Wheat Extends Gain as Dollar Drop May Lift Demand for U.S. Crop
By Jae Hur
"Sept. 23 (Bloomberg) -- Wheat advanced for a third day to near a two-week high as the dollar tumbled, boosting demand prospects for U.S. supplies. Corn and soybeans declined for the first day in three."
"The dollar fell for a fifth day against the euro, its longest losing streak since February, as a U.S. proposal to buy $700 billion of troubled assets eroded investor confidence in the nation's finances. A weaker dollar boosts interest from overseas buyers, making U.S. products more attractive."
"``The dollar's weakness has helped wheat futures,'' said Nicholas Chung, senior manager of the commodity derivatives team at state-run Korea Development Bank in Seoul. The wheat market has also seen continued buy-back from speculators who previously bet the price would decline, he said."
"Wheat for December delivery rose as much as 1.2 percent to $7.4675 a bushel in after-hours trading on the Chicago Board of Trade before trading 0.2 percent higher at $7.3925 by 11:29 a.m. Singapore time. The price yesterday touched $7.5775, the highest for a most-active contract since Sept. 8. Futures reached a record $13.495 on Feb. 27."
"From June 1 to Sept. 11, advance sales of U.S. wheat were 22 percent below a year earlier, Department of Agriculture data show. The decline was triggered partly by the dollar's rally."
"The U.S. government inspected 29.2 million bushels of wheat for overseas delivery in the week ended Sept. 18, up 38 percent from the previous week, the USDA said yesterday. Inspections since Jun 1 were still down 4.1 percent from a year ago, the USDA said."
Dollar Slumps
"The dollar dropped as low as $1.4825 per euro after falling 2.1 percent yesterday, when it touched $1.4866, the weakest since Aug. 22. Oil fell for the first time in a week, with November delivery dipping as much as 0.9 percent to $108.37 a barrel. Yesterday, the price rose 6.4 percent $109.37 a barrel."
"Corn for December delivery lost as much as 7.25 cents, or 1.3 percent, to $5.5125 a bushel and was at $5.545 by 10:20 a.m. Singapore time. The contract rose 5.9 percent in the previous two days. Futures have fallen 31 percent from a record $7.9925 on June 27."
"Soybeans for November delivery fell as much as 10 cents, or 0.8 percent, to $11.95 a bushel and last traded at $11.9525. The contract added 8 percent in the past two days, the largest such advance since April 10. The oilseed has lost 27 percent from a record $16.3675 on July 3."
"``It's a technical decline after the steep gain in the past two sessions prompted by speculators' buyback on the corn and soybean markets,'' Chung said. ``Fundamentals are still strong.''"
Delayed Harvest
"About 33 percent of the corn was mature as of Sept. 21, down from 76 percent a year earlier and the prior five-year average of 63 percent, the USDA said yesterday in a report. An estimated 44 percent of the soybeans were dropping leaves, a prelude to drying down for harvesting, compared with the prior five-year average of 64 percent, the report said."
"``Given that we have a delayed harvest for the corn crop this season, as long as the crop remains in the ground it is vulnerable to damage from early frosts,'' said Toby Hassall, an analyst at Commodity Warrants Australia in Sydney."
"``If we see crude extend its sharp rebound and more dollar weakness, it is likely grains prices will see more upside in the near term,'' Hassall said."
To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net
"Last Updated: September 22, 2008 23:42 EDT"
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Dollar Snaps Four-Day Drop Versus Euro Before Testimony on Plan
By Bo Nielsen
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Sept. 23 (Bloomberg) -- The dollar snapped four days of declines versus the euro before Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke give testimony to the Senate on a government plan to rescue the banking system.
The U.S. currency also rose against the Swiss franc and the British pound. Paulson and Bernanke will provide more details today on the proposal to buy $700 billion of troubled assets from banks to shore up the financial system. The euro dropped after a report showed Europe's manufacturing and service industries contracted for a fourth month in September.
"``We might see some retracement of the dollar's losses,'' said Paul Robson, a London-based currency strategist at the Royal Bank of Scotland Group Plc. ``The more details we get the better it'll be because the uncertainty is so big at the moment. People are getting out of some of the positions they got into as the dollar fell sharply the last couple of days.''"
"The dollar strengthened to $1.4701 per euro as of 9:31 a.m. in London, from $1.4774 in New York yesterday, when it touched $1.4866, the lowest since Aug. 22. It rose to 105.87 yen, from 105.51 yen. The euro traded at 155.75 yen, from 155.91 yen."
"Paulson and Bernanke will start giving testimony to the Senate Banking Committee in Washington at 9:30 a.m. local time. The rescue-plan proposes buying devalued securities from financial institutions that economists estimate would drive U.S. government debt above 70 percent of gross domestic product and the annual budget gap to an all-time high, possibly exceeding $1 trillion next year."
`Movements Exaggerated'
"The dollar rose to 1.0810 per Swiss franc, from 1.0743."
"``Traders are just covering bets on a decline in the dollar ahead of tonight's testimony,'' said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. ``The markets are very thin so price movements are exaggerated.''"
"Foreign-exchange movements may be exaggerated because trading volumes are lower than normal due to a Japanese public holiday, according to Tony Morriss, a senior currency strategist in Sydney at Australia & New Zealand Banking Group, Australia's fourth-biggest lender."
"The euro declined after Reuters Plc reported the Royal Bank of Scotland Group Plc's composite index fell to 47 in September, from 48.2 in August. Economists forecast 47.8, according to the median of 21 estimates in a Bloomberg News survey. The index is based on a survey of purchasing managers by Markit Economics in London. A reading below 50 indicates contraction."
"``If we see signs of a more rapid deceleration of the European economy it will remove the attractiveness of the euro relative to the dollar,'' said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London."
"The U.S. currency lost more than 6 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The U.S. Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six major trading partners, slumped almost 2 percent yesterday, the biggest drop in a decade, to 76.151. It rose 0.6 percent to 76.636 today."
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
"Last Updated: September 23, 2008 04:42 EDT"
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"India to Cut Rates in 2009, No Increase This Year, Goldman Says "
By Anil Varma
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"Sept. 23 (Bloomberg) -- India's central bank may cut benchmark interest rates in the first quarter of 2009 for the first time in more than five years as inflation and growth slow, according to Goldman Sachs Group Inc."
"The Reserve Bank of India will leave the overnight lending rate unchanged at a seven-year high for the rest of 2008 as it shifts focus to reviving growth from curbing inflation, Tushar Poddar, a Mumbai-based economist at the U.S. securities firm, wrote in a research note today. Declining commodity prices will help cool India's inflation from near a 16-year high, he said. The central bank has raised the rate by 3 percentage points since October 2004."
"``We think the interest-rate cycle has peaked,'' Poddar wrote. ``With commodity prices coming off, demand slowing and expectations that inflation will fall, the case for raising rates has weakened.''"
"India's benchmark 10-year bond yields, which reached a seven-year high of 9.55 percent in July, have fallen by more than a percentage point since then, suggesting investors are paring bets for rate increases. The five-year interest-rate swap rate has dropped almost 2 percentage points from a July peak of 10.46 percent."
"The rate of inflation in Asia's third-largest economy tripled this year to 12.14 percent in the first week of this month. The rate touched 12.63 percent, the highest since 1992, in August."
Inflation to Slow
"India's ``inflation will fall significantly in early 2009,'' after remaining ``in double digits through 2008,'' Poddar wrote, without giving a forecast."
"The central bank predicted in July the nation's $1.2- trillion economy to grow 8 percent this year, the slowest pace since 2004, revising downward its earlier forecast of as much as 8.5 percent."
"India is also unlikely to add to this year's increases in the so-called cash-reserve ratio, the proportion of deposits banks must hold in reserves, because there's less spare cash in the financial system, according to Goldman."
The Reserve Bank raised the reserve ratio to an eight-year high of 9 percent in July to prevent excess money in the banking system from stoking inflation. Rising money-market rates and lenders' increasing dependence on borrowings from the central bank indicate cash at banks has declined.
The monetary authority started holding additional daily money auctions and eased norms for lending to banks last week to boost the availability of funds as capital flows to emerging markets shrank amid a global credit crunch.
Tight Liquidity
"``Given the current global environment of tight liquidity and the central bank's move last week to ease liquidity conditions, any further cash-reserve ratio hike is firmly ruled out,'' Poddar wrote."
"Indian banks borrowed money from the central bank on every trading day in the past three weeks. The rate at which banks lend to each other overnight has averaged 10.1 percent this month, up from 8.8 percent in August, data compiled by Bloomberg show. It rose to 15.63 percent on Sept. 19, the highest since March 2007."
"Overseas investors have sold Indian stocks worth a record $8.8 billion this year, according to the capital markets regulator."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 23, 2008 02:51 EDT"
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"European Services, Manufacturing Contract Further (Update2) "
By Fergal O'Brien
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Sept. 23 (Bloomberg) -- Europe's manufacturing and service industries contracted at the fastest pace in almost seven years in September as the credit-market seizure intensified and companies scaled back production in response to slowing orders.
"Royal Bank of Scotland Group Plc's composite index dropped to 47, the lowest since November 2001, from 48.2 in August. Economists had forecast a decline to 47.8, according to the median of 21 estimates in a Bloomberg News survey. The index is based on a survey of purchasing managers by Markit Economics in London and a reading below 50 indicates contraction."
"Banks are hoarding cash as they struggle with the yearlong credit crisis that has claimed financial institutions including Lehman Brothers Holdings Inc. and with an economic slowdown that is curbing loan growth. Cooling demand is also hitting Europe's biggest manufacturers, with Germany's BASF SE last week announcing it will slash production of polystyrene in Europe."
"``The flash PMI data for September make grim reading, showing recession-consistent activity data pretty much across the board,'' said Ken Wattret, an economist at BNP Paribas in London. ``Manufacturing has taken over from services as the main driver of weakness, reversing the pattern in the early stages of the downturn. This is linked to Germany's switch from boom to bust.''"
"The continued contraction in manufacturing and services industries suggests Europe's economy isn't recovering after shrinking in the second quarter for the first time in almost a decade. The European Central Bank on Sept. 4 cut its 2008 growth forecast to about 1.4 percent. The European Commission also lowered its outlook this month and predicts recessions in Germany and Spain, the region's largest and fourth-largest economies."
Manufacturing Index
"Markit's manufacturing index fell to 45.3 this month from 47.6 in August, below economists' forecasts, while the services index fell to 48.2 from 48.5."
"European government bonds rose after the data were released, with the yield on the two-year Germany security dropping 11 basis points to 3.92 percent as of 10:04 a.m. in London. The euro extended declines, falling 0.5 percent to $1.4700 against the dollar."
"A separate report today showed industrial orders in the euro area rose 1 percent in July from the previous month and were up 1.6 percent from a year earlier. Excluding the volatile transport category, orders fell 1.4 percent on the month and dropped 2.1 percent over the year."
Frozen Lending
"To ease the credit crisis that has frozen lending and shaken stock markets, the European Central Bank and the Federal Reserve joined with counterparts last week to inject $180 billion into the financial system. Over the weekend, U.S. Treasury Secretary Henry Paulson unveiled a $700 billion proposal to use public funds to buy devalued mortgage investments."
"In the past 10 days, Lehman Brothers collapsed and the U.S. government took over American International Group Inc. In Europe, HBOS Plc, Britain's biggest mortgage lender, was acquired by Lloyds TSB Group Plc last week after it lost 37 percent of its market value over three days."
"European car sales tumbled 16 percent last month from a year earlier, the European Automobile Manufacturers' Association said on Sept. 16. Sales at Paris-based PSA Peugeot Citroen fell 19 percent, while Germany's Volkswagen AG, the No. 1 European carmaker, suffered a 9.5 percent drop."
"``We are gloomy on the European economy; we think it's probably heading into a mild recession,'' James Shugg, an economist at Westpac Banking Corp. in London, said in an interview on Bloomberg Television. The drop in the purchasing managers' index may have been ``exaggerated a little'' as the surveys were taken ``at the time all the chaos was going on in financial markets,'' he said."
"Germany, France"
"In Germany, manufacturing shrank more than economists forecast in September and services unexpectedly contracted, according to separate data today. Manufacturing in France also shrank faster than expected this month."
"The economic slowdown has prompted economists to bring forward their forecasts for interest-rate cuts by the ECB, which in July raised its benchmark rate to a seven-year high of 4.25 percent to tackle inflation."
"Citigroup Inc. on Sept. 19 said the central bank will cut the rate in December of 2009 rather than next year's second quarter. BNP Paribas this month forecast three rate cuts next year, revising an earlier prediction that the ECB would keep rates on hold."
Target Rate
"Inflation in the euro area eased to 3.8 percent in August from 4 percent in July, double the ECB's target rate. Oil prices, which reached a record close to $150 a barrel in July, have dropped to around $107 today."
"Measures of cost inflation within the manufacturing and services industries eased this month, today's survey showed. The gauge of prices charged by companies also declined."
"``This suggests that companies' pricing power is now being diluted by markedly weaker demand and activity,'' said Howard Archer, chief European economist at Global Insight in London. ``Input prices also rose at a significantly reduced rate, thereby easing pressure on companies to raise their prices charged.''"
To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.
"Last Updated: September 23, 2008 05:51 EDT"
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Copper Trades Little Changed as Investors Gauge Bailout Plan
By Glenys Sim
Sept. 23 (Bloomberg) -- Copper traded little changed in Asia on speculation the U.S. government's plan to buy financial companies' troubled assets may not prevent a recession. Aluminum gained.
"Copper climbed 2.7 percent yesterday in London after a rally in crude oil spurred investor demand for raw materials as a hedge against inflation. Crude oil declined today on speculation growth in the U.S. economy will slow, cutting energy demand."
"Volatility is expected to continue as investors gauge the extent of the global economic slowdown and effects of the U.S. rescue plan, said Yang Hongjie, an analyst at Haitong Securities."
"Copper for delivery in three months rose as much as 0.6 percent to $7,290 a metric ton on the London Metal Exchange, and stood little changed at $7,247 at 11:44 a.m. Singapore time. The metal rose to $7,333 a ton yesterday, the highest in nearly three weeks."
"Copper for December delivery on the Shanghai Futures Exchange gained as much as 1.2 percent to 54,980 yuan ($8,061) a ton, and traded up 0.8 percent at 54,730 yuan by the 11:30 a.m. local time break."
"Crude oil fell in New York for the first time in a week, declining to $108.90 barrel at 11:39 a.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange. Oil prices were supported yesterday by speculation the proposed $700 billion U.S. bailout package for the finance industry may shore up demand."
"Among other LME-traded metals, aluminum was up 0.5 percent at $2,561 a ton, and nickel rose 0.1 percent to $17,500. Zinc lost 1.6 percent to $1,810.5 and lead gained 0.5 percent to $1,980. Tin had not traded as of 11:44 a.m. in Singapore."
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
"Last Updated: September 23, 2008 00:36 EDT"
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Yuan Climbs to Highest Since Peg on Dollar's Slump; Bonds Rise
By Judy Chen and Kim Kyoungwha
Sept. 23 (Bloomberg) -- The yuan climbed to a record as the dollar slumped on concern the U.S. government's $700 billion bailout plan for the nation's banks will strain public finances and fail to avert a recession. Bonds gained.
"The People's Bank of China fixed the reference rate for yuan trading at the highest since the end of a fixed exchange rate in 2005 after the dollar fell the most in a decade against the currencies of its major trading partners. China has managed the yuan's exchange rate against a basket of currencies, including the euro and the yen, since July 2005."
"``The dollar's slump increased the yuan's attractiveness,'' said Li Tao, a foreign exchange trader at Shenzhen Development Bank Co. in Shenzhen. ``But the central bank may still want to keep the exchange rate stable to support growth.''"
"The yuan strengthened 0.11 percent to 6.8223 a dollar as of 12:42 p.m. in Shanghai, from 6.8300 yesterday, according to the China Foreign Exchange Trade System. It gained as much as 0.29 percent to 6.8099 earlier today, the highest since the end of the dollar peg."
"The U.S. Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six major trading partners, slumped 1.97 percent yesterday, the biggest drop since October 1998. It closed at a six-week low of 76.151."
"The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the so-called central parity rate, which was set at 6.8009 today."
Unexpected Rate Cut
Premier Wen Jiabao pledged on Sept. 20 that China will strengthen economic controls to maintain steady growth as global financial volatility threatens the nation's economic stability. The central bank cut borrowing costs on Sept. 15 for the first time in six years after the country's economy expanded at the slowest pace since 2005 in the second quarter.
"``The unexpected rate cut last week showed the economic slowdown might be worse than we had forecast,'' said Lu Zhengwei, an economist at Industrial Bank Co. in Shanghai. ``The government won't support a quick appreciation of the yuan for the rest of this year.''"
"China's export orders this quarter were the lowest since July 2005, according to a central bank survey of businesses published yesterday. Policy makers have slowed yuan appreciation versus the dollar to 0.5 percent since the end of June to help exporters weather a decline in global demand. The yuan gained 6.6 percent in the first half."
Bonds Gain
Government bonds due in 10 years rose after the central bank sold one-year bills at lower yields for a second week.
"China's central bank sold 100 billion yuan ($14.7 billion) of one-year bills at a yield of 4.0042 percent, compared with 4.0258 percent a week ago, according to a statement on its Web site. The yield on similar-dated bills in open-market auctions had remained at 4.0583 percent this year up to Sept. 6."
"``The yields will continue to decline, but very slowly,'' said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai."
"The yield on the 4.41 percent treasury bond due in June 2018 dropped 6 basis points to 3.76 percent in Shanghai, according to Bloomberg calculations based on the rate compiled by the nation's debt clearing house yesterday. The price of the security was 105.76 per 100 yuan face amount. A basis point is 0.01 percentage point."
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
"Last Updated: September 23, 2008 00:53 EDT"
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Asia Day Ahead: Ex-Merrill Trader Wong Plans Volatility Fund
"Sept. 23 (Bloomberg) -- U.S. stocks tumbled, led by banks, retailers and technology companies, as oil jumped 15 percent and investors speculated the Treasury's plan to buy toxic mortgage assets will fail to prevent a recession."
TOP STORIES/MOST READ ON BLOOMBERG
"Goldman, Morgan Stanley Bring Down Curtain on an Era"
"The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken."
Lehman Sale to Barclays Challenged by Hedge Fund
"Bay Harbour Management LC, a hedge fund that invests in insolvent and distressed companies, challenged a court order approving the sale of bankrupt Lehman Brothers Holdings Inc.'s North American business to Barclays Plc."
Morgan Stanley Plans to Sell Stake to Mitsubishi UFJ
"Morgan Stanley plans to sell as much as a 20 percent stake for $8.4 billion to Mitsubishi UFJ Financial Group Inc., Japan's largest bank, to shore up capital as it prepares to convert from a securities firm to a bank."
"Wong, Ex-Merrill Trader, Plans to Start Volatility Hedge Fund"
"Denny Wong, a former Merrill Lynch & Co. trader, plans to start a hedge fund that will seek to profit from price swings in financial markets amid a surge in volatility, according to two people familiar with the situation."
MAIN ECONOMIC RELEASES TODAY Taiwan Export Orders Seen Rising 5.2% in August From Year Ago Singapore's Consumer Prices Index for August Is Due for Release New Zealand's 3rd-Qtr Consumer Confidence Index from Westpac
MAIN ANALYST UPGRADES/DOWNGRADES *NORTH-WEST TELECOM RAISED TO `BUY' AT RENCAP *SHINKO ELECTRIC CUT TO `MARKET PERFORM' AT MITSUBISHI UFJ *NGK INSULATORS RAISED TO `BUY' AT MIZUHO SECURITIES *CHINA MENGNIU CUT TO `UNDERPERFORM' AT CREDIT SUISSE
ASIAN MARKETS
"The Nikkei 225 futures contract due in December rose 15 points to 12,060. The Hang Seng September contract gained 169 to 19,638. The S&P/ASX 200 Index futures due in December falls 109 to 4,922 at 6:30 a.m. in Sydney."
U.S. Stocks Tumble on Concern Bailout Won't Stop Recession
"U.S. stocks tumbled, led by banks, retailers and technology companies, as oil jumped 15 percent and investors speculated the Treasury's plan to buy toxic mortgage assets will fail to prevent a recession."
Treasuries Little Changed on Concern Bailout to Boost Issuance
Treasuries were little changed amid concern the U.S. will accelerate debt sales to fund a $700 billion proposal to buy soured mortgage securities from troubled financial institutions in an effort stabilize the banking system.
Dollar Weakens Most Since Euro's 1999 Debut on Budget Deficit
The dollar weakened the most against the euro since the European currency's 1999 debut on concern a U.S. proposal to buy $700 billion of troubled assets from financial firms will inflate the budget deficit.
"European Stocks Decline on Oil's Rally; Carrefour, Ryanair Drop"
"European stocks fell, erasing more than a quarter of the Dow Jones Stoxx 600 Index's biggest one-day advance on record, as higher oil prices weighed on retailers and travel companies and overshadowed plans by the U.S. government to buy $700 billion of bank assets."
European Notes Fall; G-7 Pledges to Ensure Financial Stability
European bonds fell after governments of the Group of Seven nations said they will ``take whatever actions'' to ensure financial-system stability.
Oil Posts Biggest Gain as Traders Caught in End-Month Squeeze
"Crude oil climbed more than $25 a barrel, the biggest gain ever, as traders scrambled to unwind positions on the October contract's last day of trading. The more-active November contract rose $6.62."
Gold Futures Extend Gains on Demand for Haven; Silver Advances
"Gold rose above $900 an ounce, extending a rally after its biggest weekly gain in almost nine years, as investors shifted assets into precious metals as a haven from market turmoil. Silver gained more than 7 percent."
HIGHLIGHTS FROM NEWSPAPERS
"Mitsubishi to Buy Stake in Wood-Pellet Maker, Nikkei Says"
"Mitsubishi Corp. will buy a 45 percent stake in wood-pellet maker Vis Nova Trading GmbH for 1 billion yen ($9.5 million), Nikkei English News reported, without saying where it got the information."
"Last Updated: September 22, 2008 17:09 EDT"
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"Gold Drops for First Day in Three on Share Slump, Oil Decline "
By Glenys Sim
"Sept. 23 (Bloomberg) -- Gold fell for the first day in three after advancing above $900 an ounce as investors sold the metal to cover losses in equities markets and as crude oil declined, reducing demand for commodities as an inflation hedge."
"Gold traded 14 percent below its record $1,032.70 an ounce reached March 17 and 21 percent above its 11-month low of $736.70 on Sept. 11."
"``What happens in the currency, oil and stock markets will continue to determine the way gold trades,'' Ronald Leung, director, Lee Cheong Gold Dealers (Hong Kong) Ltd., said by phone from Hong Kong. ``It's a confidence issue and no one knows what will happen next. The only certain thing now is that the volatility we've seen in the past few weeks will continue.''"
Bullion for immediate delivery dropped as much as 1.2 percent to $886.00 an ounce and traded at $889.38 an ounce at 3:30 p.m. in Singapore. The metal climbed to $909.64 earlier. Silver for immediate delivery was down 0.9 percent at $13.33 an ounce.
"Asian stocks fell, snapping a two-day rally, after commodity prices jumped yesterday by the most since at least 1956 and concern grew the U.S. financial-industry bailout won't prevent a recession. Oil fell for the first time in a week."
"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke submitted a plan to Congress Sept. 20 to end the worst credit market crisis since the Great Depression. The rescue was conceived after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy, the government seized control of American International Group Inc., and Merrill Lynch & Co. was forced into the arms of Bank of America Corp."
Safe Haven
The Reuters/Jefferies CRB Index of 19 raw materials jumped 3.9 percent yesterday on speculation resources will provide a safe haven as the U.S. bank rescue plan inflates the budget deficit.
"Investors are waiting for Congress to approve the $700 billion plan to buy bad mortgage assets, and ``if the plan succeeds in calming the market, we may see people pull out of gold and put money back into the stock market,'' Leung said."
"Gold held in London-listed exchange-traded funds managed by ETF Securities Ltd. dropped 1.9 percent to 1.536 million ounces as of Sept. 19, data posted on company's Web site showed. The company held a record 1.898 million ounces in its funds as recently as Sept. 3."
"Gold for December delivery lost 1.6 percent to $894.40 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange, after gaining to $915.20."
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
"Last Updated: September 23, 2008 04:05 EDT"
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Dollar Volatility Rises as Banks May Remain Reluctant to Lend
By Stanley White
Sept. 22 (Bloomberg) --Volatility implied by dollar-yen options rose on speculation a U.S. government plan to buy troubled assets and central banks' efforts to increase liquidity will fail to stem a global credit crisis.
"Treasury Secretary Henry Paulson sent a plan to Congress Sept. 20 that would allow the government to buy $700 billion in mortgage-related securities and other devalued assets, according to a document obtained by Bloomberg News and confirmed by a congressional aide. Central banks in Japan and Australia added $15.7 billion to the financial system today after the three- month London interbank offered rate, the cost banks charge each other for dollar loans, rose to a seven-month high on Sept. 19."
"``Options market makers hesitate to sell volatility,'' said Takeharu Miki, currency options manager at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly listed lender. ``There's just too much event risk. There may be more problems with money-market liquidity.''"
The dollar declined to 106.59 yen at 2:58 p.m. in Tokyo from 107.45 yen late in New York on Sept. 19.
Implied volatility for dollar-yen options expiring in one month rose to 16.41 percent from 16 percent at the end of last week.
"The dollar's one-month 25-delta risk-reversal rate against the yen widened to minus 3.68 percent from minus 3.64 percent on Sept. 19, indicating a greater premium for dollar puts that allow sales over dollar calls that grant the right to buy."
"Delta measures the rate of change in an option's value relative to moves in the underlying currencies. Dealers quote implied volatility, a measure of expectations for future currency swings, as part of pricing options."
Straddles
"Dealers traded $50 million to $100 million of so-called straddles that expire in two months with an implied volatility of 15 percent and a strike price near the dollar's current level, Miki said. Holders of straddles, which are call and put options with the same strike and duration, benefit if the underlying currency moves in either direction."
U.S. officials devised the bad asset plan after losses on mortgage-related investments led this month to the bankruptcy of Lehman Brothers Holdings Inc. and government bailouts for American International Group Inc. and mortgage financiers Freddie Mac and Fannie Mae.
The Federal Reserve led central banks in Europe and Asia in pouring cash into global financial markets over the past week due to a crisis of confidence.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 22, 2008 02:14 EDT"
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"Morgan Stanley, Goldman Sachs Lead Decline in Bank Bond Risk "
By Shannon D. Harrington and Abigail Moses
Sept. 22 (Bloomberg) -- Morgan Stanley and Goldman Sachs Group Inc. led a drop in the cost of protecting bank bonds from default as the U.S. government broadened the scope of its plan to stem the financial crisis.
Credit-default swaps on the securities firms fell to the lowest in a week after the Federal Reserve approved their bids to become banks and Mitsubishi UFJ Financial Group Inc. said it may buy as much as a fifth of Morgan Stanley. Contracts on banks including Wachovia Corp. and Bank of America Corp. also fell as U.S. Treasury Secretary Henry Paulson submitted a plan to Congress to buy $700 billion of devalued assets.
"``The scope of the government's purchase program is quite significant,'' Merrill Lynch & Co. strategists Akiva Dickstein, Roger Lehman and Kamal Abdullah wrote in a note to clients today. At distressed prices, the Treasury could acquire as much as 10 percent of the outstanding residential and commercial mortgages that aren't already owned or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, they said."
"Treasury's plan and the approval of Morgan Stanley and Goldman as bank holding companies boosted investor confidence that the government has calmed the financial turmoil that last week drove Lehman Brothers Holdings Inc. into bankruptcy, while prompting the government to bail out insurer American International Group Inc. and Merrill Lynch & Co. to sell itself to Bank of America Corp."
"Cars, Credit Cards"
"The U.S. Treasury late yesterday gave Congress revised guidance on its plan, which may allow the government to also buy other devalued assets such as car loans and credit-card debt. Paulson also has proposed as much as $400 billion to guarantee money-market mutual funds."
"Contracts on Morgan Stanley dropped 132 basis points to 415 basis points, according to CMA Datavision in London. Mitsubishi UFJ, Japan's biggest bank by assets, agreed to invest up to 900 billion yen ($8.4 billion) in Morgan Stanley, the bank said in a statement today. Contracts on Goldman fell 87 basis points to 280 basis points."
"Converting Morgan Stanley and Goldman into banks ``seems to be a sensible solution for them,'' said Andrea Cicione, a credit strategist at BNP Paribas SA in London. ``The broker business model seems broken. Turning them into commercial banks helps take care of the funding problem. It takes some pressure off them to go into a quickly decided wedding with some other banks.''"
"The Markit CDX North America Investment Grade Index, a benchmark gauge of credit risk tied to the bonds of 125 companies in the U.S. and Canada, was unchanged at 151 basis points, according to broker Phoenix Partners Group."
"Wachovia, Merrill"
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates deterioration in the perception of credit quality; a decline signals improvement.
"A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year."
"Contracts on Charlotte, North Carolina-based Wachovia Corp., the fourth-largest U.S. bank, fell 14 basis points to 464 basis points. Bank of America Corp. fell 21 basis points to 134 basis points, and Merrill fell 58 basis points to 271 basis points."
"Contracts on the Markit iTraxx Financial index of 25 European banks and insurers dropped 9 basis points to 99, according to JPMorgan Chase & Co. In Tokyo, the Markit iTraxx Japan index dropped 5 basis points to 144.5, Morgan Stanley prices show."
To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Abigail Moses in London Amoses5@bloomberg.net
"Last Updated: September 22, 2008 18:01 EDT"
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"Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show "
"Sept. 23 (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 8 basis points to 570, according to JPMorgan Chase & Co. prices at 6:53 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and an increase 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 107.5, JPMorgan prices show."
"A basis point on a credit-default swap contract protecting 10 million euros ($14.8 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."
"The CDX North America Investment Grade Index of 125 companies in the U.S. and Canada, was unchanged at 151 basis points at the close of trading in New York, according to broker Phoenix Partners Group."
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
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"Ruble Rises for Fifth Day Against Dollar, Gains Versus Basket "
By Emma O'Brien
Sept. 23 (Bloomberg) -- Russia's ruble rose for a fifth day against the dollar and strengthened versus the central bank's dollar-euro basket.
"The managed currency traded at 30.3472 to the basket by 10:45 a.m. in Moscow, from 30.4062 yesterday."
"Bank Rossii contains the ruble within a trading band against the basket to limit the effect of its fluctuations on the competitiveness of Russian exports. The basket rate is calculated by multiplying the ruble's rate to the dollar by 0.55, the euro rate by 0.45, then adding them together."
"The currency strengthened for a fifth day against the dollar, rising to 24.9895, from 25.0281 yesterday. It also rose to 36.8887 per euro, from 36.9393."
"The ruble has weakened against the dollar and the euro this year as Russia's war with neighboring Georgia in August spurred investors to take about $25 billion out of the country, Alexander Morozov, chief economist at HSBC Bank in Moscow, said in a research note e-mailed yesterday. The central bank sold more than $15 billion in foreign currency since Aug. 8 to support the ruble, he said."
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
"Last Updated: September 23, 2008 02:47 EDT"
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U.K. Pound Little Changed Against Dollar Before Mortgage Data
By Andrew MacAskill
Sept. 23 (Bloomberg) -- The pound was little changed against the dollar before an industry report that will show whether U.K. mortgage approvals picked up in August from close to the lowest level in at least 11 years.
"House prices slid a fourth month in September, Rightmove Plc, Britain's most-used property Web site, said yesterday. The average asking price for a home fell 1 percent from August. Banks granted 22,448 loans for house purchase in July, down 65 percent from a year earlier, the British Bankers' Association said Aug. 26."
"``The numbers are likely to confirm mortgage financing has dried up in the U.K.,'' said Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd. ``The economic fundamentals are still extremely negative for the pound.''"
"The pound traded at $1.8510 as of 8:10 a.m. in London, from $1.8544 yesterday. Against the euro, the U.K. currency snapped a three-day drop, rising to 79.48 pence, from 79.68 pence."
"The property market may face further weakness in coming months, provoking a ``painful'' adjustment for many families, Bank of England Chief Economist Spencer Dale said last week. HBOS Plc agreed to a takeover by Lloyds TSB Group Plc after plunging home values and the financial-market crisis reduced the value of the company and added to the threat of a recession."
The British Bankers' Association is scheduled to release the mortgage data at 9:30 a.m. in London.
Inflation Expectations
"Bank of England Deputy Governor John Gieve said yesterday the news of Britain's inflation expectations has been ``encouraging'' and policy makers should focus on the deflationary impact of the credit crunch. The remark suggests Gieve may be in favor of lowering interest rates. Of the nine policy makers, only David Blanchflower voted for a rate cut in September."
"Bank of England policy makers kept interest rates at 5 percent on Sept. 4, as they weighed the risk of accelerating inflation with the danger that mounting bank losses will push Europe's second-biggest economy into its first recession since 1991."
"U.K. government bonds rose, with the yield on 10-year note falling 2 basis points to 4.67 percent. The 5 percent security due March 2018 gained 0.16, or 1.6 pounds per 1,000-pound ($1,852) face amount, to 102.51."
"The yield on the two-year note also declined 2 basis points, to 4.46 percent. Yields move inversely to bond prices."
The U.K.'s Debt Management Office is scheduled to auction 450 million pounds of 1.25 percent inflation-protected bonds maturing in 2055 today.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: September 23, 2008 03:31 EDT"
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Oil Posts Biggest Gain as Traders Caught in End-Month Squeeze
By Mark Shenk
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"Sept. 22 (Bloomberg) -- Crude oil climbed more than $25 a barrel, the biggest gain ever, as traders scrambled to unwind positions on the October contract's last day of trading. The more-active November contract rose $6.62."
"``This looks like a squeeze play,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``All of the contracts are up, but nothing like October. This is the last day of trading and someone is scrambling to guarantee supply.''"
"Crude oil for October delivery rose $16.37, or 17 percent, to settle at $120.92 a barrel at 2:46 p.m. on the New York Mercantile Exchange. It was the highest settlement price since Aug. 21. Futures for November delivery rose 6.4 percent to settle at $109.37 a barrel."
"Prices climbed today as traders who sold the October contract last week, when oil dipped close to $90, had to buy the futures back. In a squeeze a trader has gone short by selling contracts hoping the price will decline. In the last days before the contract expires the trader must buy back the same number of futures or be forced to deliver the underlying oil."
"``I don't think there's any doubt that's the indication of a huge squeeze,'' said Craig Pirrong, director of energy markets for the University of Houston's Global Energy Management Institute. ``It's just stunning this could happen'' given the recent scrutiny in Congress and among U.S. regulators concerning the crude oil markets, he said."
`Yawning Gap'
"``It's a very small pool playing in this market right now, and that's why you're seeing those massive differentials'' between the October and November contracts, said David Kirsch, an energy markets analyst at PFC Energy in Washington. ``Somebody did place a wrong bet and is trying to cover that position.''"
"``The overarching factor is that the October futures contract expires today,'' said Ryan Oatman, an analyst at SunTrust Robinson Humphrey in Houston. ``This is a classic short squeeze. What lead up to it was a strong euro, up on concerns U.S. government actions will ultimately result in a greater budget deficit, higher inflation and a weaker dollar.''"
"Investors looking to hedge against the dollar's decline earlier this year have helped lead oil, gold, corn and gasoline to records. Oil rose as high as $130 a barrel, up from $104.55 on Sept. 19, as the dollar dropped on concern that a U.S. proposal to buy $700 billion of troubled assets from financial firms will deepen the budget deficit."
"The dollar declined 2.4 percent to $1.4817 per euro, from $1.4466 on Sept. 19. It touched $1.4818, the weakest level since Aug. 22."
Hard Assets
"``Gold, silver, oil, copper, just about any hard asset, is looking good at this point,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``With the dollar down and stocks getting hit, commodities look like a safe play.''"
Oil has risen 33 percent since Sept. 16 as lawmakers pledged fast consideration of the Treasury's plan to buy devalued mortgage-related securities.
"``There's a flight to quality and the energy markets are benefiting,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``The dollar is down again and investors are fleeing to commodities. We are back to the cycle that pushed prices to records earlier this year.''"
"Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Sept. 16, according to U.S. Commodity Futures Trading Commission data."
"Speculative long positions, or bets prices will rise, outnumbered short positions by 19,379 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report."
Gasoline
"Gasoline for October delivery increased 10.41 cents, or 4 percent, to settle at $2.7038 a gallon in New York. Heating oil rose 14.52 cents, or 5 percent, to settle at $3.043, the biggest single-session gain since June 6."
"Regular gasoline, averaged nationwide, declined 1.8 cents to $3.739 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17."
"Crude oil prices are ``too high'' because the global economic slowdown may spread and cut consumption, the International Energy Agency's deputy executive director said."
"``The economic slowdown in the U.S., Europe hasn't gotten into China, India much, but at some point you have to presume it will,'' William Ramsay said in an interview in Bangkok today."
"The Paris-based IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo."
"Brent crude oil for November settlement rose $6.43, or 6.5 percent, to settle at $106.04 a barrel on London's ICE Futures Europe exchange."
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
"Last Updated: September 22, 2008 15:53 EDT"
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"Stocks in Europe, Asia Drop; Barclays, Macquarie, Vedanta Fall "
By Adria Cimino
"Sept. 23 (Bloomberg) -- Stocks in Europe and Asia dropped, led by financial companies and commodity producers, on concern Treasury Secretary Henry Paulson's plan to buy $700 billion of bank assets won't prevent a global recession. U.S. index futures also declined."
"Barclays Plc, the U.K.'s third-biggest bank, fell 3.7 percent and Australia's Macquarie Group Ltd. retreated 4.5 percent. Vedanta Resources Plc, India's largest zinc producer, and Rio Tinto Group slid more than 4 percent on lower metals prices. Marks & Spencer Group Plc sank 3.5 percent after Deutsche Bank AG cut its recommendation on shares of the U.K.'s biggest clothing retailer."
"Europe's Dow Jones Stoxx 600 Index slipped for a second day, falling 2.1 percent to 266.78 as of 11:47 a.m. in London. The gauge has erased almost half of an 8.3 percent rally on Sept. 19, when the U.S. government announced plans to stem credit-related losses. The MSCI Asia Pacific Index retreated 0.4 percent, snapping a two-day advance. Futures on the Standard & Poor's 500 Index decreased 0.2 percent."
"``The tough intervention avoided an international crash, but all of the problems aren't resolved,'' said Matthieu Giuliani, a fund manager at Palatine Asset Management in Paris, which oversees about $8.8 billion. ``The economy is fragile. The fundamental problems such as the credit bubble are still there. Confidence hasn't returned to the market.''"
Earnings Estimates
"The Stoxx 600 is down 27 percent this year on concern more than $500 billion in credit losses and writedowns at financial firms worldwide and a slowing global economy will hurt profits. Earnings for companies in the measure are expected to fall 3.3 percent this year, according to data compiled by Bloomberg. That compares with analysts' estimates for an 11 percent increase at the start of the year."
National benchmark indexes decreased in all 18 western European markets. The U.K.'s FTSE 100 lost 1.9 percent as British Airways Plc and Man Group Plc declined. France's CAC 40 dropped 1.5 percent and Germany's DAX retreated 0.7 percent.
"Europe's manufacturing and service industries contracted for a fourth month in September as the credit-market seizure intensified and companies scaled back production in response to slowing orders. Royal Bank of Scotland Group Plc's composite index dropped to 47 from 48.2 in August, Reuters Plc reported."
"Investors should reduce stock holdings in developed markets because a U.S. plan to shore up financial markets won't stop a ``nasty slowdown,'' according to HSBC Holdings Plc strategists led by Richard Cookson."
Bank Shares
"Still, the U.S. slowdown may be shorter than expected and private equity investors should start searching for bargains after valuations tumbled this year, said Mark Mobius, executive chairman of Templeton Asset Management Ltd."
"Barclays lost 3.7 percent to 359.25 pence. Societe Generale SA, France's third-largest bank by assets, declined 2.9 percent to 62.70 euros. Macquarie, Australia's biggest securities firm, retreated 4.5 percent to A$36.10."
"Paulson's proposal to stabilize the banking system may push the national debt to the highest level since 1954, threatening an erosion of foreign appetite for U.S. bonds, according to economists. Paulson may be questioned on the borrowing impact of his plan at a hearing at the Senate Banking Committee today that begins at 9:30 a.m. in Washington."
"``The crisis is a deep one,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``The measures and their amplitude are important, but all isn't known yet. There is enough uncertainty to create concern.''"
Treasury Notes
"Two-year Treasury notes rose for a second day, while the dollar snapped four days of declines versus the euro."
"British Airways, whose most lucrative market is trans- Atlantic business travel, sank 5.6 percent to 206.25 pence."
"Basic-resources shares declined 3.5 percent as a group in the Stoxx 600 Index as copper, lead, tin and zinc prices fell in London. Vedanta sank 5.1 percent to 1,618 pence. Rio Tinto, the world's third-largest mining company, retreated 4.6 percent to 4,047 pence."
"Marks & Spencer was downgraded to ``hold'' from ``buy'' at Deutsche Bank, which said ``low expectations for the second- quarter are justified.'' The stock sank 3.5 percent to 229.25 pence."
Swiss Reinsurance Co. lost 3.9 percent to 60.9 francs. The world's second-biggest reinsurer said it expects the insured claims of hurricanes Ike and Gustav to cost about $300 million.
"Man, Tate & Lyle"
"Man Group Plc decreased 7.8 percent to 399.5 pence. Shares in the largest publicly traded hedge-fund manager were rated ``underperform'' in new coverage at Jefferies, which cited the ``prospect of significantly lower profits.''"
"Tate & Lyle Plc, the maker of the biggest selling U.S. no- calorie sweetener, slid 13 percent to 361.25 pence. A U.S. judge disagreed with patent infringement claims brought by the company."
"STMicroelectronics NV, Europe's largest chipmaker, tumbled 4.9 percent to 7.62 euros as JPMorgan, Chase & Co. cut its recommendation to ``neutral'' from ``overweight,'' and Exane BNP downgraded the stock to ``neutral'' from ``outperform.''"
Escada AG sank 8.6 percent to 9.96 euros. The German luxury women's fashion maker that appointed a new chief executive in July fell after saying its loss may widen and that third-quarter sales slumped.
"Henkel AG dropped 2.9 percent to 27.46 euros. UniCredit Markets & Investment Banking reduced its recommendation for the maker of Loctite glue and Persil detergent to ``hold'' from ``buy,'' citing a ``poor'' economic environment."
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: September 23, 2008 06:49 EDT"
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Singapore Inflation Slows for Second Month on Lower Fuel Prices
By Shamim Adam
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"Sept. 23 (Bloomberg) -- Singapore's inflation slowed for a second month in August as petrol stations lowered pump prices and food costs eased, reducing pressure on the central bank to allow faster gains in the currency."
"The consumer price index increased 6.4 percent from a year earlier, after gaining 6.5 percent in July, the Department of Statistics said today. That matched the median forecast of 10 economists in a Bloomberg News survey. Prices rose 0.2 percent from July."
"The Singapore dollar, which climbed to its strongest in more than a decade earlier this year, has since slid amid concern growth will slump. The Monetary Authority of Singapore last month said inflation probably peaked in June and will be lower in the second half of the year."
"``While inflation has peaked in Singapore and is on a downward trajectory, it still remains at elevated levels,'' said Leong Wai Ho, a regional economist at Barclays Plc in Singapore. ``With inflation easing, the central bank will probably allow the Singapore dollar to appreciate at a slower pace.''"
"Singapore's inflation will probably average 6.5 percent this year, and will ease to 4 percent next year, the Asian Development Bank predicted in a report released Sept. 16. The central bank expects consumer prices to rise between 6 percent and 7 percent this year, the biggest gain since 1981."
Slowing Growth
"Inflation in the six months to December is likely to ease from the 7.1 percent average in the first half as growth slows. Singapore's economy may expand less than 4 percent this year amid turmoil in global financial markets, the Straits Times reported today, citing Trade and Industry Minister Lim Hng Kiang."
"The city-state's slowing growth momentum and a predicted decline in exports this year may prompt a shift in the central bank's currency stance, which calls for faster gains against the U.S. dollar."
"The Monetary Authority of Singapore releases a review of its exchange rate policy twice a year, and the next one is in October. The Singapore dollar is down 3.6 percent this quarter."
"Food prices, which make up 23 percent of the index, rose 8.4 percent in August from a year ago, following July's 8.5 percent increase. From July, food prices gained 0.2 percent."
"Transport and communication costs, the second-biggest component accounting for 22 percent of the consumer price index, climbed 2 percent in August from a year earlier. From July, transport and communication prices fell 0.9 percent."
"Oil prices have dropped more than 25 percent since reaching an unprecedented $147.27 a barrel on July 11, prompting Singapore's petrol companies to reduce pump prices for gasoline and diesel."
"Transportation costs may climb in coming months as SMRT Corp., the island's biggest subway operator, raised fares on trains and buses that it runs in the city."
"Housing costs, the third-largest component of the price index, climbed 12.8 percent from a year earlier. From the previous month, housing prices gained 0.5 percent."
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
"Last Updated: September 23, 2008 01:00 EDT"
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Dollar May Get `Crushed' as Traders Weigh Up Bailout (Update5)
By Bo Nielsen and Anchalee Worrachate
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Sept. 22 (Bloomberg) -- Treasury Secretary Henry Paulson's plan to end the rout in U.S. financial markets may derail the dollar's three-month rally as investors weigh the costs of the rescue.
"The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion, according to Barclays Capital interest-rate strategist Michael Pond in New York. While the rescue may restore investor confidence to battered financial markets, traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates."
"``As we get to the other side of this, the dollar will get crushed,'' said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion."
"The dollar fell against 14 of the world's most-traded currencies on Sept. 19, including the euro, as Paulson unveiled the plan, while the Standard & Poor's 500 Index rose 4 percent. The plan may end the rally that began in June and drove the U.S. currency up 10 percent versus the euro, 2 percent against the yen and almost 13 percent compared with Brazil's real, strategists said."
"Paulson's plan, sent to Congress Sept. 20, would mark an unprecedented government intrusion into markets and increase the nation's debt ceiling by 6.6 percent to $11.315 trillion. Officials may also start a $400 billion Federal Deposit Insurance Corp. pool to insure investors in money-market funds."
Dollar `Downdraft'
"``The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis,'' said David Woo, London-based global head of foreign-exchange strategy at Barclays, the third- biggest currency trader, according to a 2008 survey by Euromoney Institutional Investor Plc."
"Paulson and Federal Reserve Chairman Ben S. Bernanke began plotting the rescue last week after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy, the government seized control of American International Group Inc. and Merrill Lynch & Co. was forced into the arms of Charlotte, North Carolina-based Bank of America Corp."
"Morgan Stanley dropped as much as 44 percent Sept. 17, the biggest one-day decline in its history, and Goldman Sachs Group Inc., where Paulson was chief executive officer from 1998 to 2006, lost 26 percent. Both are based in New York."
Dollar Hegemony
"The dollar fell 2.5 percent to $1.4831 per euro as of 4:05 p.m. in New York, after dropping 1.7 percent in the week to Sept. 19. It slid 2.1 percent to 105.24 yen, extending last week's 0.5 percent decline."
"In the four days following Lehman's bankruptcy, the ICE future exchange's Dollar Index, which measures the currency's performance against the U.S.'s six biggest trading partners, dropped 1.2 percent. It fell 2 percent today, leaving it little changed this year."
"``After years of doubting the hegemonic status of the dollar, this proves it's still there,'' said Stephen Jen, London-based head of research at Morgan Stanley. ``But of course this situation is definitely not stable. The capital leaving the emerging markets is only going into the dollar and that's a powerful force. It's a very uncomfortable balance.''"
"By the end of the year, the euro will weaken to $1.43 and the yen will trade at 108 to the dollar, according to analyst surveys by Bloomberg. The dollar will depreciate to 1.65 against the real, compared with 1.83 on Sept. 19."
"Growth, Deficits"
"Although the dollar may suffer short-term, at least one analyst says the U.S. government's planned rescue will strengthen the currency before long. Paulson's proposals will return foreign-exchange markets to the trend of the past months, according to Adam Boyton, senior currency strategist at Frankfurt-based Deutsche Bank AG, the world's biggest currency- trading bank. Since the end of June, the Dollar Index has gained 5 percent."
"``It's a positive plan that's ultimately good for the dollar,'' said New York-based Boyton. ``It reduces risk and volatility and gets the focus back on macroeconomic fundamentals, which suggest weakness throughout the rest of the globe next year, with returning strength in the U.S.''"
"The U.S. economy may expand 1.5 percent next year, according to the median estimate of 80 analysts surveyed by Bloomberg. That compares with 1.1 percent for the euro-region and 1.15 percent for Japan, the world's second-largest economy."
`Huge New Supply'
"The rescue comes as the U.S. budget deficit and the current-account balance, the broadest measure of trade, grow. The Congressional Budget Office projects the spending shortfall will increase to $438 billion next year from $407 billion. The current account deficit is up from $167.24 billion in December."
"``Investors may start to worry about the amount of debt the U.S. is taking on and its impact on the dollar,'' said Geoffrey Yu, a currency strategist in London at UBS AG, the second- largest foreign-exchange trader. ``The fact that they mentioned taxpayer money implies that they're going to issue debt. If there's going to be a huge new supply of Treasuries, this will be dollar negative. It's too much for the dollar to take.''"
"Traders are also concerned the bank bailout will spread to other U.S. industries suffering from the credit crunch that's holding back an economy growing at its slowest pace since 2001. Detroit-based General Motors Corp., the world's biggest automaker, said last week it will tap the remaining $3.5 billion of a $4.5 billion credit line to pay for restructuring costs."
`Damaged' Currencies
"Lower interest rates may also weigh on the dollar. Futures on the Chicago Board of Trade show there's a 45 percent chance policy makers will lower their target rate for overnight lending between banks to at least 1.75 percent by January from 2 percent currently. A month ago, they showed a 50 percent chance of an increase to 2.25 percent."
"Rates in the U.S. are already the lowest of any Group of 10 industrialized nations except Japan, where they are 0.5 percent. The European Central Bank's benchmark is 4.25 percent."
"Another drawback for the dollar is that the Fed's key rate is 3.4 percentage points less than the rate of inflation, the most since 1980, so investors lose money by investing in short- term U.S. fixed-income assets."
"``People thought that the Fed was done cutting,'' said Andrew Balls, an executive vice president and member of the investment committee of Newport, California-based Pacific Investment Management Co., which oversees almost $830 billion. ``In the longer term the diversification away from the dollar will remain intact. The U.S. hasn't done itself any favors in making its assets attractive to foreign investors.''"
"Brazil, Australia"
"The biggest beneficiaries may be Brazil's real and Australia's dollar, as demand for higher-yielding assets rebounds, according to Goldman Sachs. The two currencies, the biggest losers versus the dollar since July, may rebound 7.7 percent and 4.6 percent, respectively, in the next two weeks, Goldman Sachs forecasts."
"``The currencies that have been damaged the most have the best growth,'' said Jens Nordvig, a strategist with Goldman Sachs in New York. ``You're going to see a lot of flows back into these currencies now.''"
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
"Last Updated: September 22, 2008 16:09 EDT"
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U.S. Treasuries Rise on Concern Rescue Package May Be Delayed
By Kim-Mai Cutler and Wes Goodman
"Sept. 23 (Bloomberg) -- Treasuries rose on concern a $700 billion plan to calm market turmoil may be stalled in Congress, fueling demand for the safest assets."
"Two- and 10-year notes advanced as members of President George W. Bush's Republican Party voiced opposition to his financial-rescue plan. Treasuries also climbed before a report that may show home resales fell in August, giving the Federal Reserve more reason to cut interest rates to avert a recession."
"``Treasuries are being lifted on the back of nervousness surrounding the fact that the plan could be delayed,'' said Orlando Green, a fixed-income strategist in London at Calyon, a unit of Credit Agricole SA. ``There's a little bit of political wrangling, and that's put the market on edge.''"
"The benchmark two-year yield fell 10 basis points, or 0.1 percentage point, to 2.06 percent as of 10:20 a.m. in London, according to BGCantor Market Data. The 2.375 percent security due August 2010 increased 6/32, or $1.88 cents per $1,000 face amount, to 100 19/32. Ten-year yields declined 7 basis points to 3.78 percent."
"Bonds extended their advance as stocks declined. The MSCI Asia Pacific Excluding Japan Index slipped 0.6 percent, its first drop in three days, while the Dow Jones Stoxx 600 Index of European equities lost 1.9 percent, adding to demand for the safest of assets. Markets were closed in Japan for a holiday."
Treasury Secretary Henry Paulson and Fed Chairman Ben S. Bernanke are scheduled to discuss market turmoil before the Senate Banking Committee at 9:30 a.m. in Washington.
`Dire Picture'
"``We expect them to paint a dire picture of recent financial-market developments, and to indicate that the chance of the financial-market turmoil leading to a deep recession is high if the proposed legislation is not passed quickly,'' Barclays Capital Inc. strategists led by Ajay Rajadhyaksha in New York wrote to clients today. Barclays and Credit Suisse are among the 19 primary dealers that trade directly with the Fed."
"Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee, said yesterday the proposal is ``neither workable nor comprehensive, despite its enormous price tag.'' Leaders of the Republican Study Committee, a group of more than 100 self-described conservative House members, have criticized the administration's response to the crisis. Texas Representative Jeb Hensarling called it ``bailout mania.''"
"Investors have sought the relative safety of government debt as credit markets seized up. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, was 1.90 percentage points, versus the average for the past two years of 0.91 percentage point. The spread was 3.13 percentage points on Sept. 18, the most since Bloomberg began compiling the figures in 1984."
Fed Bets
Futures contracts on the Chicago Board of Trade show a 49 percent chance the Fed will reduce its 2 percent target rate for overnight bank lending by at least a quarter-percentage point this year. The odds rose from 45 percent yesterday.
"``The short end is the sweet spot,'' said Peter Jolly, head of markets research at NabCapital in Sydney, the investment- banking unit of National Australia Bank Ltd., the country's largest lender. ``The Fed may need to cut interest rates again. People are still foreclosing on their homes in the U.S. The banking system is still short of capital.''"
"Two-year Treasuries have returned 0.6 percent so far in September, versus 0.2 percent for 10-year notes, according to indexes of the securities compiled by Merrill Lynch & Co."
"Home resales declined to an annual pace of 4.94 million last month from 5 million in July, according to a Bloomberg News survey of economists before the National Association of Realtors issues the figure tomorrow. A Commerce Department report the next day will show sales of new houses dropped to a 510,000 annual rate from 515,000, a separate survey showed."
Cost of Rescue
The cost of the rescue package is raising speculation the U.S. plans to pay for it by auctioning more long-term debt.
"``We probably saw the low in bond yields,'' said Felix Stephen, senior investment strategist at Advance Asset Management Ltd. in Sydney, whose International Fixed Interest bond fund returned 5.1 percent so far this year, beating 83 percent of its competitors. ``There is a large chunk of paper to be issued.''"
"Ten-year yields may rise to 4.75 percent in the second half of next year, Stephen said."
"The Treasury Department is increasing its scheduled note sales to meet the government's borrowing needs with a record $34 billion auction of two-year securities tomorrow. It is selling $24 billion of five-year debt the following day, the most since February 2003."
Budget Deficit
"The budget deficit may surpass $900 billion in the fiscal year that starts Oct. 1, David Rosenberg, Merrill Lynch's North American economist in New York, wrote in a client note. Public debt sales may total $1.5 trillion in the same period, according to JPMorgan Chase & Co.'s chief economist Bruce Kasman."
"Inflation expectations rose after crude oil surged by a record $16 a barrel yesterday, yields indicate. The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes widened to 1.96 percentage points, from 1.60 percentage points in the middle of last week. The figure represents the inflation rate that traders expect for the next decade."
"Supply is only a ``mediocre'' indicator of where yields are going, said Ira Jersey, an interest-rate strategist at Credit Suisse Holdings USA Inc. in New York."
"``If you look at the 1980s, for example, we had massive amounts of Treasury supply, yet yields came down quite substantially,'' Jersey said yesterday on Bloomberg Television. ``Treasuries are going to be a substitute for other risky assets that aren't being issued.'' Investors should be more concerned about inflation, he said."
Ten-year yields declined to 6.92 percent in 1986 from 15.8 percent in 1981.
To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
"Last Updated: September 23, 2008 05:26 EDT"
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French August Consumer Spending Falls as Labor Market Worsens
By Sandrine Rastello
Sept. 23 (Bloomberg) -- French consumer spending on manufactured goods fell more than expected in August after the euro region's second-largest economy shrank and shed jobs.
"Household spending on such goods, which accounts for about 15 percent of the economy, fell 0.3 percent from July, when it rose 0.4 percent, Insee, the national statistics office in Paris, said today. Economists expected a 0.1 percent decline, the median of 20 estimates in a Bloomberg survey showed. From a year earlier, spending declined 0.1 percent, the first year-on-year drop since September 1997."
"``Spending has been flat over the past six months,'' said Maryse Pogodzinski, an economist at JPMorgan Chase & Co. in Paris. ``Shoppers have been hit in the face by huge price increases in food and energy and now the job market is deteriorating.''"
"Once the main driver to growth, household spending may wane further as cooling growth boosts unemployment. The economy contracted 0.3 percent in the second quarter, and the government cuts its 2008 growth forecast to around 1 percent, the slowest pace in six years. That started showing in payrolls, which declined for the first time in almost four years in the second quarter."
"The 15-country euro region is also suffering from slowing global demand, which has curbed production and dragged its economy into its first contraction in almost a decade in the April-June period."
"Spending on cars in France slipped 1 percent in August from the previous month, and purchases of clothes and leather goods dropped 1.9 percent, compared with a 0.1 percent decrease in July, Insee said today. Spending on home appliances and furniture rose 0.6 percent."
Lower Fuel Deliveries
"While inflation slowed in August as crude oil prices declined from a July 11 record of $147.27 a barrel, the rate has never been under 3 percent this year, denting households' income."
"Total SA, Europe's largest oil refiner, said last week demand for its fuel in its home market has fallen 6 percent this year because of higher prices. Deliveries to all French services stations dropped 12 percent in August after a 9.4 decrease in July, according to the Union Francaise des Industries Petrolieres, an industry trade organization."
"``The end of the year will be better than the start,'' French Finance Minister Christine Lagarde said of 2009 on BFM Television today."
"The government, which is due to outline its budget plans this week, probably won't meet its deficit target of 2.5 percent of gross domestic product this year, with Lagarde now saying it will be ``under 3 percent,'' compared with 2.7 percent last year."
"President Nicolas Sarkozy was banking on almost 8 billion euros ($11.7 billion) of tax cuts this year to boost growth. With the steeper-than-expected slowdown and his popularity declining, he's expected to outline new proposals to boost growth in a speech on economic policies on Sept. 25 in the southern town of Toulon."
To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net;
"Last Updated: September 23, 2008 02:57 EDT"
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"French Stocks: BNP, NicOx, SocGen STMicroelectronics, Trigano "
By Alexis Xydias
"Sept. 23 (Bloomberg) -- France's CAC 40 Index fell 54.76, or 1.3 percent, to 4,168.75 as of 9:47 a.m. in Paris, extending yesterday's 2.3 percent loss. The SBF 120 Index declined 1.1 percent."
The following shares rose or fell in Paris. Stock symbols are in parentheses.
"BNP Paribas SA (BNP FP), France's biggest bank, sank 1.93 euros, or 2.9 percent, to 64.06 euros. Societe Generale SA, the country's second-largest, dropped 1.75 euros, or 2.7 percent, to 62.85 euros. European banks dropped on concern that the U.S. government's plan to buy $700 billion of bank assets won't prevent a global recession."
"NicOx SA (COX FP) climbed 32 cents, or 4 percent, to 8.39 euros, the biggest gain in the SBF 120. The French drugmaker that's developing treatments with Pfizer Inc. and Merck & Co. signed an agreement with Pfizer's Capsugel unit for capsules to deliver the experimental osteoarthritis treatment naproxcinod."
Oberthur Technologies SA (OCS FP) remained suspended from trading at the company's request. Europe's third-largest maker of smartcards said first-half profit gained 43 percent as the company's operating margin increased.
"STMicroelectronics NV (STM FP) slid 26 cents, or 3.2 percent, to a six-week low of 7.76 euros. Europe's largest chipmaker was cut to ``neutral'' from ``overweight'' at JPMorgan Chase & Co., and to ``neutral'' from ``outperform'' by analysts at Exane BNP."
"Trigano SA (TRI FP) tumbled 1.43 euros, or 15 percent, to 8.31, leading declines in the SBF 120. The maker of recreational vehicles said full fiscal year revenue fell 6.4 percent to 875 million euros and forecast a decline in profitability from year-earlier levels."
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
"Last Updated: September 23, 2008 04:21 EDT"
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"Italian Stocks Update: Fiat, Pirelli, Saipem, Telecom Italia "
By Francesca Cinelli
"Sept. 23 (Bloomberg) -- Italy's S&P/MIB Index slid for a second day, losing 250, or 0.9 percent, to 27,188. Futures expiring in December declined 277, or 1 percent, to 27,420."
"Consob, Italy's securities-market watchdog, banned so- called naked short sales of banking and insurance stocks."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Fiat SpA (F IM), the Italian largest manufacturer, declined 15.6 cents, or 1.5 percent, to 10.48 euros. Automobile stocks were the second-worst performers among the 18 industry groups in the Dow Jones Stoxx 600 Index today."
"Finmeccanica SpA (FNC IM), Italy's biggest defense company, added 17 cents, or 1.1 percent, to 16.22 euros. The sale of new shares to fund its acquisition of DRS Technologies Inc. will go ahead as planned after Lehman Brothers Holdings Inc., one of its advisers, filed for bankruptcy, daily Il Sole 24 Ore reported. Banca Akros maintained its ``accumulate'' recommendation on the stock."
"Ifil SpA (IFL IM), an investment company of Italy's Agnelli family, dropped 10.35 cents, or 2.7 percent, to 3.76 euros. IFI SpA (IFP IM) preferred shareholders including Fidelity Investments and Vanguard Group may seek changes to the terms of the proposed merger with Ifil SpA, la Repubblica reported. IFI shares declined 9.5 cents, or 1 percent, to 9.08 euros."
"Maire Tecnimont SpA (MT IM), an Italian energy-services company, advanced 3.95 cents, or 1.5 percent, to 2.63 euros. The company announced after yesterday's market close that it won a contract for a polyethylene plant in Slovakia. ``The contracts announced year-to-date cover about 60 percent of our 2.4 billion-euro full-year 2008 order intake estimate,'' Enrico Coco, an analyst at Gruppo Banca Leonardo wrote in a report."
"Pirelli & C SpA (PC IM), Europe's third-largest tiremaker, dropped 1.2 cents, or 2.7 percent, to 44.05 cents. UBS AG downgraded the stock to ``neutral'' from ``buy,'' citing a ``lack of foreseeable positive catalysts.''"
"Saipem SpA (SPM IM), Europe's largest oil-field services contractor by market value, added 23 cents, or 1 percent, to 24.06 euros. ``Our global energy teams see attractive risk/reward for oil companies,'' Goldman Sachs analysts wrote. ``U.S. and European names are currently discounting around 80 dollar-a-barrel oil.''"
"Seat Pagine Gialle SpA (PG IM), Italy's largest publisher of phone directories, retreated 0.34 cents, or 4.2 percent, to 7.82 cents. Deutsche Bank AG lowered its price estimate to 0.15 euros from 0.18 euros."
"Deutsche also downgraded Gruppo Editoriale L'Espresso SpA (ES IM), the publisher controlled by Carlo De Benedetti, to ``sell'' from ``hold.'' L'Espresso was unchanged at 1.96 euros. ``Espresso needs a strong injection of talent for its radio, TV, Internet and advertising divisions,'' analyst Alessandro Bai- Badino wrote."
"STMicroelectronics NV (STM IM), Europe's largest semiconductor maker, fell to the lowest in about 1 1/2 months, losing 29.8 cents, or 3.7 percent, to 7.76 euros. JPMorgan Chase & Co. downgraded the stock to ``neutral'' from ``overweight,'' citing economic conditions."
"Telecom Italia SpA (TIT IM), Italy's biggest phone company, fell for the first time in three sessions, losing 1.6 cents, or 1.5 percent, to 1.08 euros. Royal Bank of Scotland cut its price estimate to 95 cents from 1.9 euros and maintained its ``sell.'' ``Uncertainties at Telecom Italia remain and weak operational trends could cause underperformance to persist,'' analyst Chris Alliott wrote."
To contact the reporter on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: September 23, 2008 03:57 EDT"
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"Asian Currencies: Won, Peso Lead Drop as Investors Shun Risk "
By Aaron Pan and David Yong
"Sept. 23 (Bloomberg) -- South Korea's won, Philippine peso and Indonesia's rupiah were the biggest decliners among Asian currencies on speculation investors will shun emerging-market assets on concern the U.S. won't avert a recession."
The peso and rupiah fell the most in more than a week as regional shares declined on concern the U.S. plan to buy $700 billion of soured assets of financial firms won't stem a global slowdown. Indonesia and the Philippines have foreign-currency debt ratings that are three levels below investment grade at Standard & Poor's. The Thai baht and the Malaysian ringgit rose following losses in the U.S. currency.
"``With the uncertainties surrounding the U.S. bailout plan and expectations that this will not quickly turn around the economic problems in the U.S., people are a bit wary again,'' said Joey Cuyegkeng, a Manila-based economist at ING Bank NV."
"The peso dropped 0.6 percent to 46.555 per dollar at the 4 p.m. close in Manila, from 46.283 yesterday, according to Tullett Prebon Plc. The rupiah declined 0.4 percent to 9,325 in Jakarta, according to data compiled by Bloomberg."
U.S. Treasury Secretary Henry Paulson submitted a plan to Congress over the weekend aimed at averting a credit freeze after the bankruptcy of Lehman Brothers Holdings Inc. and the government takeover of American International Group Inc.
The proposed financing plan has raised concern the U.S. debt ceiling will increase by 6.6 percent to $11.3 trillion.
`Market Players Cautious'
"``Many market players are cautious because the U.S. government will need big money'' to rescue the financial system, said Masahiro Gao, vice president of the treasury at PT Bank Mizuho in Jakarta."
"South Korea's won slumped, extending this year's loss to 19 percent, on speculation refiners will increase dollar purchases to pay bills after a surge in global oil prices. Crude oil for November delivery rose 6 percent to $109.37 a barrel yesterday. South Korea is Asia's third-largest oil importer."
"``A big jump in oil prices is behind the won's weakness,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``Demand for the dollar is very strong.''"
"Korea's currency dropped 0.8 percent to 1,149 against the dollar, according to Seoul Money Brokerage Services Ltd. The won, which reached 1,157.50 today, touched a four-year low of 1,166.20 on Sept. 16."
"The won may extend losses as foreign investors sold more Korean shares than they bought today, ending two days of net purchases, Lee said."
Political Situation
"Thailand's baht advanced for a second day, reaching the highest in more than a month, as the dollar fell."
The baht also continued to find support on optimism new Prime Minister Somchai Wongsawat will be able to ease political turmoil after taking office last week. Somchai may unveil his cabinet by week's end and there's speculation he will call elections within the next few months.
"``The baht is one of the strongest currencies in the past couple of days due to two factors,'' said Tetsuo Yoshikoshi, Asian foreign-exchange analyst at Sumitomo Mitsui Banking Corp. in Singapore. ``The first is the weaker dollar story due to concerns over the U.S. bailout plan. The second is the calmness in the Thai political situation.''"
"The baht strengthened as much as 0.6 percent to 33.68 a dollar, the highest level since Aug. 15, before trading at 33.77, according to data compiled by Bloomberg."
Singapore Dollar
Singapore's dollar jumped to the highest in a month as the U.S. dollar fell against major currencies that make up the local trade-weighted basket.
"``The Singapore dollar's strength was all due to the U.S. dollar, which was thrashed last night against the majors,'' said Suan Teck Kin, a Singapore-based economist at United Overseas Bank Ltd. ``Further gains look limited as we are seeing so many signs of an economic slowdown.''"
"The local dollar rose as much as 0.9 percent to S$1.4051 against the U.S. currency, the highest since Aug. 22, before trading at S$1.4135, according to data compiled by Bloomberg."
"Elsewhere, China's yuan reached 6.8099 per dollar, the strongest since a dollar link was scrapped in July 2005. Malaysia's ringgit was little changed at 3.4117 from 3.4114 yesterday. Taiwan's dollar added 0.3 percent to NT$31.937 and Vietnam's dong gained 0.7 percent to 16,620."
To contact the reporter on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
"Last Updated: September 23, 2008 04:52 EDT"
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Taiwan Export Orders Increase By the Least in 5 Years (Update2)
By Janet Ong
Sept. 23 (Bloomberg) -- Taiwan's export orders grew at the weakest pace in more than five years in August as demand from China fell and sales to the U.S. slowed.
"Orders, an indicator of actual shipments over the next one to three months, rose 5.38 percent from a year earlier, following July's revised 5.52 percent gain, the Ministry of Economic Affairs said in Taipei today. That was the smallest increase since May 2003. The median estimate in a Bloomberg News survey of 12 economists was 5.2 percent."
"The first decline in orders from China since 2002 and faltering U.S. sales add to evidence Asian economies are cooling as the deepening global slowdown curbs demand for laptops, mobile phones and televisions. Taiwan's jobless rate climbed to a six-month high in August as moderating economic growth prompted companies to rein in hiring."
"``Asia's export outlook is far from optimistic,'' said Sherman Chan, an economist at Moody's Economy.com in Sydney. ``Softening global demand for electronic products hurts most Asian economies as the region's manufacturers are tech specialists.''"
"The figures were released after the close of trading on the stock exchange. The Taiex index climbed 1.2 percent to 6,182.21 today, narrowing this year's decline to 27 percent. The local currency gained 0.3 percent against the U.S. dollar."
Taiwan's economy expanded last quarter at the weakest pace in more than a year. Overseas shipments are equivalent to about half of gross domestic product.
`Trying Times'
The Asian Development Bank last week lowered its forecast for Taiwan's economic growth in 2009 to 4.6 percent from 5.6 percent previously. It expects the economy will expand 4.2 percent this year.
"``The global economy is in trying times,'' the Manila- based institution said."
The U.S. housing slump that forced Lehman Brothers Holdings Inc. to file for bankruptcy last week deepened a financial crisis that threatens to topple the world into a recession.
Taiwan's government on Sept. 11 announced a NT$180.9 billion ($5.6 billion) package of spending and tax cuts to bolster economic growth and revive the stock market.
"Industrial production grew 0.41 percent in August from a year earlier, less than July's revised 1.79 percent increase, today's report showed. That compares with economists' median estimate of a 2.55 percent increase."
"``The slowdown in orders is indicative of the situation in the U.S.,'' said Tony Phoo, an economist at Standard Chartered Bank in Taipei."
"U.S., China"
"Orders from the U.S., Taiwan's second-biggest overseas market, rose 2.18 percent, down from 3.21 percent in July."
"Export orders from China and Hong Kong combined, Taiwan's biggest overseas market, fell 8.86 percent in August, compared with a 1.73 percent increase in July."
"Many Taiwanese electronics makers ship parts to China that are re-exported as finished products to other markets, such as the U.S. More than 85 percent of Taiwan's computer products are made in China."
"Export orders were worth $32.13 billion in August, compared with July's $31.36 billion."
"Orders for electronics goods rose 4.23 percent in August, easing from a 8.6 percent advance in July. Orders for information, technology and communications products gained 12.07 percent, slowing from 15.74 percent in the previous month."
To contact the reporter on this story: Janet Ong in Taipei at jong3@bloomberg.net
"Last Updated: September 23, 2008 04:57 EDT"
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U.S. Stocks Tumble on Concern Bailout Won't Stop Recession
By Elizabeth Stanton
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"Sept. 22 (Bloomberg) -- U.S. stocks tumbled, led by banks, retailers and technology companies, as oil jumped 16 percent and investors speculated the Treasury's plan to buy toxic mortgage assets will fail to prevent a recession."
"The Standard & Poor's 500 Index lost 3.8 percent, erasing almost half of its rally over the previous two days. Sovereign Bancorp Inc., Marshall & Ilsley Corp. and Washington Mutual Inc. sank more than 21 percent, sending the S&P 500 Banks Index to a record plunge, on concern the government bailout will lower the value of mortgage loans they hold. Apple Inc. and Cisco Systems Inc. dragged down computer stocks on expectations slower growth will reduce sales."
"The S&P 500 retreated 47.99 points to 1,207.09. The Dow Jones Industrial Average slid 372.75, or 3.3 percent, to 11,015.69. The Nasdaq Composite Index decreased 94.92, or 4.2 percent, to 2,178.98. Six stocks retreated for each that rose on the New York Stock Exchange in floor volume of 1.3 billion shares, 45 percent below last week's average."
"``They really haven't changed the economic fundamentals at all,'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $18 billion. ``We still have a debt-laden U.S. consumer facing falling employment.''"
"Treasury bonds and the dollar tumbled on speculation the U.S. government is spending too much to save banks after the collapse of Lehman Brothers Holdings Inc., Fannie Mae, Freddie Mac and American International Group. Heating oil, gold and copper climbed as the dollar's biggest-ever slide against the euro heightened the risk of inflation."
All 10 industry groups in the S&P 500 lost at least 1 percent.
Regionals Pare Rally
"Regions Financial Corp., Marshall & Ilsley and Huntington Bancshares led regional banks to the steepest drop in two months. The group retreated after rising more than 48 percent last week on speculation the companies avoided the worst of the subprime-mortgage crisis. JPMorgan Chase & Co. and Merrill Lynch & Co. advised clients to sell midsized lenders because they won't immediately benefit from the Treasury's mortgage bailout and may have to write down assets based on the prices received by their larger rivals."
"``Our initial impression of the plan is that the benefits to the regional banks would be indirect, and as a result, we would lock in substantial profits generated over the past several weeks,'' wrote JPMorgan analysts led by Steven Alexopoulos."
Record Bank Plunge
"The S&P 500 Banks Index slumped 12 percent today, the most since the gauge was created in 1989, as all 20 of its companies declined at least 4 percent."
"Regions Financial, Alabama's biggest bank, retreated $4.20, or 21 percent, to $15.60, the most since at least 1983. Marshall & Ilsley, the largest bank in Wisconsin, fell $6.68, or 23 percent, to $22.82. Ohio's Huntington slid 23 percent to $9.81. Each bank posted its steepest drop in at least 23 years."
"Funding bases for small and mid-cap banks ``may not be as secure as some believe'' as deposits leave for larger banks and borrowing costs become more expensive, Merrill analysts said."
"Regions Financial, Marshall & Ilsley and Huntington Bancshares were among the biggest gainers in the S&P 500 on Sept. 19, when the market rally forced sellers of some expiring equity options to buy shares, said Michael McCarty, chief options and equity strategist at Meridian Equity Partners Inc. in New York."
`Artificial Strength'
"``You're reversing part of that artificial strength,'' McCarty said."
"Large banks also retreated after last week's rally. Citigroup slipped 64 cents, or 3.1 percent, to $20.01 following a two-day advance of more than 47 percent. JPMorgan, the nation's third-biggest by assets, lost $6.25, or 13 percent, to $40.80 after climbing 32 percent on Sept. 18-19."
The S&P 500 Financials Index declined 8.5 percent today. The government's plan to purge banks of toxic assets and crack down on speculators who bet against shares of financial companies sent the group up 24 percent in the final two days of last week.
"``Financials are a sell on the big rally they had last week because I don't think the fundamentals have really changed,'' Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said on Bloomberg Television. Raymond James oversees $190 billion."
Homebuilders Tumble
"Homebuilders in S&P indexes fell 12 percent, their biggest drop on record, on speculation the bailout plan won't immediately stem the decline in home prices that's left owners unable to refinance mortgages they can no longer afford, leading to a record rate of foreclosures in June. D.R. Horton Inc., the largest U.S. homebuilder by market value, fell 17 percent to $12.55."
"General Growth Properties Inc. slid the most since at least 1983, losing 25 percent to $16.08, an almost six-year low. The second-largest U.S. mall owner said it may sell assets or equity to raise capital after a stock slump. The company also said it will consider ``strategic business combinations.''"
"MGIC Investment Corp., the largest U.S. mortgage insurer, tumbled 32 percent to $6.98 for the biggest drop in the S&P 500."
"General Motors Corp. slid $1.50, or 11 percent, to $11.58. Analysts said the automaker's plan to draw the remaining $3.5 billion from a revolving credit line indicates it may be using up available cash at a rapid pace. GM is tapping the balance of the $4.5 billion line as lenders are tightening standards amid the worst U.S. housing market since the Great Depression."
"Apple, maker of the iPhone and Macintosh computers, slid 7 percent to $131.05 and Cisco, the biggest computer-networking equipment company, lost 4.9 percent to $23.11. Morgan Stanley cut its 2009 profit estimates for technology companies by an average of 5.6 percent, citing slower global growth."
`Floor' Under Markets
"The S&P 500's 8.5 percent, two-day rally at the end of last week was its biggest since the aftermath of the crash of 1987. The gain followed a drop of 7.6 percent over three days that started when Lehman filed for bankruptcy, Merrill Lynch was sold to Bank of America Corp. and the U.S. took control of American International Group Inc."
"For Barclays Global Investors's Russ Koesterich, Treasury Secretary Henry Paulson's move to shift the burden of subprime- mortgage related losses to taxpayers ``put a floor under the equity markets.'' James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the S&P 500 may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''"
"McDonald's Corp., the world's largest restaurant company, fell $1.41 to $62.57. McDonald's told some U.S. franchisees to seek other ways to finance store improvements after Bank of America declined to increase leasing, underscoring how the diversion of capital to mend the financial system may curtail growth."
"Morgan Stanley, Goldman"
"The Federal Reserve yesterday approved bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending the ascendancy of the securities firms 75 years after Congress separated them from deposit-taking lenders."
"Goldman slipped $9.02, or 7 percent, to $120.78 after gaining as much as 4.5 percent. The announcement paves the way for Goldman and Morgan Stanley, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using borrowed money -- the leverage that led to the undoing of Lehman and Bear Stearns Cos."
"Morgan Stanley fell 12 cents to $27.09 after rising as much as 16 percent. Mitsubishi UFJ, Japan's biggest bank, will buy up to 20 percent of the securities firm and decide on a price after conducting due diligence."
Energy Concern
"Retailers, hotel chains, restaurants and automakers retreated on prospects that gains in energy prices will hurt earnings. The S&P 500 Consumer Discretionary Index decreased 5 percent, the most since the first trading day after the September 2001 terrorist attacks, as 80 of its 82 companies retreated."
"Ford Motor Co., the second-biggest U.S. automaker, slipped 34 cents, or 6.4 percent, to $4.95. UAL Corp., parent of United Airlines, retreated $1.44, or 11 percent, to $11.80. Macy's Inc., the second-biggest U.S. department store chain, fell 7.7 percent to $18.42. Home Depot Inc., the largest home-improvement retailer, slumped 6.4 percent to $25.62."
Oil Climbs
Crude oil for October delivery rallied $16.37 to $120.92 a barrel in New York and has advanced 32 percent since Sept. 16. A slump in the U.S. currency increased the appeal of commodities as a hedge.
"Microsoft Corp. rose 24 cents to $25.61. The world's biggest software maker plans to buy back as much as $40 billion in stock and increase its dividend. Microsoft's valuation this year fell to the lowest level since it went public 22 years ago, as measured by share price relative to expected earnings."
"Hewlett-Packard Co. slipped $1.10 to $47.16 even after the world's largest personal-computer maker said it may buy back as much as $8 billion in shares, matching its largest repurchase. Nike Inc., the world's biggest maker of athletic shoes, said it will buy back as much as $5 billion of its shares. Nike still fell 55 cents to $63.15."
"``Whenever you get a market that's fallen the way it has and stocks are attractive for high-quality companies, it tends to be a very good buying opportunity,'' Manning & Napier's Coons said. ``That's what these companies are looking at.''"
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
"Last Updated: September 22, 2008 16:50 EDT"
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Pemex Says August Output Falls 3% on Cantarell Field (Update2)
By Andres R. Martinez
"Sept. 22 (Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, said it extracted less than 1 million barrels a day from its largest field for the second consecutive month as crude output fell 3 percent in August compared with a year earlier."
"Output fell last month to 2.759 million barrels a day, Mexico City-based Pemex, as the company is known, said today in a statement. The Cantarell field, which has dropped for the last 32 months, declined 28 percent to 951,230 barrels a day in August."
"``I don't see any logical reason why a curve moving down should suddenly stop moving down,'' David Shields, an independent energy analyst and publisher of Energia magazine, said about Cantarell in an interview last week."
"Declining output is costing 275 billion pesos ($26 billion) in sales this year and threatening Mexico's budget, as 40 percent of the government's revenue comes from Pemex royalties. The company's total output for August fell to the lowest since November 1995, when Pemex produced 2.556 million barrels a day."
"Production at Cantarell, the world's third-largest field, dipped below 1 million barrels in August, the second time this year. The development lost pressure, making it more difficult and expensive to extract crude."
"Before July, Cantarell hadn't produced less than 1 million barrels since November 1995. Cantarell, which accounted for 65 percent of the company's oil output in March 2005, dropped to 35 percent this month. Cantarell's output has fallen every month since December 2005 compared with the year-earlier figures."
`Cantarell Curve'
"``All the Pemex studies I have seen in the last five years suggest that when Cantarell curve is moving down sharply it continues, it doesn't bottom out,'' Shields said."
Pemex's companywide natural-gas output rose 17 percent to 6.98 billion cubic feet a day in August. Gas output reached a record 7.02 billion cubic feet in June.
Exports fell 14 percent to 1.41 million barrels a day. Mexico is the third-largest supplier of oil to the U.S. Canada and Saudi Arabia are the first- and second-largest suppliers of crude to the U.S.
"Mexico's crude exports sold for $108.37 a barrel in August, 72 percent more than a year earlier. Oil sales abroad totaled $4.8 billion in August, 49 percent higher than a year earlier."
"Crude oil for October delivery rose $18.05, or 17 percent, to $122.60 a barrel at the 2:30 p.m. close on the New York Mercantile Exchange. Earlier today, oil climbed more than $25 a barrel, the largest gain ever."
To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net
"Last Updated: September 22, 2008 15:43 EDT"
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Treasuries Irresistible as Deflation Trumps Paulson (Update2)
By Daniel Kruger and Sandra Hernandez
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"Sept. 22 (Bloomberg) -- As details of Treasury Secretary Henry Paulson's plan to revive the U.S. financial system by pumping as much as $700 billion into the markets emerged Sept. 19, bond investor Michael Cheah was reminded of Japan."
"When that country's real estate bubble burst, leaving a trail of bad real estate loans, officials flooded the economy with cash only to see banks hoard the money instead of lending it out. The result has been a series of recessions and persistent deflation for more than a decade."
"``Although the government tried to debase the yen by printing a lot of government bonds, the economy went into a standstill,'' said Cheah, an official at the Monetary Authority of Singapore from 1991 to 1999 who manages $2 billion at AIG SunAmerica Asset Management in Jersey City, New Jersey. ``The banks used the money to buy safety. I see a repeat happening here. The banks will use it to buy Treasuries.''"
"While U.S. bonds tumbled on the plan to buy soured mortgage-related assets from financial institutions in the most far-reaching federal intrusion into markets since the Great Depression, they still ended the week little changed."
"To investors such as Cheah, that's a clear sign the economy is facing many of the same risks that have afflicted Japan. The yield on the benchmark 30-year Treasury bond, which stands to benefit the most of any government maturity from a drop in inflation expectations, fell to 3.89 percent last week, the lowest level since the U.S. reintroduced the security in 1977."
`Same as Japan'
Only Japan offers inflation-linked bonds that pay lower rates than similar securities issued by the Treasury.
"For maturities up to four years, the difference in yields between Treasury Inflation-Protected Securities and nominal bonds is 1 percentage point or less. The so-called breakeven rate represents the pace of inflation investors expect over the life of the securities."
"``The current U.S. situation is the same as Japan's case,'' said Hiromasa Nakamura, senior fund investor at Tokyo-based Mizuho Asset Management Co., which oversees $36.5 billion as part of Japan's second-largest bank. ``The economic slowdown and credit crunch are creating a downward spiral.''"
"Nakamura, who correctly forecast the rally in Treasuries last year, said two-year note yields will fall to 1.1 percent by year-end, while the 10-year will decline to 3 percent."
"The 2.375 percent note due August 2010 ended last week at 100 11/32 to yield 2.20 percent, while the 4 percent security maturing in August 2018 finished at 101 10/32 to yield 3.84 percent."
Two-year yields fell to 2.11 percent and the 10-year yield dropped to 3.78 percent as of 6:47 a.m. today in London.
Rate Expectations
"Just last month, traders, concerned that rising food and energy costs were trickling into the broader economy, saw a 65 percent probability the Federal Reserve would raise borrowing costs by the end of 2008 to contain consumer prices. Now, there's a 100 percent chance its 2 percent target rate will either stay the same or be cut, futures on the Chicago Board of Trade show."
"The Labor Department in Washington said last week that consumer prices fell 0.1 percent in August, the first decline in almost two years, as fuel costs dropped from record levels. The yield on the 10-year Treasury is 1.55 percentage points below the consumer price index, the most since 1980 and a sign that traders expect inflation to slow. The yield typically averages about 3.4 percentage points more than inflation."
"Traders think ``they're looking at Japan,'' said Dominic Konstam, head of interest-rate strategy at Credit Suisse Securities USA LLC in New York, one of 19 primary dealers that trade with the Fed."
Far to Go
"The U.S. has far to go before matching what Japan has gone through. Since 1995, inflation in the world's second-biggest economy after the U.S. has averaged zero percent, while growth has averaged 1.4 percent. The Bank of Japan maintained what it called a ``zero interest-rate policy'' from 2001 through 2006 to try to stimulate the economy."
The yield on Japanese inflation-linked debt maturing in 10 years averaged 0.59 percentage point since being introduced in April 2004 and is currently negative 0.21 percent. The comparable U.S. yield is 1.92 percent.
"Rather than a decline in consumer prices, a more likely scenario is a slowdown in inflation, said Stewart Taylor, a senior investment-grade debt trader at Boston-based Eaton Vance Management, which oversees about $6 billion of taxable bonds."
"``Do we move into full-blown deflation as opposed to disinflation? I doubt it,'' he said."
Seeking a Haven
"Instead of a referendum on inflation, much of the rally in bonds may be tied to investors seeking a haven from financial market turmoil that led to the government's takeover of Washington-based Fannie Mae, Freddie Mac in McLean, Virginia, and American International Group Inc. of New York and the bankruptcy of New York-based Lehman Brothers Holdings Inc."
"Some of that flight to safety was reversed Sept. 19 after Paulson and Fed Chairman Ben S. Bernanke announced a plan to buy troubled assets from financial institutions. The U.S. may have to borrow an extra $700 billion to $1 trillion to fund the rescue of the financial system, flooding bond investors with more supply, according to Barclays Capital Inc. interest-rate strategist Michael Pond in New York."
Bond bulls point to a still weakening housing market for why they expect inflation to slow and yields to remain low.
"Home prices have plunged 19 percent on average from their peak in July 2006, according to the S&P/Case-Shiller index of 20 cities. Economists at New York-based Goldman Sachs Group Inc. said this month they expect prices to drop another 10 percent."
Cutting Back
"Though consumer prices in the U.S. rose 5.4 percent in August from a year earlier, the Goldman economists noted it took almost four years ``from the bursting of the financial bubble in 1990 until prices first fell on a year-over-year basis'' in Japan."
"The housing weakness is causing consumers to cut back on spending. The Labor Department in Washington said last week that new-vehicle prices dropped 0.6 percent in August, the most since November 2006, and hotel fares tumbled 1.1 percent."
"``There are deflationary events out there and debt default is one of the primary drivers,'' said Jeffrey Gundlach, chief investment officer at Los Angeles-based TCW Group Inc., which oversees $90 billion in fixed-income. ``It's what they call a debt deflation cycle, and there's definitely one underway.''"
"The percentage of Treasuries in a diversified bond fund Gundlach manages is the highest it's ever been, he said."
"The world's biggest banks have taken more than $500 billion in writedowns and losses on securities tied to subprime mortgages since the start of 2007, according to data compiled by Bloomberg. Almost a year ago, Goldman economists said just $400 billion of losses would cut banks' lending by $2 trillion."
"``There's a huge amount of deflationary pressure when you get this kind of capital destruction,'' said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, another primary dealer."
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Sandra Hernandez in New York at shernandez4@bloomberg.net
"Last Updated: September 22, 2008 02:01 EDT"
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"Asian Stocks Fall, Snapping Two-Day Rally; Banks, Airlines Drop "
By Kyung Bok Cho and Shani Raja
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"Sept. 23 (Bloomberg) -- Asian stocks fell, snapping a two- day rally, after commodity prices jumped by the most since at least 1956 and concern grew the U.S. financial-industry bailout won't prevent a recession."
"Macquarie Group Ltd., Australia's biggest securities firm, fell 4.5 percent after corporate bond risk rose for the first time in three days. China Southern Airlines Co. lost 5.6 percent as oil prices surged, raising fuel costs. China Mengniu Dairy Co. tumbled by a record 60 percent after its products were found to contain a chemical linked to at least four infant deaths."
"``The bailout gave the U.S. financial system a cardiac jolt that will prevent it from collapsing, but the economy is still in intensive care,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney."
"The MSCI Asia Pacific excluding Japan Index dropped 2.1 percent to 352.77 as of 6:01 p.m. in Hong Kong. Financial stocks were the biggest contributor to the decline. Stocks fell around the region, except in South Korea, Taiwan and Vietnam. Markets in Japan are shut for a holiday."
"China's CSI 300 Index slid 3.8 percent, the most in the region. China Vanke Co., the nation's largest publicly traded developer, led declines after the proportion of households planning to buy a home dropped to the lowest level on record."
"Asia's benchmark gauge jumped 8.3 percent in the previous two days after the U.S.'s $700 billion plan to buy toxic debt from banks and tighter regulation of short selling by the U.S., U.K., Australia and Taiwan eased concern more companies will follow Lehman Brothers Holdings Inc. into bankruptcy."
`Second Wave'
"U.S. stocks and the dollar tumbled yesterday, with the Standard & Poor's 500 Index losing 3.8 percent, on concern the U.S. bailout plan won't benefit regional banks. S&P 500 futures gained 0.3 percent in after-hours trading."
"Macquarie fell 4.5 percent to A$36.10. United Overseas Bank Ltd., Singapore's second-biggest, slid 2.5 percent to S$17.02. HSBC Holdings Plc, the world's second-largest bank by market value, fell 2.1 percent to HK$123.40 in Hong Kong."
"A rally in Asian financials will be capped by an ``ongoing slowdown'' and ``a second wave of U.S. problems still ahead,'' Goldman, Sachs & Co. said in a report today. JPMorgan Chase & Co. and Merrill Lynch & Co. advised clients to sell U.S. midsized banks because they won't immediately benefit from the bailout."
"The Markit iTraxx Australia Series 9 Index increased 4 basis points to 162.5, according to Citigroup Inc. prices. The index contains credit-default swaps tied to 25 borrowers including Macquarie and Qantas Airways Ltd."
Oil Surge
"``Armageddon may have been avoided but there's a realization a couple of years of judgment are still to come,'' said Hans Kunnen, head of investment market research in Sydney at Colonial First State Global Management, which manages about $128 billion."
"China Southern, the nation's largest carrier, retreated 5.6 percent to HK$1.52 in Hong Kong. Qantas, Australia's largest, slipped 2.4 percent to A$3.24, the lowest since July 16."
"The Reuters/Jefferies CRB Index of 19 raw materials jumped 3.9 percent yesterday, the most since at least September 1956, the earliest data available on the Bloomberg. Commodities rose on speculation resources will provide a safe haven as the U.S. bank rescue plan inflates the budget deficit."
"Oil for October delivery surged 17 percent to expire at $120.92 a barrel yesterday as traders stepped up purchases of contracts to offset earlier short sales. Crude oil for November delivery advanced 6.4 percent to close at $109.37 a barrel, and was recently at $108.76 in after-hours trading."
Milk Producers Fall
"Newcrest Mining Ltd., Australia's largest gold producer, added 5.3 percent to A$26.84. Gold rose 5.1 percent to $909 an ounce yesterday, extending a rally after its biggest weekly gain in almost nine years, as investors shifted assets into precious metals as a haven from market turmoil and the declining dollar."
"The dollar slipped to 105.30 yen from 105.51 yen late in New York yesterday, when it fell 1.8 percent."
"Malaysian plantation stocks rose after Aseambankers Bhd. lifted its rating on the industry to ``overweight,'' from ``underweight,'' citing resurging biodiesel demand and a possible rebound in commodity prices. Sime Darby Bhd., the biggest, advanced 2.4 percent to 6.50 ringgit. Kuala Lumpur Kepong Bhd. gained 3.1 percent to 9.85 ringgit."
"Mengniu, China's largest milk producer, tumbled 60 percent to HK$7.95 in Hong Kong. Some of its products were recalled after they were found to contain an industrial chemical that has sickened almost 53,000 children in China. Inner Mongolia Yili Industrial Group Co., which is also among the 22 companies found with products containing the chemical melamine, fell by the 10 percent daily limit to 9.93 yuan in Shanghai."
"Goldman Sachs cut its recommendations on Mengniu and Yili to ``sell,'' saying dairy sales will slow while the companies increase spending on product promotion and brand building."
To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.netShani Raja in Sydney at sraja4@bloomberg.net
"Last Updated: September 23, 2008 06:04 EDT"
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Italian Consumer Confidence Unexpectedly Rose in September
By Flavia Krause-Jackson and Lorenzo Totaro
"Sept. 23 (Bloomberg) -- Italian consumer confidence unexpectedly rose in September for a second consecutive month as oil prices dropped from record highs, leaving households with more to spend."
"The Rome-based Isae Institute's index, calculated from a survey of 2,000 families, increased to 102.8 from a revised 99.6 last month. Economists had expected a decline to 98.4, according to the median of 18 forecasts collected by Bloomberg."
"``The sharp rises in oil prices and inflation has been a major factor underlying the deterioration in consumer confidence,'' said Luigi Speranza, an economist with BNP Paribas in London. ``A rebound on lower oil prices will be at least partially offset by a worsening in the financial crisis.''"
"Italian families responded to higher oil prices and borrowing costs by cutting back on spending, sapping growth and leaving the country on the brink of its fourth recession in a decade. Crude has dropped 27 percent since reaching a record $147.27 a barrel July 11, giving relief to consumers faced with rising prices and interest rates at a seven-year high."
"Households are less concerned that inflation will accelerate further, the Isae report said. An index measuring expectations for higher prices in the coming 12 months fell to 6 from 8. An index measuring the ability to set money aside rose to minus 63 from minus 80, Isae said."
Market Turmoil
"Still, sentiment may sour in the coming months as the fallout from the turbulence in financial markets fuels concern that economic growth with slow further. The Italian economy will shrink 0.1 percent this year, its first contraction in 15 years, employers' association Confindustria said on Sept. 18."
"Italian growth has lagged behind the European Union average for more than a decade, and the European Commission's forecast of a 0.1 percent expansion this year compares with a prediction of growth of 1 percent in France and 1.8 percent in Germany."
Those forecasts came out before the upheaval in world financial markets caused by the bankruptcy of Lehman Brothers Holdings Inc. Italy is among the Group of Seven economies trying to mitigate the worst financial crisis since the Great Depression. G-7 finance ministers yesterday said they would take ``whatever actions may be necessary'' as U.S. Treasury Secretary Henry Paulson put forward a $700 billion bailout plan for banks.
To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.netLorenzo Totaro at ltotaro@bloomberg.net.
"Last Updated: September 23, 2008 03:39 EDT"
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"Canadian Stocks Fall, Led by Scotiabank, Research In Motion "
By John Kipphoff
"Sept. 22 (Bloomberg) -- Canadian stocks fell for the first time in three days, led by financial and technology companies, on concern that the economy will slow while the U.S. bails out the financial system."
"Bank of Nova Scotia paced declines among financial companies and Research In Motion Ltd. led technology shares lower, on speculation that the $700 billion program to rid banks of illiquid mortgage-related assets may fail to spur credit and boost economic growth. Barrick Gold Corp. rose along with bullion and oil prices, which surged as the U.S. dollar slid on concern the U.S. bank rescue will inflate the budget deficit."
"``Institutions will be lending less money and economies will contract,'' said Douglas Davis, who oversees about C$450 million as president of Davis-Rea Ltd. Investment Counsel in Toronto. ``We're just holding on to our cash and waiting for the market to drop further.''"
"The Standard & Poor's/TSX Composite Index fell 2.1 percent to 12,638.07 in Toronto. The S&P/TSX surged 7 percent on Sept. 19, its biggest gain in more than 21 years, after the U.S. proposed buying toxic assets from banks and banned short sales of financial shares, to ease turmoil in credit and equity markets."
"Scotiabank, the third-largest lender by assets, fell 4.4 percent to C$47.81. Royal Bank of Canada, the biggest, dropped 2.8 percent to C$50 after surging 15 percent in two sessions. Bank of Montreal slid 4.8 percent to C$47.53."
"Toronto-Dominion Bank dropped 3.6 percent to C$62.59. Canada's second-largest bank is among potential bidders for Washington Mutual Inc., a U.S. lender that put itself up for sale last week, according to a person familiar with the matter."
`Drowning'
"While the U.S. government's plan to shore up banks has averted the collapse of the financial system, it will not immediately solve the underlying problems of falling U.S. house prices that leave consumers ``drowning in debt,'' Dundee Securities Corp. analyst John Aiken wrote in a note to clients today. Liquidity will continue to be hard to come by and the U.S. economy is still heading toward a consumer-driven recession, Aiken, based in Toronto, wrote."
"With banks facing increasing provisions for bad loans, their earnings growth in 2009 will be ``challenged,'' he wrote."
"Great-West Lifeco Inc. dropped 9.8 percent to C$31.85, the most since December 2000. Canada's second-largest insurance company said last week that it expects to take a third-quarter writedown for the eroding value of investments tied to American International Group Inc. and Lehman Brothers Holdings Inc. Also last week, Great-West's Putnam Investments LLC unit closed its closed its $12.3 billion institutional Putnam Prime Money Market Fund, citing ``significant redemption pressure.''"
Results This Week
Research In Motion declined 7.4 percent to C$101.39 after gaining 13 percent on Sept. 19. The maker of the BlackBerry e- mail phone is scheduled to report second-quarter results for fiscal 2009 on Sept. 25.
"Measures of technology and financial shares in the S&P/TSX declined 6.9 percent and 3.7 percent, respectively, leading the slide as nine of the index's 10 industry groups dropped. A gauge of raw-materials producers advanced 2.8 percent."
"Barrick Gold, the world's largest bullion producer, added 8.1 percent to C$39.46. Goldcorp Inc. climbed 8.1 percent to C$37.30. Potash Corp. of Saskatchewan Inc., the largest maker of crop nutrients, gained 1.6 percent to C$185.83."
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
"Last Updated: September 22, 2008 16:59 EDT"
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"Dollar to Rebound From Bailout Shock, Says Morgan Stanley's Jen "
By Daniel Kruger
"Sept. 22 (Bloomberg) -- Short-term pressure on the U.S. dollar will subside as the government's efforts to prevent a prolonged recession support the currency amid a slowing global economy, wrote Morgan Stanley currency strategist Stephen Jen."
"While U.S. interest rates may rise as the Treasury sells debt to raise $700 billion to fund its purchase of soured mortgages and other problem loans on bank balance sheets, much of that may be recouped, mitigating the risk to the currency, Jen wrote in a note to clients published today."
"The currencies of countries participating in banking system bailouts since the late 1980s have not depreciated from the efforts, Jen wrote, citing the U.S. Savings & Loan Crisis, Japan during the early and late 1990s and Norway in the early 1990s."
"``Banking crises are unambiguously bad for currencies but nationalization per se is not bad for currencies,'' Jen wrote. ``In fact it often marks the low in the currencies.''"
The note did not revise Morgan Stanley's estimates for the dollar.
"The $700 billion investment in securities such as subprime mortgages will weigh on the dollar to the extent the government loses money on the transaction, wrote Jen, who did not immediately return a call seeking comment."
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
"Last Updated: September 22, 2008 13:51 EDT"
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Bond Risk Rises on Uncertainty About Bad-Debt Plan's Mechanics
By Laura Cochrane
Sept. 23 (Bloomberg) -- Bond default protection costs rose in Asia-Pacific on uncertainty about how the U.S. government's plan to buy devalued mortgage-backed assets will prevent further turmoil in global credit markets.
"Credit-default swap indexes in Asia outside Japan increased to the highest in three days, indicating deteriorating perceptions of credit quality. Australia's benchmark rose for the first time since U.S. Treasury Secretary Henry Paulson asked Congress for unhindered authority to spend as much as $700 billion to remove bad assets from bank balance sheets."
"``People aren't entirely sure how this plan will work in practice, so timing and details are important,'' said Michael Bush, head of fixed income credit research at National Australia Bank Ltd. in Melbourne. ``We are very much watching the U.S., as is every market globally.''"
"The benchmark gauge of corporate credit risk in North America rose 1 basis point in New York trading yesterday to 151 basis points, Citigroup Inc. prices show. This followed a slump in U.S. stocks triggered by speculation the Treasury's efforts will fail to prevent a recession in the world's biggest economy."
"Lawmakers are reviewing Paulson's proposals, designed to remove ``illiquid assets'' clogging the financial system, reverse declining asset values and prevent the freezing of lending to U.S. financial firms, companies and consumers."
Asia Default Risk
"The Markit iTraxx Asia-ex Japan index of 50 investment-grade borrowers, including Posco and ICICI Bank Ltd., increased 5 basis points to 177 at 8.24 a.m. in Hong Kong, according to BNP Paribas prices. The region's index of 20 high-yield, high-risk borrowers rose 15 basis points to 665."
"Commonwealth Bank of Australia, the nation's biggest bank by market value, and its three rivals led default protection costs higher in Australia. Default swaps on the banks' senior debt rose about 5 basis points, according to Citigroup Inc. prices."
"The Markit iTraxx Australia Series 9 Index increased 10 basis points to 166 at 11:58 a.m. in Sydney, according to ABN Amro Holding NV prices. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt."
"``The small move wider today follows a strong day yesterday, so it's like the market is taking a bit of a breather,'' National Australia's Bush said."
"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."
Japanese markets are closed today for a public holiday.
To contact the reporter on this story: Laura Cochrane in Melbourne at lcochrane3@bloomberg.net.
"Last Updated: September 22, 2008 22:29 EDT"
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HSBC Says Sell Stocks Because Paulson Plan Won't Stop Slowdown
By Alexis Xydias
"Sept. 23 (Bloomberg) -- Investors should reduce stocks in developed markets because a U.S. plan to shore up financial markets won't stop a ``nasty slowdown,'' according to strategists at HSBC Holdings Plc."
"The strategists at Europe's largest bank cut their recommendation on equities to ``underweight'' from ``neutral,'' according to a note today entitled ``Armageddon Postponed.'' They advised buying long-dated government bonds."
"While U.S. Treasury Secretary Henry Paulson's $700 billion proposal to stabilize the banking system ``puts a floor -- fingers crossed -- on the worst of the downturn, it seems unlikely to be able to prevent a nasty slowdown, for the simple reason that both the financial system and the real economy will continue to deleverage,'' a team of strategists led by Richard Cookson wrote."
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
"Last Updated: September 23, 2008 02:28 EDT"
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"Chinese Banks to Face Their `First Real Test,' Fitch Says "
By Luo Jun
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"Sept. 23 (Bloomberg) -- Chinese banks face worsening asset quality and slower profit growth as the nation's tight monetary environment and a worsening global credit crisis cause more borrowers to default, Fitch Ratings said."
"The nation's 14 publicly traded banks, whose total net income jumped 67 percent in the first half from a year earlier, have already shown signs of rising borrower defaults and tighter liquidity, the ratings agency said."
"``Chinese banks appear to be approaching their first real test of resilience,'' Beijing-based analysts Charlene Chu and Chunling Wen wrote in a report yesterday. ``Increased vigilance is warranted as Chinese banks take on the growing challenges ahead.''"
"Chinese banks have boosted profits over the past three years as the nation's economy expanded at around a 10 percent annual clip. Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Bank of Communications Ltd. have predicted slowing growth after posting record earnings in the first half."
"Listed banks posted an average yield on loans of 7 percent in the first half, up from 6.3 percent in 2007, Fitch said. Loan profitability will narrow in the fourth quarter after the central bank cut the benchmark lending rate for the first time in six years and increased credit quotas in July, the report said."
"Interest income accounted for more than 70 percent of Chinese banks' first-half operating income, according to Fitch."
"Loans overdue for less than one year totaled 187 billion yuan ($27 billion) at publicly traded banks as of June 30, an increase of 31 percent from the end of last year, Fitch said, indicating a turn in asset quality."
"Chinese lenders mostly avoided the more than $520 billion of writedowns and credit losses that pushed global financial companies including Citigroup Inc. and UBS AG to post losses, fire workers and raise capital."
To contact the reporters on this story: Luo Jun in Shanghai at at jluo6@bloomberg.net
"Last Updated: September 22, 2008 23:33 EDT"
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"Mobius Says U.S. Slowdown Won't Last, Bargains Abound (Update1) "
By Cathy Chan
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"Sept. 23 (Bloomberg) -- The U.S. slowdown may be shorter than expected and private equity investors should start searching for bargains after valuations tumbled this year, said Mark Mobius, executive chairman of Templeton Asset Management Ltd."
"``I just don't see a long, protracted recession,'' Mobius, who manages about $40 billion in emerging market stocks, told the Super Return Asia conference in Hong Kong today. ``There is an opportunity to buy low right now and sell high in the next cycle.''"
"Mobius said private equity investors with a five-year investment horizon should watch out for bargains, even in export- oriented industries, because world trade is still increasing. The economies of emerging countries including China, India and Russia should withstand the financial-market turmoil because they have resources to boost domestic spending, he said."
"Private-equity firms raised a record $324.4 billion in the first half as investments in funds that buy distressed assets increased, according to a report from London-based Preqin Ltd. Announced leveraged buyouts dropped 73 percent in period to $143.1 billion though, according to data compiled by Bloomberg, after investors and banks cut off financing as credit market seized up."
"Global stock markets whipsawed last week after Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. sold itself to Bank of America Corp. and regulators pumped $85 billion into American International Group Inc. to bail out the world's biggest insurer. The MSCI World index slumped more than 7 percent by mid-week before rallying after central banks pumped money into the financial system."
U.S. Rescue Deal
"U.S. regulators and lawmakers are working on a broader rescue that could cost more than $700 billion. In an interview with Bloomberg Television on Sept. 15, Mobius said the Merrill deal and the U.S. pledge not to bail out Lehman signaled financial markets were near the bottom."
"Templeton's Emerging Markets Fund has lost 30 percent this year, in line with the drop in the MSCI Emerging Markets Index. Mobius said in the interview he's increasing stakes in emerging- market banks, and currently owns shares in financial companies in Brazil, Thailand, South Africa and Turkey, without naming them."
Others speakers at the Hong Kong conference said equity markets have further to fall.
"``Investors shouldn't rush into the market as valuations are expected to come down further,'' Jean Eric Salata, chief executive officer of Baring Private Equity Asia, said at the conference. ``We haven't seen the worst of the downturn yet and the pace of investments will continue to slow because capital is very tight.''"
To contact the reporter on this story: Cathy Chan in Hong Kong at Kchan14@bloomberg.net.
"Last Updated: September 23, 2008 02:14 EDT"
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"Shaken Consumers, Banks May Stifle U.S. Growth, Extend Slowdown "
By Rich Miller
Sept. 22 (Bloomberg) -- The U.S. economy might be moving from the acute stage of the credit contagion to a chronic one.
"Even with hundreds of billions of dollars from Washington to keep them solvent, banks facing the prospect of more loan losses may still curb new lending. Debt-laden consumers look set to rein in spending further as job cuts take their toll. And profit-pinched companies are turning cautious on investing and hiring as the rest of the world slows."
"The plan the Bush administration and Congress are racing to enact is designed to alleviate the crisis in the markets rather than stimulate a sluggish economy. ``The fact that we have stepped back from the edge of the cliff doesn't mean everything is wonderful,'' says Michael Atkin, head of sovereign research at Putnam Investments in Boston. ``We shouldn't forget that the economy is not in great shape.''"
That puts pressure on Federal Reserve Chairman Ben S. Bernanke and his colleagues to follow up their extraordinary interventions in the markets with more traditional medicine in the form of lower interest rates.
"``The Fed still has more rate cuts to do,'' says John Makin, a principal at Caxton Associates LLC hedge fund in New York and a fellow at the American Enterprise Institute in Washington."
"The credit squeeze is prompting some economists to lower their forecasts for the economy. Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, now expects the economy to contract next quarter and in the first quarter of 2009. That would be the first recession since 2001."
Slowing Growth
"The consensus forecast calls for growth of 0.7 percent in the fourth quarter and 1.1 percent in the first quarter, according to a Bloomberg News survey of economists completed Sept. 9. The economists saw a 51 percent chance of a recession in the next 12 months. For all of 2008, growth is forecast to be 1.8 percent, the slowest since 2002."
"Rate cuts would help the economy in several ways. They would boost banks' profits by lowering their cost of funds, something that the $700 billion rescue package before Congress doesn't do. That might encourage them to lend more freely."
Lower borrowing costs would also aid consumers directly by easing their debt burdens. And companies would benefit because the cuts would help offset some of the higher premiums that investors are demanding on corporate bonds.
Stock-market investors responded positively to the news that Bernanke and Treasury Secretary Henry Paulson want to cleanse banks of bad assets and insure deposits in money-market funds. The Standard & Poor's 500 index jumped 4 percent on Sept. 19 to close the week little changed.
Reaction at the Epicenter
"The reaction in the credit markets, the epicenter of the 13-month crisis, was more restrained. The cost of default protection on bonds issued by individual banks and brokers was still higher than a week earlier, even after dropping on Sept. 19."
"Bankers were cautious as well. Bank of America Chief Executive Officer Kenneth Lewis, while praising the steps Washington took, shied away from declaring the crisis over."
"``There's a lot of bad debt out there that still needs to get cleaned out of the system,'' he said in a speech to the National Black MBA Association in Washington Sept. 19."
"Global banks have racked up more than $500 billion in losses on bad loans and investments, and more red ink is likely. Moody's Investors Service boosted its forecast for losses on subprime and prime-jumbo mortgages on Sept. 18 as delinquencies came in higher than expected."
"Bank of Italy Governor Mario Draghi, who chairs the Financial Stability Forum of regulators, estimates banks must raise another $350 billion in capital to prepare for further losses and writedowns."
`Survival Mode'
"``Banks are in survival mode,'' says Zandi at Moody's Economy.com. ``They're not interested in extending credit. They're interested in conserving capital.''"
"Consumers are particularly vulnerable to a tightening of credit. They're being squeezed by a weakening job market, with unemployment at a five-year-high of 6.1 percent last month, and a continued decline in house prices. Household debt as a percentage of net worth rose to 68 percent in the second quarter, the highest since 2002."
"``American consumers need time to restore some balance to their household finances,'' Lewis said."
"They're already trying. Retail-sales growth has slowed for six straight weeks, according to the International Council of Shopping Centers in New York. The council's chief economist, Michael Niemira, pared his forecast for September growth to 1.5 to 2 percent, from 2 percent previously."
Blue Christmas?
Analysts at Merrill Lynch & Co. said Sept. 18 that U.S. retailers may suffer their slowest holiday sales since 1991 as households grappling with higher food and fuel costs cut back.
"``Consumers are starting to get the idea that they've got to de-leverage,'' says David Wyss, chief economist at Standard & Poor's in New York."
"Companies may also be turning more cautious. Industrial production fell in August by the most in almost three years as slower consumer spending prompted automakers to cut back. Almost half of large companies across the globe have curbed technology spending for the next year, according to Cambridge, Massachusetts-based Forrester Research Inc."
"Firms are feeling the pinch as earnings slow along with the economy. Third-quarter profits of the Standard & Poor's 500 companies may sink the most in seven years, according to analyst estimates compiled by Bloomberg News."
Exports Hurt
"Foreign sales -- until now a major source of strength for U.S. companies -- are also hurt by the fallout from the credit crisis as the U.S. slowdown seeps abroad. Japan's government said last week that its economy, the world's second-largest, is weakening."
"Dell Inc., the world's second-biggest personal-computer maker, said Aug. 28 that ``continued conservatism'' from some U.S. customers was spreading to Western Europe and Asia."
"Companies are also getting hit by dearer credit. The average yield on the most actively traded investment-grade bonds fell Sept. 19 on Washington's moves to fight the crisis, yet still stood nearly 0.9 percentage point higher than a week earlier."
"``The kind of spreads we're seeing'' on corporate debt were ``just inconceivable a couple of weeks ago,'' Martin Fridson, chief executive officer of Fridson Investment Advisors in New York, said in a Bloomberg Radio interview Sept. 19."
"Financial conditions in the economy, as measured by a Bloomberg index that includes money-market spreads and equity prices, tightened during the last week despite the series of actions taken by the Fed and Treasury to ease the crisis."
"Even after the Fed left its benchmark rate unchanged on Sept. 16, traders in futures markets still see about a 45 percent chance of a reduction before the end of the year."
"``There's been a tightening of financial conditions,'' says David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York. ``If they stay tight, a Fed easing may be in play.''"
To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net
"Last Updated: September 21, 2008 19:00 EDT"
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"Galicia Rises, Leading Argentine Rally, on Debt Speculation "
By James Attwood
"Sept. 22 (Bloomberg) -- Grupo Financiero Galicia SA rose, helping push Argentine stocks to the biggest three-day gain in six years, on speculation the government will agree to swap more defaulted debt, boosting the value of the bank's bond holdings."
"Galicia, the holding company for the nation's biggest non- government bank, gained 4.2 percent. The benchmark Merval index climbed 1.7 percent even as a Latin America equity index fell."
"The Merval extended gains, led by banking and energy stocks, after President Cristina Fernandez de Kirchner said the country is weighing at least three proposals to swap bonds with investors still holding defaulted debt. The country's earlier offer in 2005 to swap defaulted bonds at about 30 cents on the dollar was the harshest restructuring offer since World War II."
"``If Argentina solves the problem of holdouts, it will have greater ability to access international capital markets, which would lower country risk and in turn improve bond prices, benefiting banks that own bonds,'' Mariano Kruskevich, an analyst with Grupo SBS, said by phone from Buenos Aires."
"The president didn't elaborate on the terms of the plans, which also included a ``refinancing'' of so-called guaranteed loans held by domestic pension funds that face heavy payouts next year."
"Galicia, which holds the most government bonds among Argentine banks, according to Grupo SBS, rose to 1.50 peso and earlier rose as high as 1.6 peso. BBVA Banco Frances SA, the country's second-largest private bank, advanced 2.9 percent to 5.3 pesos, while Banco Hipotecario SA climbed 8.1 percent to 1.07 peso, reducing a loss this year to 52 percent."
"Investors took the debt restructuring proposal as a signal to buy stocks that had been hit by Argentina's deteriorating macroeconomic climate, Guido Bizzozero, an analyst at Allaria Ledesma y Cia., said by phone today from Buenos Aires."
"``The proposal is much more favorable for Argentina than 2005,'' Fernandez said at a seminar at the Council on Foreign Relations in New York. ``Argentina is close to reaching a definitive normalization with the world.''"
"The Merval has gained 13 percent since Sept. 18, the steepest three-day rally since June 2002."
To contact the reporters on this story: James Attwood in Santiago at jattwood3@bloomberg.net
"Last Updated: September 22, 2008 16:36 EDT"
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Exxon's Cash Hoard Fuels Worst Stock Drop in 27 Years (Update2)
By Joe Carroll
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"Sept. 22 (Bloomberg) -- Exxon Mobil Corp., the world's most valuable company, has never been richer. Shareholders think its cash a sign of weakness. With petroleum output falling at the fastest pace in a decade and shares tumbling the most in 27 years, growth prospects are evaporating."
"The world's biggest oil company is piling up cash faster than it can be spent, thanks to crude prices above $100 a barrel. Exxon Mobil's $39 billion in cash amounts to 15 percent of assets, almost six times the average of the company's 10 biggest peers, according to data compiled by Bloomberg."
"That hasn't helped investors, as Exxon Mobil fell 16 percent in New York trading this year, heading for the worst drop since 1981. While Royal Dutch Shell Plc, BP Plc and ConocoPhillips boost spending to acquire reserves, Irving, Texas-based Exxon Mobil is shelling out more money to buy back stock than for drill bits, pipelines and related investments in its operations, said William Andrews of C.S. McKee & Co."
"``They don't have much growth potential,'' said Andrews, who holds Shell shares among the $7.8 billion he helps manage at C.S. McKee in Pittsburgh. ``If you don't have enough growth opportunities, then you've got to do something else with the money, but buybacks don't necessarily add anything.''"
"Exxon Mobil, whose market value of $410 billion is larger than any other company, earned a record $40.6 billion last year. At the same time, the company's capital spending as a percentage of sales was the lowest in the industry. Its stock is dropping despite $80 billion in buybacks since December 2005. The shares fell 73 cents to $78.88 today."
Limited Options
"Exxon Mobil can't rely on big acquisitions or exploration for growth, said William Ferer, who manages $2.8 billion, including 573,000 Exxon Mobil shares, at W.H. Reaves & Co. in Jersey City, New Jersey."
"Exxon Corp. purchased Mobil Corp. for $88 billion in 1999 after a decade-long slide in crude output. Today, U.S. and European regulators probably would halt attempts by Exxon Mobil to acquire a major rival such as ConocoPhillips because it would concentrate too much refining capacity in one company, Ferer said."
"The company can't drill its way to larger reserves and production either, because most of the world's biggest prospects have been discovered or are placed off limits by governments such as Venezuela and Russia, said Peter Wells, director of U.K. research firm Neftex Petroleum Consultants Ltd."
Buyback Binge
"Exxon Mobil spent the equivalent of 57 percent of the cash generated in the past four quarters on buybacks, three times the ratio of other major U.S. oil producers, according to data compiled by Bloomberg."
"Since Rex Tillerson, 56, became chief executive officer in 2006, Exxon Mobil has risen 40 percent, lagging behind the 51 percent gain by the CBOE Oil Index of 11 U.S. and European oil producers. New York-based Hess Corp., Chevron Corp. of San Ramon, California, Los Angeles-based Occidental Petroleum Corp. and Apache Corp. of Houston all rose more."
Tillerson declined through a spokesman to be interviewed.
"Exxon Mobil didn't replace 24 percent of the oil and gas it pumped in 2007. Proved reserves fell 1.6 percent, compared with an average growth rate of 1.2 percent a year over the previous five years."
Tillerson's Restraint
"``Now is a period of time when they don't see opportunities to invest and make good returns on their dollars,'' said Douglas Ober, who manages $1.1 billion at Petroleum & Resources Corp. in Baltimore. ``They're looking for big fields that are going to move the needle with respect to reserves.''"
Exxon Mobil hasn't followed Shell and ConocoPhillips in acquisitions or forming joint ventures to boost reserves. Michael Cuggino praised Tillerson for avoiding deals as long as asset prices are inflated by energy prices.
"``While it makes sense to constantly replace reserves, it doesn't make sense to do it at any price,'' said Cuggino, who oversees $3.8 billion as president of Pacific Heights Asset Management LLC in San Francisco. ``I don't want to see them whittle away their cash reserve in the next 5 or 10 years.''"
"Tillerson showed restraint when other producers made deals that could become unprofitable as prices drop, Cuggino said. Before surging today to $120 a barrel, U.S. oil futures tumbled 29 percent from the record high reached in July."
Elephants Only
Exxon Mobil's earnings per share excluding one-time costs and gains are estimated to rise 27 percent this year after oil and gas prices jumped in the first half.
"Exxon Mobil trades at 8.6 times its estimated per-share profit over the next year, 36 percent higher than the average price-earnings ratio of Shell, BP, Chevron, France's Total SA and ConocoPhillips, according to data compiled by Bloomberg."
"Exxon Mobil, a descendant of the Standard Oil Trust that John D. Rockefeller built, has been stymied by its own standards, said Barry James, who manages $2 billion at James Investment Research in Xenia, Ohio."
"Tillerson may be forced to change his strategy of only pursuing oil and gas fields of at least 1 billion barrels of reserves that he expects to generate returns on investment of at least 30 percent, James said."
$52 Million a Day
"The company ignored much of the Gulf of Mexico because of the lack of so-called elephant fields. Most discoveries in the Gulf have been too small to justify the expense of building platforms and pipelines to link them to onshore markets, Tillerson told investors and analysts in March."
"The company's return on capital employed in oil wells, refineries and chemicals plants was 34 percent in 2007, compared with 5.4 percent from cash holdings, public filings show."
"Tillerson is spending $52 million a day this year to find and tap oil and gas deposits from the Philippines to Brazil to Madagascar. The company plans to start production at 19 new sites by the end of 2010 that will add the equivalent of 725,000 barrels of daily oil output, enough to supply 52 percent of the refining capacity along the U.S. East Coast."
"Exxon Mobil started producing oil and gas during the first half from wells in Azerbaijan, Nigeria and Angola. Its proved reserves are larger than those of Shell and Chevron combined. If the company halted all exploration, reserves would sustain current production levels for 14 years."
Shares in Treasury
"Exxon Mobil's cash exceeds the market capitalizations of Marathon Oil Corp., Hess and Husky Energy Inc., the Calgary- based oil producer controlled by Hong Kong billionaire Li Ka- shing. Buying Husky would increase reserves by 4 percent. Marathon would boost Exxon's reserves by 5.6 percent."
"Exxon Mobil had $131 billion in shares in treasury as of June 30 that could also be used for acquisitions before the company would need to borrow or issue new stock. In the past decade, Exxon sold $11.2 billion of assets, mostly filling stations and gas fields, public filings show. It biggest deal was the $88 billion purchase of Mobil nine years ago."
"Shell, Europe's biggest oil company, plans about 6 percent more capital spending this year than Exxon Mobil. That's in addition to the $12.8 billion The Hague-based company used the past 18 months on acquisitions to add reserves."
"London-based BP, ConocoPhillips of Houston and Paris-based Total spent a combined $12.3 billion during the same period to buy oil and gas fields or form joint ventures that will boost reserves."
Baby Elephants
"``Exxon hasn't done any major acquisitions since Mobil because they believe they can internally generate projects that deliver superior returns,'' said Ferer of W.H. Reaves. ``The market is very unforgiving to companies that have not been able to replace reserves, even if the lack of growth has been for understandable reasons.''"
"Chevron, the second-biggest U.S. oil company, embraced the type of projects that Exxon Mobil shunned. In the past seven years, Chevron discovered the equivalent of 1.58 billion barrels of oil spread across six fields in the Gulf of Mexico."
The walls of one floor of Chevron's Houston exploration office are lined with oil paintings of infant elephants to commemorate Gulf discoveries that don't measure up to the definition of elephant fields.
"The average size of Chevron's Gulf finds is 263 million barrels of oil equivalent. Exxon Mobil may be forced to lower the bar, said Wells of Neftex. Even after the slide in oil prices since July, a 200 million-barrel prospect is more valuable than a 1 billion-barrel field was in December 1998, when Exxon agreed to buy Mobil, Wells said."
`Opportunity-Constrained'
"In the 1970s, discoveries outside the Organization of Petroleum Exporting Countries totaled about 20 billion barrels annually. Such finds have dropped to 7 billion to 8 billion barrels a year in the past half decade, he said."
"``There's still quite a bit of geography to go, but most of the good bits of the world left for oil exploration are pretty difficult environments in which to operate,'' Wells said. ``Exxon is awash in cash but opportunity-constrained.''"
"Exxon Mobil's cash balance is 53 percent larger than the surplus that Dearborn, Michigan-based Ford Motor Co. had before giving shareholders a $6 billion special dividend in 2000. Exxon Mobil holds 19 percent more than Redmond, Washington-based Microsoft Corp. did when the world's largest software maker paid investors $32.6 billion in 2004."
"Tillerson said in 2006 that he wouldn't consider a special dividend and that any excess cash would serve as an insurance policy against a plunge in oil prices. The CEO's position hasn't changed, company spokesman Tony Cudmore said."
"``Those special dividends did very little, if anything at all, for the stock, though I'm sure the shareholders who got cash were happy to get it,'' Tillerson said in a March 2006 interview in New York. ``I don't think our shareholders are looking for a quick payout. They're looking for steady growth. They're going to see the value of that cash one day anyway.''"
To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.
"Last Updated: September 22, 2008 16:14 EDT"
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"U.S. Stocks Find `Floor' With Paulson, Short-Sale Ban (Update3) "
By Chris Nagi
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Sept. 22 (Bloomberg) -- The biggest declines in the U.S. stock market in seven years may slow after the government said it would bail out the nation's banks and crack down on speculators battering financial companies.
"Shifting the burden of subprime-mortgage related losses to taxpayers ``put a floor under the equity markets,'' said Russ Koesterich, who helps manage $2 trillion at Barclays Global Investors. James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the Standard & Poor's 500 Index may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''"
"Treasury Secretary Henry Paulson's plan to spend as much as $700 billion on soured mortgage securities buoyed stocks and the S&P 500 ended the week almost unchanged after suffering the steepest plunge since the Sept. 11 terrorist attacks. Any gains may be limited because the U.S. economy is slowing and profits at companies in the index are forecast to fall 5 percent this quarter, according to analyst estimates compiled by Bloomberg."
"``The short reaction to all this is it's an unambiguous positive for stocks,'' said Koesterich, Barclays's head of investment strategy in San Francisco. ``The bad news is we're likely to see continued volatility given the slow growth in the economy, and investors should not look forward to a '90s style rebound.''"
Profit Declines
"A decline in third-quarter profits would make this streak of decreases the longest since the period ended in 2002, the year the benchmark index for American equities completed a 49 percent plunge from its March 2000 record. The S&P 500 has lost 20 percent since its all-time high reached in October 2007."
"U.S. stocks dropped today, with the S&P 500 falling 3.8 percent to 1,207.09 at 4 p.m. in New York. The index ended last week at 1,255.08, up 0.3 percent from the Sept. 12 close."
"The rout that began when New York-based Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was sold to Charlotte, North Carolina-based Bank of America Corp. and the U.S. took control of American International Group Inc. ended with the biggest two-day jump in the S&P 500 in 21 years."
Paulson is seeking power from Congress to buy $700 billion in toxic assets from financial firms. The government also proposed setting up a fund to guarantee as much as $400 billion of money-market mutual funds.
`I'm Hopeful'
"``This puts an end to the seemingly never-ending write- offs,'' said Bill Stone, the chief investment strategist at PNC Wealth Management in Philadelphia who oversees $66 billion. He predicts investors will sell Treasury bonds to raise cash for equity investments. ``I'm hopeful we've put in the lows.''"
Price swings in S&P 500 stocks fell from a six-year high following Paulson's proposal and the Securities and Exchange Commission's ban on trades that profit when bank stocks fall.
"The Chicago Board Options Exchange Volatility Index rose as much as 64 percent last week as the collapse of Lehman, once the fourth-largest U.S. investment bank, and New York-based AIG, the biggest U.S. insurer, spurred concern speculators manipulated financial shares to benefit from bearish bets."
"The SEC barred so-called short selling on about 800 financial companies on Sept. 18, stiffened rules aimed at abusive trading and will require hedge funds to provide sworn statements about their biggest holdings. Investors profit from short sales by borrowing stock and selling it in the hopes of buying the shares later after the price falls."
Regulation Goes Global
"Regulators in the U.K., Germany, France and Belgium echoed the SEC's move with similar bans. Australia restricted short selling unless they included hedging positions placed before today. Taiwan prohibited short selling of 150 stocks."
"Goldman Sachs Group Inc. and Morgan Stanley, Wall Street's last independent brokerages, surged 20 percent after the SEC announced the policy, rebounding from record declines earlier in the week. Companies covered by the ban rose 12 percent, three times the S&P 500's advance, according to data compiled by Bloomberg."
"``The main problem lately has been a psychological one as much as a fundamental one,'' said John Wilson, Memphis-based co- director of equity strategy at Morgan Keegan, which manages $120 billion. ``We got over the last few days the kind of catalysts we needed. The real question is, Where does this euphoria take us?''"
"The S&P 500 traded 26 percent below its October record before rebounding. Analysts at Societe Generale wrote Sept. 16 that the gauge must fall to 1,080, or 14 percent below its level now, to match the average retreat of past bear markets."
National Debt Grows
"Barclays's Koesterich says U.S. returns will be limited because the government may have to spend almost $1 trillion to buy subprime-infected mortgage loans and take over AIG, Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, the nation's biggest providers of home-loan financing."
"The plan, along with the money-market guarantees, would raise the ceiling on the national debt and cost as much as the combined annual budgets of the U.S. Departments of Defense, Education and Health and Human Services."
"``We really do have a growing fiscal problem,'' he said. ``We had it before this event started, this has only exacerbated it. It's particularly problematic because we're dealing with this during a time of heightened inflation.''"
"Consumer prices in the U.S. are forecast to rise 4.5 percent this year, according to the median estimate of 76 economists surveyed by Bloomberg before last week's measures were announced. That would be the fastest since 1990, the midpoint of the U.S. savings and loan crisis that cost taxpayers $124 billion, according to the Federal Deposit Insurance Corp."
Cheap Valuations
"The S&P 500 retreated 6.6 percent in 1990, the first annual drop since 1981."
"U.S. economic growth may slip to 1.7 percent this year and 1.5 percent in 2009, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median forecast of 80 economists compiled by Bloomberg."
"Cheap valuations relative to other investments will keep stocks from falling further, says MFS's Swanson. Profits at S&P 500 companies may climb 64 percent in the next 12 months to $84.72 a share, pushing its ``earnings yield'' to 6.7 percent of the index's price, according to estimates compiled by Bloomberg. That's 76 percent above interest payments on 10-year U.S. Treasuries, the biggest advantage in more than 20 years."
"``We've pretty much gotten valuations to the point where all this liquidity around the world is going to go to the equity market,'' said Swanson, chief investment strategist at MFS. ``We've nationalized a big chunk of the American economy. We've decided we don't want to bear the brunt of economic cycle.''"
To contact the reporter on this story: Chris Nagi in New York at chrisnagi@bloomberg.net.
"Last Updated: September 22, 2008 16:17 EDT"
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Australia Stocks Drop on Global Slowdown Concerns; Banks Fall
By Shani Raja
Sept. 23 (Bloomberg) -- Australian stocks fell for the first time in three days on concern the U.S. Treasury's plan to buy toxic mortgage assets won't prevent a recession and that rising oil prices will deepen a global economic slowdown.
"Macquarie Group Ltd., Australia's largest investment bank, slumped 4.5 percent, while National Australia Bank Ltd., the nation's largest lender, fell 1.8 percent. Newcrest Mining Ltd. led gains among gold producers as investors bought the metal as a haven from market turmoil."
"``Armageddon may have been avoided but there's a realization a couple of years of judgment are still to come,'' said Hans Kunnen, head of investment market research in Sydney at Colonial First State Global Management, which manages about $128 billion."
"Australia's benchmark S&P/ASX 200 Index dropped 97 points, or 1.9 percent, to 4,923.50 at the close of trading in Sydney, ending a two-day, 9 percent jump. The index has fallen 28 percent from its Nov. 1 record as interest-rates at a 12-year high, rising fuel prices, and the global credit crunch threatened economic growth."
"The value of shares traded today was A$4.4 billion ($3.7 billion), about 29 percent lower than this year's daily average, after regulators yesterday introduced a ban on short selling."
"A gauge of financial companies on the S&P/ASX 200 rose to a two-week high yesterday after Australian regulators banned short selling and the U.S. government proposed a $700 billion plan to avert a financial meltdown. The U.S. Standard & Poor's 500 Index yesterday lost 3.8 percent on concern consumer debt levels and falling employment will crimp growth, while crude oil surged 17 percent, its biggest gain ever."
Commodity Stocks Advance
"``The bailout gave the U.S. financial system a cardiac jolt that will prevent it from collapsing, but the economy is still in intensive care,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It'll take some time for improved growth to become evident.''"
"The Australian Securities & Investments Commission said on its website today that the prohibition on covered short sales will not apply to hedging for existing positions, certain dual- listed entities, exchange-traded options, market makers and index arbitrage transactions."
"Macquarie Bank fell 4.5 percent to A$36.10, snapping a two- day, 45 percent surge. National Australia Bank lost 1.8 percent to A$23.86, having climbed 24 percent in the past two days."
"``As yet, the Fed hasn't released the details of how their rescue package is going to be implemented,'' Rod Skellet, head of global markets at BBY Ltd., told Bloomberg TV in an interview today. ``The market is very wary of things it doesn't know.''"
Airlines Decline
"Airlines fell on concern jet-fuel costs will increase after oil for November delivery surged 6.4 percent to $109.37 a barrel in New York. Qantas Airways Ltd., Australia's largest carrier, declined 2.4 percent to A$3.24, the lowest since July 16. Virgin Blue Holdings Ltd. plunged 9.1 percent to a record low 40 cents."
"Newcrest, Australia's largest gold producer, surged 5.3 percent to A$26.84, the highest close since Aug. 29. Lihir Gold Ltd. jumped 4.5 percent to A$2.77, the highest since July 30. Gold futures rose 5.1 percent."
The following shares rose or fell today. Stock symbols are in parentheses after company names.
"OM Holdings Ltd. (OMH AU), an Australian manganese producer, slumped 11 cents, or 4.9 percent, to A$2.16. OM said 1.9 million shares were issued following the exercise of unlisted options, and that 60,000 unlisted options have been canceled."
"OZ Minerals Ltd. (OZL AU), the world's second-largest zinc mining company, advanced 10.5 cents, or 6.6 percent, to A$1.71, the highest since Sept. 3. The company said it can finance its development projects without having to access financial markets."
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net
"Last Updated: September 23, 2008 03:16 EDT"
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Singapore's GIC Turns to Emerging Markets for Returns (Update2)
By Chen Shiyin and Shamim Adam
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"Sept. 23 (Bloomberg) -- Government of Singapore Investment Corp., overseeing more than $100 billion of reserves, is turning to emerging markets and private equity to boost returns after cutting back stocks and investments in developed nations."
"The fund, known as GIC, raised holdings of natural resources and hedge funds, and cut bonds to a quarter of its portfolio from more than three quarters 25 years ago, it said. Stock sales since mid-2007 enabled it to spend $18 billion on stakes in UBS AG and Citigroup Inc. in the past year, and it's holding more cash."
"``We see a more challenging investment environment,'' Chief Investment Officer Ng Kok Song said today. ``The powerful trend of disinflation that propelled the global capital markets over 25 years seems to have ended.''"
"GIC, whose chairman is Singapore Minister Mentor Lee Kuan Yew, said annual returns in the past 20 years averaged 7.8 percent in U.S. dollar terms, compared with 7 percent for the MSCI World Index. The fund wants a longer-term investment performance after the 1997 Asian financial crisis, 2001 Internet slump and the credit crisis damped returns in recent years."
"The subprime meltdown sent the MSCI World Index to the lowest in three years, wiping out almost $14 trillion from global stocks this year."
"Temasek Holdings Pte, Singapore's state-owned investment company with a $130 billion portfolio, has had an average annual return of 18 percent since it was created in 1974. Norway's sovereign wealth fund posted a 3.6 percent return since 1998, while U.S. billionaire Warren Buffett's investment firm Berkshire Hathaway Inc. gained 21 percent in the past two decades."
`Isn't Exciting'
"GIC's return ``isn't exciting at all,'' said Beat Lenherr, who helps oversee more than $20 billion of assets as chief global strategist at LGT Capital Management in Singapore. ``The slowdown in the U.S. economy will affect growth in emerging markets and the outlook for earnings.''"
"UBS shares have fallen 59 percent since GIC announced the investment in December, and Citigroup has declined 26 percent since the government fund's purchase in January, as both banks wrote off almost $100 billion on subprime investments."
"Ng, 60, said at a press conference today he's ``confident'' both investments will offer long-term returns, though he admitted the timing of the purchases could have been better. The fund received undisclosed reset payments from the two banks to compensate for the decline in the share prices."
`Good Long-Term Bets'
"``Sovereign wealth funds like GIC understand that these large banks are good long-term bets,'' said Don Gimbel, a Montana-based senior managing director at Carret & Co., which oversees about $2 billion. ``Like other global investors, sovereign funds have taken big hits in the last 12 months.''"
"GIC was ``surprised'' at the magnitude of the credit crunch, though it's ``not closing the door'' on opportunities emerging from the crisis, Ng added."
"``There are risks stemming from severe macroeconomic imbalances in the world economy, the rising cost of energy and food, and continued de-leveraging of global financial institutions,'' Ng added."
Banks worldwide have reported more than $500 billion in losses and writedowns. The credit crunch led Lehman Brothers Holdings Inc. to file for bankruptcy and forced the sale of Merrill Lynch & Co. to Bank of America Corp. last week.
Holding Cash
"GIC's holdings of stocks have fallen to 44 percent of its portfolio from about half two years ago, while its investments in alternative assets such as private equity and real estate rose to 23 percent from 20 percent. Cash made up 7 percent as of March."
"``Starting from May last year, GIC has raised substantial levels of cash in anticipation of a crisis in the global credit and housing markets,'' Deputy Chairman Tony Tan said at the briefing today. ``Even after our significant investments in UBS and Citigroup, GIC continues to hold large cash reserves as a strategic safeguard.''"
"The Americas made up 40 percent of its assets, down from as much as 45 percent two years ago. Investments in Europe rose to 35 percent from 25 percent. Asia now accounts for 23 percent of its investments, with Japan making up almost half of them."
"The 20-year returns announced today are part of efforts to disclose more amid rising scrutiny of sovereign funds as they increase investments globally, GIC said. It expects to release its asset allocation and long-term returns every year. GIC last disclosed its returns two years ago on its 25th anniversary."
"The average return over the two decades was 5.8 percent in Singapore dollar terms, said GIC, set up in 1981 to manage the city-state's foreign reserves."
"Hong Kong's Exchange Fund, the $181 billion pool of assets that backs the city's currency, had an investment loss of HK$35 billion ($4.5 billion) in the first half because of declines in global equities."
"Temasek, which led investments in Merrill Lynch and Barclays Plc in the past year, said returns from holdings in publicly listed companies slowed to 7 percent in the 12 months ended March from 27 percent the previous year."
To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Shamim Adam in Singapore sadam2@bloomberg.net.
"Last Updated: September 23, 2008 04:28 EDT"
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MUFJ to Invest Up to $8.4 Billion in Morgan Stanley (Update1)
By Takahiko Hyuga
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"Sept. 22 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc. will invest up to 900 billion yen ($8.4 billion) for as much as a fifth of Morgan Stanley, the U.S. securities firm seeking capital following the collapse of Lehman Brothers Holdings Inc."
"Mitsubishi UFJ, Japan's largest bank, agreed to buy 10 percent to 20 percent of Morgan Stanley, the bank said in a statement today. The Japanese firm said it will start due diligence on Morgan Stanley before determining a final price."
"The deal marks an about-face for Mitsubishi UFJ Chairman Ryosuke Tamakoshi, who last week said he would avoid any immediate investments in U.S. banks following the Wall Street upheaval of the past 10 days. Mitsubishi UFJ's backing will help shore up Morgan Stanley's capital after the credit market meltdown eroded investor confidence in its ability to remain independent."
"Morgan Stanley rose $3.23, or 12 percent, to $30.44 at 9:40 a.m. in New York Stock Exchange composite trading."
"Mitsubishi UFJ will appoint to representative to Morgan Stanley's board as part of the investment, New York-based based Morgan Stanley said in a separate statement."
"The deal may mark the biggest overseas acquisition by a Japanese financial company, according to data compiled by Bloomberg. Nomura Holdings Inc., the nation's largest securities firm, is close to acquiring European and Asian assets of Lehman, three people familiar with the matter said today."
Overseas Efforts
"``The purpose for the investment is to strengthen the investment banking business globally,'' said Hirokazu Ushio, a Tokyo-based spokesman at Mitsubishi UFJ."
"Like Nomura, Mitsubishi UFJ has struggled to expand outside Japan, leaving it vulnerable to a slowing domestic economy. The bank was formed in October 2005 after a merger between Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc."
"Morgan Stanley ranks sixth globally in advising on mergers and acquisitions, 47 slots above Mitsubishi UFJ, according to Bloomberg data. In equity underwriting, Morgan Stanley is fifth while the Japanese bank is No. 100."
"Mitsubishi UFJ agreed last month to pay $3.5 billion in cash to take full control of UnionBanCal Corp., California's second-biggest bank. The Tokyo-based bank is also raising its stake in Japanese consumer lender Acom Co. to 40 percent from 16 percent for about $1.4 billion."
Largest Shareholder?
"A 20 percent stake would make Mitsubishi UFJ the biggest shareholder in Morgan Stanley, followed by State Street Corp. with 16.4 percent, Bloomberg data shows. Morgan Stanley approached Mitsubishi UFJ on Sept. 19, the Japanese company said."
"Last week's market turmoil reshaped Wall Street and provided Asian and European firms with an opportunity to grab market share in trading, underwriting stock sales and advising companies on takeovers."
"Morgan Stanley and Goldman Sachs Group Inc. won approval yesterday from the Federal Reserve to become banks, effectively ending the era of the Wall Street investment bank and capping a week that saw Lehman file for bankruptcy and Merrill Lynch & Co. rush to sell itself to Bank of America Corp."
To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net
"Last Updated: September 22, 2008 09:56 EDT"
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China Stocks Fall for 1st Time in Three Days; PetroChina Gains
By Chua Kong Ho
"Sept. 23 (Bloomberg) -- China stocks fell, snapping a two- day rebound by the CSI 300 Index, as a central bank report showed that planned house purchases are the weakest on record and after export orders fell to the lowest since 2005."
"China Vanke Co., the nation's largest publicly traded developer, sank 7.6 percent after the proportion of households planning to buy a home dropped to the lowest since the central bank survey began in 1999. Inner Mongolia Yili Industrial Group Co., which sold contaminated milk products, plunged by the 10 percent limit as Goldman, Sachs & Co. advised selling the stock."
"``We remain cautious as there are still many uncertainties in the economy,'' said Zhang Xuedong, a portfolio manager at Lord Abbett China in Shanghai, which oversees about $730 million in assets and doesn't disclose investment plans."
"The CSI 300 Index, which tracks yuan-denominated A shares in Shanghai and Shenzhen, fell 84.14, or 3.8 percent, to 2,123.48 at the close, halting a two-day, 16 percent advance. Nine of the 10 industry groups declined, with 255 of the 300 stocks on the index retreating."
"PetroChina Co., the nation's largest oil company, climbed 3.9 percent to 12.61 yuan, after its parent bought 60 million of the Shanghai-listed shares and oil in New York surged as much as 24 percent yesterday to $130 a barrel before the expiry of the October contract. November futures advanced 6.4 percent to $109.37 a barrel, and were recently at $108.60 in after-hours trading."
Bear Market Rally?
"The CSI 300 rose to a two-week high yesterday after the securities regulator said it may make it easier for companies to buy back shares and the U.S. government proposed a $700 billion debt rescue plan. The measure has declined 60 percent this year, the world's second-worst performer, as a slowing economy eroded profits and concerns over a supply of new shares weighed on sentiment."
"An index for export orders slumped to the lowest since July 2005, when the nation revalued its currency, according to the central bank's survey of businesses. Only 8.2 percent of respondents said stocks were a good investment, while a record proportion favored bank deposits."
"Vanke declined 7.6 percent to 5.50 yuan. Poly Real Estate Group Co., the second-biggest Chinese developer by market value, fell 5.3 percent to 13.28 yuan. Gemdale Corp., based in Shenzhen, dropped 10 percent to 5.39 yuan."
"Yili Industrial sank 10 percent to 9.93 yuan. Bright Dairy & Food Co., which also sold contaminated milk, also fell by the daily limit to 4.03 yuan."
Tainted Milk
"Tainted milk has sickened almost 53,000 children, triggered the resignation of China's chief quality supervisor and caused countries from Asia to Africa to curb sales of Chinese dairy products. Premier Wen Jiabao ordered an overhaul of the industry after products of 22 companies were found to contain melamine."
"``We believe the incident will lower domestic milk demand in the near term with rising concerns on food safety and that it may take 6-12 months before demand recovers,'' wrote Beijing- based analysts led by Yifan Deng at Goldman's China joint venture brokerage Beijing Gao Hua Securities Co. today."
"Beijing Sanyuan Foods Co., whose products have been cleared in the nationwide probe into tainted milk, surged 10 percent to 4.62, extending a five-day, 52 percent advance."
"The Shanghai Composite Index slid 1.6 percent to 2,201.51, while the Shenzhen Composite Index fell 5.5 percent to 584.26."
The following shares also rose or fell in China. Stock symbols are in parentheses after company names:
"Gold producers: Shandong Gold Mining Co. (600547 CH), China's third-largest bullion producer, climbed 3.38 yuan, or 10 percent, to 37.14 yuan, rising by the daily limit for a third- straight day. Zhongjin Gold Corp. (600489 CH), based in Beijing, jumped 3.2 yuan, or 10 percent, to 35.17."
Gold climbed as much as 1.4 percent to $909.64 an ounce today as investors sought the precious metal as a haven from financial market turmoil.
"Airlines: China Southern Airlines Co. (600029 CH), the nation's largest airline, fell 0.20 yuan, or 5.3 percent, to 3.58. Air China Ltd. (601111 CH), based in Beijing, slid 0.26 yuan, or 4.4 percent, to 5.59. China Eastern Airlines Corp. (600115 CH), based in Shanghai, sank 0.34 yuan, or 7.7 percent, to 4.10."
"Jet fuel rose 2.9 percent, the biggest gain in more than two weeks, to $120.55 a barrel in Singapore yesterday. Jet fuel is the single-biggest expense for Chinese carriers."
"Ping An Insurance (Group) Co. (601318 CH), the second- biggest Chinese insurer, declined 1.49 yuan, or 4 percent, to 35.61, after gaining 10 percent for two consecutive trading sessions. Goldman Sachs reduced its price estimate by 18 percent to 52.2 yuan."
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
"Last Updated: September 23, 2008 04:23 EDT"
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Brazil's Real Advances for Second Day on U.S. Bailout Plan
By Adriana Brasileiro
Sept. 22 (Bloomberg) -- Brazil's real rose for a second day as the U.S. government's $700 billion financial rescue plan buoyed demand for higher-yielding assets.
"``The week is starting out on a much better note because of the bailout plan, so investors are taking on a bit more risk,'' said Ricardo Lemos, a fixed-income strategist at Sao Paulo-based Liquidez, Brazil's largest currency derivatives brokerage."
"The real rose 1.5 percent to 1.8032 per dollar at 4:43 p.m. New York time, after most trading had ended in Brazil. On Sept. 19 the real soared 3.5 percent, the most since August 2007. The gains pare the real's losses this month to 9.5 percent, the biggest decline among the 16 most-traded currencies against the dollar. Last week's collapse of Lehman Brothers Holdings Inc. and government bailout of American International Group Inc. throttled demand for all but the safest assets."
Yields on local bonds and on rate futures contracts fell after a weekly survey of economists by Brazil's central bank showed inflation estimates are declining.
"Economists cut their 2009 inflation estimate for a second week, to 4.97 percent from 4.99 percent, according to the median of about 100 forecasts in a central bank survey published today."
"Consumer prices will end this year at 6.23 percent, compared with a forecast of 6.26 percent a week earlier, the survey showed. The government targets inflation of 4.5 percent, plus or minus 2 percentage points this year and next."
"The yield on Brazil's zero-coupon bonds due in January 2010 dropped 3 basis points, or 0.3 percentage point, to 14.88 percent. The yield on the overnight futures contract for January delivery fell 1 basis point to 14.03 percent."
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
"Last Updated: September 22, 2008 16:50 EDT"
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"Canadian Dollar Gains for Third Day on Oil, Gold, U.S. Weakness "
By Michael J. Moore
"Sept. 22 (Bloomberg) -- The Canadian dollar gained for a third day, its longest winning streak in more than a month, after commodities rose and the U.S. dollar weakened versus most of the world's major currencies."
"Canada's dollar reached the highest in seven weeks as oil rose to $130 per barrel and gold touched $900 an ounce. The Canadian dollar has strengthened against the 16 most-actively traded currencies so far this month, increasing 2.9 percent against its U.S. counterpart."
"``The main driver continues to be the weakness of the U.S. dollar itself, and the secondary factor helping the Canadian dollar is stronger commodity prices,'' said Matthew Strauss, a currency strategist at RBC Capital Markets Inc. in Toronto."
"The Canadian currency strengthened 1.5 percent to C$1.0316 per U.S. dollar at 2:38 p.m. in Toronto, from C$1.0470 on Sept. 19. Earlier it touched C$1.0315, the highest since Aug. 4. Canada's dollar rose for three days during the period ended Aug. 21. One Canadian dollar buys 96.93 U.S. cents."
"Crude oil for October delivery rose as much as $25.45, or 24.3 percent, to $130 a barrel. Gold increased 5.3 percent to $906.70 an ounce."
Currency Forecast
"The Canadian currency will slip to C$1.12 against the U.S. dollar by the end of 2009, according to the median forecast of 33 economists surveyed by Bloomberg News."
UBS AG analysts led by New York-based Laurie Goodman wrote in a note today that the company maintains its one- and three- month forecasts of C$1.05.
"The 10-year government note's yield fell 1 basis point, or 0.01 percentage point, to 3.68 percent. The price of the 4.25 percent note maturing in June 2018 rose 7 cents to C$104.61."
The Canadian government's two-year note yield was little changed at 2.88 percent.
"Merrill Lynch & Co. Inc. strategists David Wolf and Carolyn Kwan in Toronto lowered their target yield on the two-year note to 2.40 percent by the end of the year, down from 2.80 percent. They forecast the Bank of Canada will cut borrowing costs 1 percentage point, from the current level of 3 percent, starting with a 25-basis-point reduction when policy makers meet Oct. 21."
"The U.S. government's efforts ``have cut off downside tail risk but have not clearly altered the base case view, which is that a credit-constrained U.S. economy will be a drag on the world, including Canada, for some time to come,'' they wrote."
"The 10-year bond yielded 80 basis points more than the two- year security, down from 92 basis points on Sept. 18."
"The two-year bond's yield will rise to 2.95 percent by the end of this year, while the 10-year bond's yield will increase to 3.76 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 19 basis points, up from 3 basis points on Sept. 18. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22."
"Canadian government bonds have returned 4.2 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 4.4 percent this year."
To contact the reporter on this story: Michael J. Moore in New York at Mmoore55@bloomberg.net.
"Last Updated: September 22, 2008 14:40 EDT"
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India's Bonds Fall as Rising Oil Price Renews Inflation Concern
By Anil Varma
Sept. 23 (Bloomberg) -- India's bonds fell for a second day as an increase in oil prices renewed concern concern inflation will quicken.
Benchmark 10-year yields rose to the highest in three weeks as crude oil climbed almost 20 percent from a seven-month low of $90.51 a barrel on Sept. 16 on the New York Mercantile Exchange. Bonds also declined on speculation higher interest rates in the local money markets will deter investors from buying debt with borrowed funds.
"The yield on the benchmark 8.24 percent note due April 2018 rose 3 basis points to 8.51 percent as of 9:19 a.m. in Mumbai, according to the central bank's trading system. The price fell 0.2, or 20 paise per 100 rupee face amount, to 98.25. A basis point is 0.01 percentage point."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 23, 2008 00:08 EDT"
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"Brazil Stocks Fall, Led by Banks, Retailers; Mexico Shares Drop "
By Alexander Ragir and William Freebairn
Sept. 22 (Bloomberg) -- Brazilian stocks fell for the first time in three days as tighter credit and soaring oil prices dimmed the earnings prospects for the nation's largest retailers and industrial companies.
"Gol Linhas Aereas Inteligentes SA led a slump in airlines on concern that costs will rise after oil jumped more than $25 a barrel. Banco Itau Holding Financeira SA paced a drop in banks after Deutsche Bank AG said profit may be less than previously estimated as ``tighter credit conditions'' hurt lending growth. Lojas Renner SA, Brazil's biggest publicly traded clothing retailer, and Gafisa SA, the second-largest homebuilder, led declines on the Bovespa index on speculation high borrowing costs will slow consumer spending and demand for homes."
"``So far Brazilian economic indicators have stayed strong throughout the crisis and we still fell a lot,'' said Saulo Sabba, who helps manage the equivalent of $245 million as investment director at Maxima Asset Management in Rio de Janeiro. ``The concern is, what will happen if the perception of risk rises for Brazil amid the global crisis.''"
"The Bovespa index slid 1,514.80, or 2.9 percent, to 51,540.58. On Sept. 19, the measure gained the most since January 1999 as the U.S. Treasury and Federal Reserve's plans to rid banks of troubled assets sent global markets surging and eased concern the credit-market seizure will restrain growth. The BM&FBovespa MidLarge Cap index 2.3 percent. The BM&FBovespa Small Cap index slipped 2.8 percent."
Mexico's Bolsa index declined 2.2 percent. Chile's Ipsa gained 2.1 percent in its first day of trading since Sept. 17. U.S. stocks tumbled on concern regional banks may get hurt by the government's $700 billion bailout of the financial system.
"Itau, Brazil's second-biggest non-state bank, fell 4.7 percent to 30.50 reais. Uniao de Bancos Brasileiros SA, Brazil's third-biggest non-state bank, lost 3.8 percent to 19.37 reais."
Deteriorating Sentiment
"``Sentiment toward the sector has deteriorated worldwide, and the indirect effects of the U.S. financial crisis could add further pressure to an already challenging operating environment in Brazil,'' Deutsche analyst Mario Pierry wrote in a report."
"If credit grows 15 percent next year, below the forecast of 20 percent, net interest margins may be an average of 25 basis points narrower than estimated, as funding costs rise because of ``tighter credit conditions'' and ``asset quality deteriorates,'' he wrote. Under that scenario, bank profits would be about the same in 2009 as this year, growing 15 percent less than estimated, he wrote."
"Gol fell 8.3 percent to 13.68 reais. Tam SA, Brazil's biggest airline, dropped 5.5 percent to 36 reais. Oil prices surged $16.37 to $120.92 a barrel. Fuel makes up about 40 percent of costs for Brazilian airlines."
Retailers Drop
"Lojas Renner led a decline in retailers, falling 11 percent to 23.90 reais."
"B2W Cia Global do Varejo, Brazil's biggest Internet retailer, fell for the first time in three days after Deutsche Bank said higher borrowing costs may cut profit. B2W dropped 5.6 percent to 47.20 reais."
"``We are turning more conservative on the cost of funding in Brazil and its impact in the company's interest expense line,'' Deutsche Bank analyst Reinaldo Santana wrote in a note."
Gafisa dropped 5.9 percent to 24 reais.
"Retailers and homebuilders ``reflect the perception of risk for Brazil,'' said Sabba in a telephone interview. ``These stocks are a bellwether for when investors assess the risk since they're more tied to the domestic economy.''"
Bolsa Drops
Mexico's Bolsa index fell for the first time in three days.
"Wal-Mart de Mexico SAB, the country's largest retailer, fell the most in a week as JPMorgan Chase & Co. said the company may not benefit as much as regional rivals as the credit crisis eases. Telefonos de Mexico SAB, the country's largest fixed-line phone company, declined for the first time in four days after Banco Santander said regulator changes may reduce long-distance revenue."
"Walmex, as the company is also known, retreated 3.3 percent to 38.62 pesos. Telmex declined 2.2 percent to 13.67 pesos."
"Colombia's IGBC rose 0.1 percent, while Peru's Lima General index was little changed and Argentina's Merval index gained 1.7 percent. The MSCI Latin America Index fell 0.6 percent."
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.
"Last Updated: September 22, 2008 16:38 EDT"
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Oil Falls as Stock Losses Signal Concern Over U.S. Bailout Plan
By Christian Schmollinger and Grant Smith
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"Sept. 23 (Bloomberg) -- Crude oil fell for the first time in a week, paring yesterday's record gain, as declining stock indexes signaled investor concern over a U.S. government bailout plan for financial companies."
"Oil dropped as the Europe's Dow Jones Stoxx 600 Index slid on speculation growth in the U.S. economy will slow, cutting energy demand. The October oil futures contract, which expired yesterday, had climbed by a record $16 a barrel to the highest since Aug. 21 as traders unwound positions and the dollar declined the most against the euro since January 2001."
"``We're seeing a struggle between the strength from the softer dollar and the likelihood of further declines in demand as stock markets around the world fall again,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. ``I think the latter will prove more important.''"
"Crude oil for November delivery declined as much as $3.30, or 3 percent, to $106.07 a barrel in electronic trading on the New York Mercantile Exchange. It was at $106.49 a barrel at 10:24 a.m. London time."
"Yesterday, the contract rose $6.62, or 6.4 percent, to $109.37 a barrel. The October contract rose $16.37, or 16 percent, to expire at $120.92 a barrel yesterday on the Nymex. It touched $130 in intraday trading, as traders who sold the October contract last week, when oil dipped close to $90, had to buy the futures back."
"``There were a number of traders with short positions betting on a price decline,'' said John Vautrain, senior vice president at consultants Purvin & Gertz Inc. in Singapore in an interview with Bloomberg Television. ``So there was a frenzy of buying by people who had to cover and the price went up through the roof.''"
Bailout Package
"The dollar was little changed at $1.4726 per euro at 10:25 a.m. London time, from $1.4774 yesterday. It fell as low as $1.4866 yesterday, the weakest level since Aug. 22, on concern the U.S. bailout package, which would buy assets from financial firms, would inflate the budget deficit."
"Brent crude oil for November settlement fell as much as $2.61, or 2.5 percent, to $103.43 on London's ICE Futures Europe exchange. It was at $102.99 a barrel at 10:25 a.m. London time. The contract yesterday rose $6.43, or 6.5 percent, to settle at $106.04 a barrel."
"U.S. crude-oil and fuel inventories probably declined last week because production platforms, refineries and ports along the Gulf of Mexico were shut in the aftermath of hurricanes Gustav and Ike, a Bloomberg News survey of analysts showed."
"Supplies of crude oil probably fell 2.5 million barrels last week from 291.7 million barrels, according to the median of responses by nine analysts before an Energy Department report this week. Gasoline stockpiles probably declined 3.6 million barrels from 184.6 million barrels the week before, the survey showed."
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net. Grant Smith in London at gsmith52@bloomberg.net
"Last Updated: September 23, 2008 05:30 EDT"
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Mexico's Currency Rises for Third Day on U.S. Bank Bailout Plan
By Valerie Rota
Sept. 22 (Bloomberg) -- Mexico's peso rose for a third day as a proposed $700 billion U.S. government bank bailout stoked demand for higher-yielding assets in developing nations.
"Mexico's peso surged to its strongest level in over a week on the U.S. plan to buy soured mortgage-related assets from financial institutions to prevent a collapse of the banking system. Emerging-market currencies snapped a rout that began after Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was sold to Bank of America Corp. and the U.S. took control of insurer American International Group Inc."
"``Those currencies that were most affected by the investment outflows are now the most supported from the inflows back to emerging markets,'' said Mario Copca, a foreign-exchange strategist at Metanalisis SA in Mexico City."
"The peso gained 0.3 percent to 10.6284 per U.S. dollar at 5 p.m. New York time, from 10.6585 on Sept. 19. It rose to as much as 10.545, the strongest against the dollar since Sept. 10."
"Mexican peso-denominated bonds fell before a central bank report that is forecast by economists to show inflation accelerated in the first half of the month. Mexico's inflation rate increased to 0.55 percent in the first 15 days of September from 0.31 percent last month, according to the median forecast of 15 economists surveyed by Bloomberg News. Banco de Mexico is scheduled to publish the inflation report on Sept. 24."
"Yields on Mexico's 10 percent bond due in December 2024 rose 6 basis points, or 0.06 percentage point, to 8.6 percent. The bond's price fell 0.52 centavo to 112.19 centavos per peso, according to Banco Santander SA."
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.
"Last Updated: September 22, 2008 17:33 EDT"
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Gold Futures Extend Gains on Demand for Haven; Silver Advances
By Pham-Duy Nguyen
"Sept. 22 (Bloomberg) -- Gold rose above $900 an ounce, extending a rally after its biggest weekly gain in almost nine years, as investors shifted assets into precious metals as a haven from market turmoil. Silver gained more than 7 percent."
"Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, jumped 11 percent last week to 679.6 metric tons as volatility surged in financial markets. Over the weekend, the U.S. proposed a $700 billion bailout, and Goldman Sachs Group Inc. and Morgan Stanley agreed to become more-regulated banks, sending the dollar lower against the euro."
"``Gold is the comfort blanket right now,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``Even if the bailout gets pushed through, there's still a crisis of confidence. Pumping up the national debt is going to hurt the dollar, and gold should benefit.''"
"Gold futures for December delivery rose $44.30, or 5.1 percent, to $909 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price for a most- active contract since Aug. 1. The metal gained 13 percent last week, the most since October 1999."
"Gold could reach $1,000 this week, Zeman said. The metal is up 8.5 percent this year."
"Silver futures for December delivery rose 97.5 cents, or 7.8 percent, to $13.45 an ounce on the Comex. The metal still has fallen 9.9 percent this year."
"The historical volatility of the Standard & Poor's 500 Index, or the rate at which a price moves up and down, was 54.9 percent in the past 10 days. The Dow Jones Industrial Average swung last week more than 1,000 points, trading as low as 10,459.44 on Sept. 18 and touching 11,483.05 the next day."
Government Intervention
The Federal Reserve has agreed to bail out U.S. insurer American International Group Inc. and backed a loan for JPMorgan Chase & Co. to purchase Bear Stearns Cos. Lehman Brothers Holdings Inc. filed for bankruptcy protection last week and Merrill Lynch & Co. agreed to be purchased by Bank of America Corp.
"``Gold is the only money not dependent on anyone's promise,'' said James Turk, founder of Goldmoney.com, which held $368 million in storage for investors at the end of August. ``This attribute will become increasingly important in the weeks ahead as this financial crisis continues to deepen because people become reluctant to have their wealth dependent on counterparty risk.''"
"The dollar fell as much as 2.3 percent against the euro today, the biggest drop since January 2001, on concern the federal government's proposed bailout will widen the budget deficit."
`Big Jump'
"``The big jump in gold and weakening in the dollar are indicative of fears that the trillion-dollar bailout now working its way through Congress will ultimately be monetized by the Fed,'' said Michael Darda, chief economist for MKM Partners LLC in Greenwich, Connecticut."
The Reuters/Jefferies CRB Index of 19 raw materials rose as much as 3.4 percent today after posting four straight weekly losses.
"``We are witnessing a tidal shift in sentiment,'' said Dennis Gartman, an economist and the editor of Suffolk, Virginia- based Gartman Letter. ``We shall look to own commodities in U.S. dollar terms, effectively swapping dollars for stuff.''"
"Gold headed for a record $1,033.90 an ounce on March 17 as a decline in the Fed's benchmark interest rate sent the dollar to an all-time low against the euro in July. The metal, which had increased as much as 23 percent this year, erased its gains for the year in August as the dollar rebounded against the euro."
"Interest-rate futures show a 39 percent chance the Fed will cut the main lending rate 25 basis points to 1.75 by Dec. 16, compared with no chance a month ago."
"``Now there are Fed rate cuts back on the table,'' said Zeman of LaSalle. ``The dollar's going to roll over hard.''"
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: September 22, 2008 14:16 EDT"
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"Australia, New Zealand Dollars Reach 3-Week Highs as Gold Rises "
By Candice Zachariahs
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Sept. 23 (Bloomberg) -- The Australian and New Zealand dollars reached their highest in three weeks as prices rose for commodities the nations export and the U.S. currency slid on concern the world's biggest economy is headed for a recession.
The South-Pacific currencies rose as the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials advanced by the most in a month. The greenback weakened against the euro in New York on concern a $700 billion plan to buy troubled assets from banks will inflate the budget deficit.
"``U.S. weakness overnight has been driving the Aussie,'' said Glenn Wittingslow, head of foreign-exchange options at St. George Bank Ltd. in Sydney. ``But over the short term I'd be willing to sell some Aussie and try and pick it up a little bit lower.''"
"The Australian dollar rose 0.8 percent to 84.14 U.S. cents at 5 p.m. in Sydney, from 83.47 cents late in Asia yesterday. It touched 85.19 cents, the highest since Sept. 2. Wittingslow said the currency may reach 83.50 U.S. cents and recommends buying at that price. The Australian dollar bought 88.76 yen from 88.73 yen yesterday."
"New Zealand's dollar reached 69.53 U.S. cents, the highest since Sept. 2, before trading at 68.85 U.S. cents from 68.74 cents yesterday. It bought 72.56 yen from 73.04."
The currencies gained on speculation the worst may be over for commodities that have dropped this quarter on slowing world economic growth and a stronger U.S. dollar.
"Gold, Oil"
"Gold, Australia's third most-valuable commodity export, yesterday advanced above $900 an ounce in New York after gaining last week by the most since October 1999. The November futures contract for crude oil, the nation's fourth most-valuable raw material export, yesterday exceeded $110 a barrel for the first time in more than two weeks. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments."
"The currencies also gained as the U.S. dollar traded near a one-month low against the euro. U.S. and Asian stocks tumbled, led by banks. The Standard & Poor's 500 Index lost 3.8 percent, erasing almost half of its rally over the previous two days."
"The Australian dollar ``vaulted higher overnight on the strength of the euro, rally in commodity markets and broad-based dollar selling,'' Nick Jonas, a Brisbane-based treasury analyst at Suncorp-Metway Ltd., wrote in a research note today."
Rapid Rally
"The Australian dollar has risen 6.4 percent since Sept. 16, strengthening today for a fifth straight day. Citigroup Global Markets Inc. advised clients to sell the Australian currency as its recent rally could ``snap back.''"
"``We still like the trade but it has come a very long way in a short period,'' wrote analysts led by Tom Fitzpatrick, global currency head of strategy at Citigroup Global Markets yesterday. He advised selling the currency at 84.96 U.S. cents, with a ``view towards re-entering on a dip.''"
"The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian dollar compared with those on a gain -- so-called net shorts -- jumped to 17,026 on Sept. 16, compared with net longs of 1,586 a week earlier, according to data from the Washington-based Commodity Futures Trading Commission. That was the largest short position on the Australian currency versus the U.S. dollar on record."
"Australian government bonds rose. The yield on the 10-year note fell 6 basis points, or 0.06 percentage point, to 5.768 percent. The price of the 5.25 percent security maturing in March 2019 rose 0.445, or A$4.45 per A$1,000 face amount, to 95.958. Bond yields move inversely to prices."
"New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.970 percent, from 6.965 percent yesterday."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: September 23, 2008 03:04 EDT"
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"European Bonds Rise; Regional Services, Manufacturing Contract "
"Sept. 23 (Bloomberg) -- European government bonds rose, with the 10-year German bund snapping a four-day decline, after a report showed manufacturing and services industries in the euro region contracted for a fourth month."
"The gains pushed the yield on the bund down from the highest level in more than a month as stocks in Europe and Asia slid on concern the U.S. government's plan to buy $700 billion of bank assets won't prevent a global recession. Royal Bank of Scotland Group Plc's composite index for Europe's manufacturing and services industries fell to 47 in September, worse than the 47.8 reading predicted in a Bloomberg survey."
"``The data today adds to evidence that the euro-zone economy is slowing,'' said Wilson Chin, a fixed-income analyst at ING Bank NV in Amsterdam. ``European bonds may also gain some ground after a massive sell-off. People are now questioning how the plan will work. Volatility remains high.''"
"The yield on the two-year security dropped 10 basis points to 3.93 percent as of 9:08 a.m. in London. The 4 percent note due September 2010 rose 0.18, or 1.8 euros per 1,000-euro ($1,472) face amount, to 100.13."
The yield on the bund declined 3 basis points to 4.23 percent. Yields move inversely to bond prices.
"The difference in yield, or spread, between the two- and 10- year notes widened 7 basis points to 30 basis points, signaling traders raised bets that the economy will slow."
Inflation Concern
Further gains in bond prices may be limited after European Central Bank President Jean-Claude Trichet said policy makers must focus on protecting the region from the inflationary dangers of rising oil and commodity prices.
"``We must prevent secondary inflation effects that can push up the growth of wages,'' Trichet said in an interview published today on the Web site of Hospodarske Noviny. The bank's goal is to slow inflation below 2 percent, he said in the interview."
"ECB policy maker Juergen Stark told Welt am Sonntag three days ago that cutting interest rates in the euro area won't help solve financial-market problems. The ECB's key rate is 4.25 percent, and the next rate announcement is Oct. 2."
"Two-year notes had their first weekly decline in a month last week as the U.S. government proposed measures to move tainted assets from bank balance sheets to calm turmoil in global financial markets, eroding demand for the safest securities. The two-year yield had its biggest one-day gain since at least 1990 on Sept 19."
Debt Auctions
"European government bonds lagged behind Treasuries this year. German debt has handed investors 2.4 percent, while U.S. government securities returned 4.2 percent, according to Merrill Lynch & Co.'s German Federal Governments and Treasury Master indexes."
Greece will auction 1.4 billion euros today of the existing 4 percent bond maturing in 2013. Germany is scheduled to sell 7 billion euros in new five-year notes tomorrow.
"Demand for European bonds may also be supported by speculation investors will need to make purchases of debt related to month-end index rebalancing, analysts at RBS said."
"On the last business day of each month, new securities sold during the period are added to bond-market indexes, prompting some investors to buy. RBS estimates that the iBoxx Euro sovereign index will have a duration extension of 0.03 years this month. Duration reflects the sensitivity of security's price to changes in interest rates."
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
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A blog for global investors, with information about most of the world financial markets. Updated frequently, every day, with my views on these markets. Bear or Bull? Read to discover!
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