy yesterday after banks tightened screening of real- estate loan applications and construction orders fell as the government toughened building codes, according to a statement."
"Urban Corp., a Hiroshima-based property developer, collapsed Aug. 13 in the largest bankruptcy of a listed Japanese company in six years. Urban had 255.8 billion yen of debt, forcing at least nine regional Japanese banks to say they may be unable to recover loans."
"HSBC also cut its rating on Bank of Yokohama Ltd., Japan's largest regional lender, and on Chiba Bank Ltd. and Suruga Bank Ltd. Bank of Yokohama fell 2.5 percent while Chiba Bank declined 2.1 percent and Suruga dropped 3.4 percent."
"Japan's largest bank, Mitsubishi UFJ Financial Group Inc., fell 1.3 percent to 820 yen."
To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net
"Last Updated: August 26, 2008 02:38 EDT"
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Bank of England May Cut Rates as U.K. Economy Slumps (Update1)
By Jennifer Ryan and Svenja O'Donnell
"Aug. 26 (Bloomberg) -- Bank of England policy makers may cut U.K. interest rates this year to protect the economy from recession even as inflation breaches the government target by the widest margin ever, according to a survey of economists."
"Half of economists in a Bloomberg News survey on Aug. 22 forecast a rate reduction before the end of 2008, up from 1-in-4 in a poll on Aug. 8. The bank has held its benchmark rate at 5 percent since April as the inflation rate climbed to 4.4 percent in July, more than double the 2 percent target."
"Policy makers, who have been weighing the threat of inflation against risks of a recession, may tip toward the need to prop up growth after the economy unexpectedly stalled in the second quarter. Governor Mervyn King said the U.K. faces a ``painful adjustment'' as expansion slows to tame prices."
"``They will have to get off that fence and start cutting,'' said Grant Lewis, an economist at Daiwa Securities SMBC Europe in London and a former U.K. Treasury official. ``After inflation peaks in September, the bank's dilemma will get easier, and they will end up having to be pretty aggressive.'' He forecasts a rate cut in November."
"The U.K.'s longest stretch of economic growth in more than a century ended as business investment deteriorated the most since 1985 and household spending contracted for the first time in three years, the government statistics office said on Aug. 22. Economists had expected a 0.1 percent increase."
Survey Results
Twelve of 24 economists polled by Bloomberg News last week say the key rate will drop to at least 4.75 percent by the end of the year. That compares with seven of 28 economists when the survey was conducted at the beginning of the month.
"Minutes published Aug. 21 covering the August decision for no change in the key rate showed a three-way split in the nine-member panel, the second such division in as many months. Timothy Besley preferred an increase to tame price growth, while David Blanchflower wanted a cut to guard against inflation slowing too far below the target."
Economists brought forward their expectations for a rate cut after the bank published quarterly forecasts on Aug. 13 showing inflation will dip below the 2 percent goal in two years if interest rates remain unchanged.
"``The British economy is going through a difficult and painful adjustment,'' King said as he delivered the forecasts. He said output will be ``broadly flat,'' meaning ``there is a possibility of a quarter or two of negative growth.''"
Deputy Governor Charles Bean said in an interview with the British Broadcasting Corporation published yesterday that the credit crisis ``will drag on for some considerable time.''
Dropping Pound
"Recent reports have sparked a 6.7 percent drop in the pound this month against the dollar, the worst monthly decline since October 1992, when it lost 12 percent."
Some economists are sticking to forecasts for no change in rates this year. They argue that cutting rates while inflation quickens may tell wage bargainers and companies setting prices that the bank isn't focused on meeting its inflation mandate.
"King said Aug. 13 a ``reasonable person'' would expect price gains ``to remain high for a while,'' and that the consumer-price index would peak at around 5 percent. Scottish & Southern Energy Plc and E.ON AG's British unit said last week they would charge customers more for power and gas to offset rising wholesale costs."
"``A cut seems unwise,'' said Jeavon Lolay, an economist at Lloyds TSB Bank Plc in London. ``Until we're sure that this hump in inflation is out of the way and it's not going to lead to second-round effects, rates should remain on hold.'' He forecasts no change in the benchmark through the end of 2009."
Housing Market
"A recession, along with the worst housing-market downturn in more than a quarter of a century and rising joblessness, may be enough to squeeze household consumption and keep price increases from sticking."
"Bank of America Corp. economist Matthew Sharratt cut his forecast for U.K. rates last week. He now expects reductions starting this year and the benchmark rate to fall to 3.5 percent by the end of next year, compared with a previous call for rates at 4 percent by the third quarter next year."
"``The risk of a mild recession is around 30 percent,'' Sharratt wrote in a research note on Aug. 22. ``The Bank of England will have to come to the rescue in coming months despite concerns over the near-term inflation profile.''"
To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.netSvenja O'Donnell in London at sodonnell@bloomberg.net
"Last Updated: August 26, 2008 02:46 EDT"
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"Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show "
"Aug. 26 (Bloomberg) -- The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps."
"Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 10 basis points to 563, according to JPMorgan Chase & Co. prices at 7:14 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and a rise indicates a deterioration in the perception of credit quality; a decline signals the opposite."
"The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 2.5 basis points to 99.5, JPMorgan prices show."
"A basis point on a credit-default swap contract protecting 10 million euros ($14.7 million) of debt from default for five years is equivalent to 1,000 euros a year."
"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."
"Credit-default swaps on the Markit CDX North America Investment Grade index, a benchmark gauge of credit risk linked to the bonds of 125 companies in the U.S. and Canada, increased 3 basis points to 143 at the close of trading in New York, according to CMA Datavision."
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
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Copper Users Must `Pay Up' as Market Bottoms: Chart of the Day
By Millie Munshi
"Aug. 26 (Bloomberg) -- Copper's 14 percent slump from a record on July 2 may be nearing a bottom as metal consumers pay a bigger premium for immediate delivery than for three months from now, indicating supplies have tightened."
"The CHART OF THE DAY shows the spread between current and future supplies soared 33 percent to $105 a metric ton last week on the London Metal Exchange, halting four straight weeks of declines. That's the biggest gain since the week ended June 13 and comes after the premium dipped to a six-month low of $12.25 on Aug. 11."
"``The widening spreads are a real sign that supplies have tightened,'' said Donald Selkin, the chief market strategist at National Securities Corp. in New York. ``Users are having to pay up to get the product they need. It's a sign that the collapse in copper may be over.''"
"The copper-price gains will be ``aggressive'' in the next two years as supplies are limited and demand remains strong in China, Citigroup Inc. said last week. Miners will continue to face ``serious challenges on the supply side,'' BHP Billiton Ltd., the world's biggest mining company, said on Aug. 18."
Rising demand may erode inventories in LME-monitored warehouses that climbed 48 percent since the end of April and last week reached the highest level since Feb. 11.
"On the LME, copper for delivery in three months touched a record $8,940 a metric ton on July 2, as the spread with prompt deliveries was headed toward a three-year high of $240. On Aug. 22, the contract lost 2.5 percent to $7,660. The LME, the world's largest market for base-metals trading, was closed yesterday for a U.K. holiday."
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
"Last Updated: August 25, 2008 19:12 EDT"
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"China Stocks Decline for Fourth Day; Haitong, Air China Retreat "
By Zhang Shidong
"Aug. 26 (Bloomberg) -- China's stocks fell for a fourth day, led by brokerages, after daily trading value yesterday dropped to the lowest since November 2006."
"Haitong Securities Co., the country's largest listed brokerage by market value, dropped 7.8 percent on concern lower turnover will slash income. Air China Ltd. retreated to the lowest in 20 months on speculation the cost of paying overseas debt will rise as the yuan weakened the most in four weeks. Baoshan Iron & Steel Co. led steelmakers lower after a newspaper said it will cut product prices in the fourth quarter."
"The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, sank 69.02, or 2.9 percent, to 2,331.53 at the close. China Life Insurance Co., the nation's biggest insurer, dropped 0.9 percent after first-half profit slumped 32 percent."
"``You'll see worse corporate earnings in the third quarter than in the previous two quarters,'' said Zheng Tuo, who manages $790 million at Bank of Communications Schroders Fund Management Co. in Shanghai. ``The possibility cannot be ruled out that the market will seek a bottom at a lower level.''"
To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
"Last Updated: August 26, 2008 03:17 EDT"
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"U.S. Stocks Drop, Led by Financial Shares, AIG, Banks Retreat "
By Elizabeth Stanton
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Aug. 25 (Bloomberg) -- U.S. stocks fell the most in a month as a Kansas bank's failure and speculation American International Group Inc. will post a loss heightened concern that credit writedowns will keep rattling the financial system.
AIG tumbled to a 13-year low after Credit Suisse Group said the insurer may lose $2.41 billion this quarter on mortgage- related writedowns. Washington Mutual Inc. and Huntington Bancshares Inc. each dropped more than 6 percent after Columbian Bank & Trust Co. became the ninth U.S. bank to collapse this year. Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. led the Standard & Poor's 500 Materials Index to a 2.3 percent retreat as gold and aluminum prices decreased.
"``The market's going to struggle until we get a clear indication that we know what the bottom is in the financials, and that may be a while,'' Peter Sorrentino, senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which manages about $17 billion, told Bloomberg Television."
"The S&P 500 dropped 25.36, or 2 percent, to 1,266.84, ending a three-day advance. The Dow Jones Industrial Average slid 241.81, or 2.1 percent, to 11,386.25, with all 30 of its companies lower. The Nasdaq Composite Index decreased 49.12 to 2,365.59. About 865 million shares changed hands on the New York Stock Exchange, the slowest trading day of the year. Volume last week was 35 percent less than the year-to-date average."
Broad Retreat
Almost 10 stocks retreated for each that rose on the NYSE. All 10 industry groups in the S&P 500 dropped as the index extended its first weekly decline since July. The benchmark for American equities slipped 0.5 percent last week as energy prices climbed and concern grew that the government may need to bail out Fannie Mae and Freddie Mac.
"Stocks fell even after a report showed sales of previously owned homes in the U.S. rose in July from a 10-year low as declining prices helped stabilize demand, and investor appetite increased for Freddie Mac's weekly sale of short-term debt securities."
Morgan Stanley cut its year-end forecast for the S&P 500 on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.
"``Our biggest concern for 2009 earnings estimates is that a combination of global growth slowdown, declining operating leverage, a stronger U.S. dollar, less share count reduction and a long tail to dysfunctional credit markets will create powerful headwinds for what appear to be very optimistic consensus expectations,'' Abhijit Chakrabortti wrote in a note to clients dated yesterday."
"AIG, Banks Retreat"
"AIG fell 5.5 percent to $18.78 for the biggest drop in the Dow average. Credit Suisse analyst Thomas Gallagher predicted AIG will lose 86 cents a share in the third quarter. Previously he forecast a 13-cent profit. ``Recent deterioration'' in debt holdings may cause losses in the firm's credit-default swaps, Gallagher wrote today in a research note. He rates New York-based AIG ``neutral.''"
"The KBW Bank Index tumbled 3.4 percent as all 24 of its companies decreased. Washington Mutual lost 23 cents to $3.60. Huntington Bancshares retreated 51 cents to $7. SunTrust Banks Inc., the largest bank based in Georgia, fell 6 percent to $40.15 after Citigroup Inc. began covering it with a ``sell'' rating."
"Columbian Bank, with $752 million in assets and $622 million in total deposits, was shuttered by the Kansas state bank commissioner's office and the Federal Deposit Insurance Corp. on Aug. 22."
`Last Shoe'
"The pace of bank closings is accelerating as global financial firms rack up more than $500 billion in writedowns and credit losses since 2007. The FDIC's ``problem'' bank list grew by 18 percent in the first quarter to 90 banks with combined assets of $26.3 billion. Prior to yesterday, the FDIC had closed 36 banks since October 2000, according to a list at fdic.gov. The U.S. shut 12 banks in 2002, the highest in the period, and 2005 and 2006 had no closures."
"``Trying to guess when the last shoe has dropped is going to be a difficult way of making money,'' said Jeffrey Coons, co- director of research at Manning & Napier Advisors Inc., which manages $19 billion in Fairport, New York. Investors ``should focus on companies that aren't reliant on you picking a bottom in the financial crisis,'' he said."
Lehman Brothers Holdings Inc. slipped 6.6 percent to $13.45 on concern that a Korean bank will abandon a potential investment in the fourth-largest U.S. securities firm. The shares rose 5 percent in New York trading on Aug. 22 after Korea Development Bank said it's ``considering'' an investment in the company.
Lehman Talks
"The Korean bank ended talks on a possible investment after Lehman demanded a price 50 percent higher than its book value, the Maeil Business newspaper said, citing an unnamed official in the banking industry. South Korea's financial regulator said today that state-controlled banks including Korea Development Bank should consider the risks of buying overseas rivals amid the global credit crisis."
"New York-based Lehman has dropped 79 percent this year, the worst performance in the 11-company Amex Securities Broker/Dealer Index."
"Fannie Mae rose 3.8 percent to $5.19, paring its drop over the past year to 92 percent. Freddie Mac climbed 17 percent to $3.29, still down 95 percent in the past year. Investors bid 3.95 times the amount of three-month securities on offer from Freddie today, compared with 2.19 times last week."
Financials Slump
"Financial shares last week fell the most in six weeks for the biggest drop among 10 S&P 500 industries. The group has retreated 32 percent this year. One year into the financial crisis, central bankers and scholars at the Federal Reserve's annual retreat this weekend couldn't agree on how to prevent a repeat."
"Fed Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet, former officials and economists meeting in Jackson Hole, Wyoming, split over whether policy makers should be made responsible for financial stability and how closely to heed the concerns of Wall Street."
"The yearlong credit crisis has yet to run its course, with continued turmoil likely in housing and banking, Bank of Israel Governor Stanley Fischer said Aug. 23 at the Fed's symposium."
"Alcoa, the world's third-largest aluminum producer, retreated 86 cents to $31.42. Freeport-McMoRan tumbled $2.79 to $87.81. Gold futures for December delivery fell $7.80, or 0.9 percent, to $825.70 an ounce in New York and November aluminum fell 1 percent in Shanghai. The London Metals Exchange was closed for a bank holiday."
Consumer Shares Decline
"Shares of retailers, hotel operators and other S&P 500 companies that rely on consumers' disposable income dropped 2.4 percent as a group. Spreads on their bonds, the extra yield investors demand to own the industry's debt, rose to 2.5 percentage points over U.S. Treasuries last week. Every time spreads have widened that much this decade, the S&P 500 Consumer Discretionary Index slumped 16 percent on average."
"Coach Inc., the largest U.S. maker of luxury handbags, fell $1.93 to $26.40. Darden Restaurants Inc., the owner of the Olive Garden and Red Lobster chains, retreated $1.31 to $32.26. Wyndham Worldwide Corp., the franchiser of Ramada and Super 8 hotels, lost 38 cents to $18.27."
"The consumer index rose 7.6 percent in August through the end of last week, putting it on track for the biggest monthly rally in five years. The gain, helped by a 2.2 percent rally after earnings at Gap Inc. topped analyst forecast, was almost four times that of the S&P 500."
"Ryder, AMR"
"Ryder System Inc. slid 6.4 percent to $64.72. Wachovia Corp. analyst Justin Yagerman lowered his rating on the trucking industry to ``market weight'' from ``overweight,'' citing ``lackluster'' freight volumes in August and the potential for continued weakness."
"AMR Corp., parent of American Airlines, the world's largest carrier, lost 46 cents to $10.06. AMR may sell as much as $300 million worth of newly issued shares, diluting existing stockholders' stake, and use the proceeds to repay debt or help purchase aircraft, according to a regulatory filing."
"Advanced Micro Devices Inc. climbed 2.1 percent to $5.93, the highest in two months. The world's second-largest maker of personal-computer processors agreed to sell a unit that produces semiconductors used in lower-priced digital TVs to Broadcom Corp. for $192.8 million. Broadcom declined 4.6 percent to $26.17."
"Leggett & Platt Inc. gained 2 percent to $21.55. The maker of lumbar supports for car seats was raised to ``buy'' from ``hold'' by analysts at Stifel Nicolaus & Co., who said the company may get out of its less profitable businesses."
"Dell Inc., Sears Holdings Corp. and Big Lots Inc. are among the companies scheduled to report earnings this week. Second- quarter profits for S&P 500 companies slumped 22 percent on average, based on Bloomberg data. Fewer than 50 companies in the U.S. stock benchmark have yet to release results."
"-- Editors: Michael Regan, Chris Nagi"
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
"Last Updated: August 25, 2008 16:33 EDT"
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Consumer Stock Rally Doesn't Signal Economic Recovery (Update3)
By Fabio Alves and Michael Tsang
Aug. 25 (Bloomberg) -- Just because consumer stocks are staging the biggest rally in five years doesn't mean the economy is about to recover.
"As Lowe's Cos., Wendy's International Inc. and Starwood Hotels & Resorts Worldwide Inc. led a 7.6 percent advance in consumer stocks this month as of last week, the extra yield bond investors demanded to own the industry's debt rose to 2.5 percentage points over U.S. Treasuries. Every time bondholders sought that much compensation to guard against default, shares of retailers, restaurants, and hotels slumped an average 16 percent, according to data compiled by Bloomberg."
"Standard Life Investments, Harvard University's endowment and hedge fund Appaloosa Management LP, which manage almost $300 billion, are avoiding the shares as Americans rein in spending to cope with the highest unemployment rate in four years and faster inflation. Profits at consumer discretionary companies are forecast to be the worst since 2001, Bloomberg data show."
"``It's a rally that we think will inevitably roll over,'' said Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments, which oversees about $242 billion. ``Investor confidence has started to ease back and earnings numbers have generally been negative. The credit side just reinforces our downbeat views.''"
Stocks Versus Bonds
"Consumer shares had risen almost four times as fast as the Standard & Poor's 500 Index in the month through Aug. 22, sending the S&P 500 Consumer Discretionary Index toward its biggest monthly advance since an 8.9 percent jump in October 2003."
A 22 percent drop in oil since its July peak and speculation the Federal Reserve will hold off raising interest rates after seven cuts in the past year improved prospects Americans will spend more. Consumer stocks in the MSCI World Index are up 1.8 percent this month.
"Today, consumer discretionary shares in the S&P 500 tumbled 2.4 percent, the biggest slide this month, as 81 of 82 companies declined. The broader index lost 2 percent."
"This month's gains in consumer stocks coincided with an increase in the difference between yields of U.S. retailers' bonds and those of government debt to 2.47 percentage points as investors demanded more protection against the likelihood of default, data from New York-based Merrill Lynch & Co. show"
"When the gap exceeded 245 basis points in 2000, 2002, 2005 and March of this year, the consumer discretionary gauge lost an average of 16 percent over the same span, the data show. A basis point is equal to 0.01 percentage point."
`Voting With Bondholders'
"Shares of Mooresville, North Carolina-based Lowe's, the world's second-largest home-improvement retailer, surged 22 percent this month through last week as the extra yield investors demanded to own the company's 5.6 percent bond due in 2012 widened 23 basis points over U.S. Treasuries."
"That's more than three times the average increase of A- rated corporate bonds over the same period, Merrill's data show."
"The premium on Wendy's 7 percent bond due in 2025 climbed as much as 33 basis points above U.S. government debt this month, almost triple the gain in spreads of similar BB-rated debt. The Dublin, Ohio-based hamburger chain's stock added 16 percent."
"The disparity between the stock and bond markets comes as analysts are forecasting the industry's biggest full-year profit decline since the last recession in 2001. Earnings at S&P 500 consumer-discretionary companies will drop 22.9 percent this year, data compiled by Bloomberg show."
"``I would be inclined to vote with the bondholders,'' said Jack Ablin, who oversees $65 billion as chief investment officer at Harris Private Bank in Chicago. ``They're sensing there's still credit deterioration going on in the group.''"
Earnings Plummet
"Lowe's, Wendy's and Starwood, the White Plains, New York- based company that runs the Westin, St. Regis and W hotels, all reported lower earnings for the second quarter. Industry profits have dropped 54 percent on average, the highest on record for Bloomberg data that started in 2001."
"LPL Financial's Jeffrey Kleintop expects consumer stocks will continue to do well as profits decline less than analysts estimate. More than 91 percent of the S&P 500 retailers that have reported second-quarter results so far topped Wall Street's consensus forecast, data compiled by Bloomberg show."
"``The outlook isn't rosy, but certainly better than what had been priced into those stocks,'' Kleintop, the Boston-based chief market strategist at LPL, which oversees $273 billion, said in a Bloomberg Television interview."
Fed Rate Cuts
"Consumer stocks in the U.S., where the Federal Reserve cut its benchmark interest rate to 2 percent from 5.25 percent in the past year, are outperforming the rest of the world. The MSCI Brazil Consumer Discretionary Index lost 9.8 percent in August as of last week, while retailers, automakers and electronics makers in the MSCI Asia Pacific Index fell 2.3 percent."
"To maintain the advantage, U.S. retailers will have to defy an unemployment rate that rose to 5.7 percent last month and the fastest inflation in 17 years. The economy, buffeted by the biggest U.S. housing slump since the Great Depression and more than $500 billion in bank losses, may grow 0.45 percent next quarter, or about a third the annual rate of 1.2 percent forecast this quarter, according to data compiled by Bloomberg."
"``You only have so many dollars or francs or euros in your pocket,'' said Robert Weissenstein, who helps oversee $1.3 trillion as chief investment officer at Credit Suisse Private Bank. It's difficult to turn bullish ``as long as you get mixed to negatively biased jobs data,'' he said from Tucson, Arizona."
Harvard Endowment
"Harvard's $34.9 billion endowment, the biggest of any university, sold its holdings in 79 of 92 consumer companies including Lowe's, Wendy's and Starwood, during the second quarter, the Boston-based college fund's filing with the U.S. Securities and Exchange Commission compiled by Bloomberg show."
"Appaloosa, the Chatham, New Jersey-based hedge-fund firm run by former Goldman Sachs Group Inc. bond trader David Tepper, held 10.4 percent less in consumer stocks at the end of the second quarter, partly after selling its 175,000 share stake in Starwood, filings compiled by Bloomberg show. Appaloosa, which owned equities valued at $3.1 billion as of June 30 and also invests in bonds, has posted average annual returns of about 25 percent in its Palomino Fund since the beginning of 1995."
"``The corporate bond market has sold off first, fastest, and then equities follow after,'' said Standard Life's Milligan. ``What the credit markets are telling us is that we need to still be cautious.''"
To contact the reporters on this story: Fabio Alves in New York at falves3@bloomberg.net; Michael Tsang in New York at mtsang1@bloomberg.net.
"Last Updated: August 25, 2008 16:36 EDT"
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"U.S. to Press for Stronger Yuan, Labor Secretary Says (Update1) "
By Eugene Tang and Catherine Yang
Aug. 26 (Bloomberg) -- U.S. Labor Secretary Elaine Chao said the Bush administration will keep pressing China to let the yuan strengthen at a faster pace to help close a trade deficit with the Asian nation.
"``The yuan has appreciated 17 percent in the past two years but we think they can do more,'' Chao said today in an interview on Bloomberg Television. U.S. Treasury ``Secretary Henry Paulson will continue pressing China to let the yuan strengthen at the next Strategic Economic Dialogue,'' she said."
"The yuan has strengthened 6.7 percent this year against the U.S. dollar, appreciating almost 21 percent since the end of its dollar peg in 2005. The Chinese currency was little changed today at 6.8462 per dollar at 12:34 p.m. in Shanghai, according to the China Foreign Exchange Trade System."
"China has allowed the yuan to depreciate 0.4 percent against the dollar since the Politburo, the Communist Party's top decision-making body, stressed on July 25 that maintaining steady growth is as important as combating inflation. China's economy grew at the slowest pace since 2005 in the second quarter as the strengthening yuan squeezes exporters' profits amid weakening global demand."
"China's trade surplus climbed 4 percent to $25.3 billion from a year earlier in July, the first gain in four months, customs bureau data showed on Aug. 11."
U.S. Treasury Secretary Henry Paulson said last week that U.S. lawmakers' proposals to punish China for depressing the value of its currency might spark an unproductive ``trade war.''
To contact the reporter on this story: Catherine Yang in Hong Kong at cyyang@bloomberg.net; Eugene Tang in Beijing on eugenetang@bloomberg.net.
"Last Updated: August 26, 2008 00:50 EDT"
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Australia's Two Biggest Grain States May Get Rain This Week
By Madelene Pearson
"Aug. 26 (Bloomberg) -- Australia, forecast to be the world's third-largest wheat exporter, may get rain this week in its two biggest grain-growing states as dry weather threatens crop yields, the National Climate Center said."
"Western Australia may get between 10 millimeters (0.4 inch) and 25 millimeters of rain this week, with totals higher in northern regions, Shoni Dawkins, climatologist with the center said today by phone from Melbourne. Cropping regions in New South Wales may get 10 millimeters, with falls above 25 millimeters in some areas, later in the week, he said."
"Wheat production in Australia may rise 82 percent to 23.7 million metric tons in the harvest starting about November, as the nation recovers from drought, the government forecaster has said. Farmers need rain before then to boost yields."
"``Large areas of the crop are entering an important time in the growing cycle which would benefit greatly from rain in the next few weeks,'' GrainCorp Ltd., eastern Australia's biggest grain handler said today in an e-mailed report."
"Wheat for December delivery fell 13 cents, or 1.5 percent, to $8.5175 a bushel on the Chicago Board of Trade in after-hours electronic trading at 10:13 a.m. Sydney time. Futures have fallen 37 percent since reaching a record $13.495 in February."
"Canola production forecasts may be cut without rain soon, GrainCorp said."
"``Australian crop estimates are currently stable, however estimates are likely to start being revised down if rain does not arrive in the next few weeks,'' it said."
"Australia is currently the world's sixth-largest wheat exporter after drought cut output the past two harvests. The U.S. is forecast as the world's largest shipper in the year that began June 1, followed by Canada and Australia, according to the U.S. Department of Agriculture."
To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net
"Last Updated: August 25, 2008 20:46 EDT"
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Argentina and Mexico: Latin America Bond and Currency Preview
By Valerie Rota
Aug. 26 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from the previous session.
"Argentina: The trade surplus widened in July to $1 billion from $517 million in the same month a year earlier, the National Statistics Institute said yesterday. Exports rose 53 percent to $7 billion, while imports rose 46 percent to $6 billion. The surplus was higher than the $698 million median estimate in a Bloomberg News survey of eight economists."
The peso fell 0.1 percent to 3.026 per dollar.
"The yield on the country's inflation-linked peso bonds due in December 2033 fell 4 basis points, or 0.04 percentage point, to 10.037 percent, according to Citigroup Inc.'s unit in Argentina."
"Mexico: Retail sales in June rose 1.6 percent from a year earlier, the national statistics agency said yesterday, compared with a 3.4 percent expansion in May. Economists predicted sales would rise 2.7 percent, according to the median of 16 estimates in a Bloomberg survey."
The peso rose 0.05 percent to 10.1397 per dollar.
"The yield on Mexico's benchmark 10 percent bonds due December 2024 fell 1 basis point to 8.55 percent, according to Banco Santander SA."
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.
"Last Updated: August 26, 2008 00:00 EDT"
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European Bonds Little Changed Before German Confidence Index
Aug. 26 (Bloomberg) -- European government bonds were little changed before an industry survey that will probably show German business confidence slipped to a three-year low in August.
"The 10-year bund yield held near the lowest level in more than three months after a government report showed the German economy, Europe's largest, contracted in the second quarter. The Ifo institute's investor sentiment index fell to 97.2 from 97.5 in July, according to the median of 35 forecasts in a Bloomberg News survey. That would be the weakest reading since September 2005. The data is due at 10 a.m. in Munich."
"``We don't see where a swift recovery in economic activity might be coming from,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``We see further downside in coming months. The bigger picture is conducive toward more gains in the bond markets.''"
"The two-year note yield declined 2 basis points, to 4.01 percent by 8:22 a.m. in London. The price of the 4.75 percent note rose 0.03, or 30 euro cents per 1,000 euro ($1,468) face amount, to 101.23."
"The yield on the 10-year German bund, Europe's benchmark government security, rose 1 basis point to 4.13 percent, 4 basis point above its lowest level since May 13. Yields move inversely to bond prices."
"The difference in yield, or spread, between two- and 10-year notes widened to 11 basis points, the most in a week, from 8 basis points yesterday, as rate-sensitive short-maturity debt outperformed."
Waning Confidence
"Building investment dropped 3.5 percent in the quarter, investment in plant and machinery fell 0.5 percent and consumer spending decreased 0.7 percent, the Federal Statistics Office said. Gross domestic product fell an adjusted 0.5 percent from the first quarter, when it rose 1.3 percent, the office said, confirming a first estimate from Aug. 14. That's the weakest since the second quarter of 1998."
"Confidence among Germany's consumers slipped to the lowest level in more than five years, according to GfK AG's index for September, released today."
"The gauge, based on a survey of about 2,000 people, fell to 1.5, the lowest since June 2003, from a revised 1.9 in August, the Nuremberg-based market-research company said in a statement."
Traders have increased bets the European Central Bank will lower interest rates this year to stimulate economic expansion. The implied yield on the December Euribor futures contract fell 1 basis point to 5.04 percent. It has declined 9 basis points in the past month.
The central bank left its main interest rate at 4.25 percent on Aug. 7 while ECB President Jean-Claude Trichet said that growth will be ``particularly weak.''
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
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